Four oil marketing firms’ prepaid expenses rise 34% to N3.9bn

The total prepaid expenses of four listed downstream oil firms on the Nigerian Exchange Limited rose by 34 percent last year, data compiled by BusinessDay shows.

According to the latest unaudited financial statements of Total Energies Marketing Nigeria Plc, Conoil Plc, MRS Oil Plc, and Eterna Plc, their prepayments increased to N3.85 billion from N2.87 billion in 2022.

TotalEnergies and MRS Oil recorded a surge in prepayment of 86 percent and 26.5 percent respectively.

Eterna recorded a 33.6 percent decline in prepayment and Conoil recorded a 22 percent decrease.

“The primary factor contributing to the decrease is limited cash flows,” said Jide Pratt, chief operating officer of Aiona and country manager of Trade Grid.

He said the reduction in sales has contributed to cash flow challenges in the oil and gas industry.

“The higher cost of purchase has made people buy fewer volumes. Oil and gas firms need more cash to pay for Premium Motor Spirit and fewer inflows of cash due to lower purchasing power can lead to cash flow issues for the firms,” he added.

In the oil industry, prepayment serves as a means to stabilise supply chains and mitigate price fluctuations. It is an accounting term for the settlement of a debt or installment loan in advance of its official due date. A prepayment may be the settlement of a bill, an operating expense, or a non-operating expense that closes an account before its due date.

Prepayment allows oil and gas firms to secure future deliveries by paying their suppliers upfront. This practice has become prevalent due to some factors such as commodity market volatility and geopolitical uncertainties.

Since Africa’s biggest economy embraced market-driven petrol pricing, facilitated by President Bola Tinubu, petrol prices have steadily risen due to factors such as currency devaluation and international price hikes.

The dependency on the state-owned Nigerian National Petroleum Company Limited for petrol supply has increased among oil companies, despite the objective of deregulation to diversify suppliers.

Fluctuations in the naira’s value have also affected petrol prices, alongside seasonal and operational costs related to refining, marketing, and distribution.

A depreciation in the rate of the naira makes petrol more expensive even if the international price of crude oil is unchanged.

Pratt noted that the heightened cost of business due to higher interest rates posed a threat to the survival of companies without a corresponding return on investment.

“Clearly, with interest rates being higher now, the cost of business for them is much higher, sadly without a commensurate return on investment threatens the continued existence of those companies,” Pratt said.

Analysis of individual firms

TotalEnergies Marketing Nigeria

TotalEnergies recorded an increase in its prepayment to N2.72 billion in 2023 from N1.46 billion in 2022.

The firm’s prepayment includes employee prepayment which rose to N2.70 billion from N1.41 billion, and prepaid rent decreased to N15.90 million from N44.99 million.

According to a statement by the company, its prepaid rent represents short-term leases that have chosen not to recognise as right-of-use assets.

Trade and other receivables increased to N152.11 billion from N111.39 billion, and trade and other payables rose to N214.10 billion from N190.09 billion.

It recorded a decline in after-tax profit to N12.91 billion from N16.11 billion during the period reviewed.

TotalEnergies formerly (Total Nigeria Plc) is a marketing and services subsidiary of Total which is a multinational integrated oil and gas company and one of the seven major oil companies in the world.

Total operates in 130 countries in the world including Nigeria where it supplies fuel for petrol engines, diesel engines, and kerosene.

MRS Oil

MRS Oil’s prepayment rose to N188.67 million in 2023 from N149.12 million in 2022. Its total borrowings amounted to N1.4 billion during the period and interest expense stood at N42.89 million related to overdrafts and short-term borrowings.

Trade receivables increased to N20.75 billion from N18.03 billion, while trade payables rose to N21.73 billion from N16.06 billion.

The firm’s after-tax profit also increased to N4.04 billion from N1.32 billion. It markets and distributes a range of refined petroleum products and lubricants in Nigeria for the automotive, industrial, and aviation sectors. Fuel products include petroleum motor spirit, automotive gas oil, dual-purpose kerosene, aviation kerosene, and low-pour fuel oil.

The company also sells a range of high-quality lubricants for petrol and diesel engines as well as greases which are manufactured and distributed out of a state-of-the-art proprietary blending facility located at Apapa.

Eterna

Eterna’s prepayment dropped to N204 billion in 2023 from N307 billion in 2022.

The firm’s prepayment includes prepaid rent which rose to N176.49 billion from N8.83 billion, other short-term payments also increased to N149.9 million from N130.7 million, and total prepaid rents dropped to N54.06 million from N176.5 million. Borrowings increased to N43.23 billion from N26.84 billion.

The company noted that its bank borrowings, classified as current, are denominated in Naira and USD, and obtained for various import finance facilities (IFF) and local purchase facilities (LPF) from different banks.

These short-term facilities are secured by a lien on products for resale, the group’s petroleum storage depot, and owned filling stations across the country.

Trade and other receivables decreased to N8.58 billion from N16.92 billion, while trade payables increased to N977 billion from N704 billion.

The firm recorded an after-tax loss of N11.97 billion from a profit of N2.09 billion.

Eterna manufactures and sells a range of lubricants and petroleum products as well as supplies imported fuels for the retail, industrial, agricultural, automotive, marine, and energy sectors in Nigeria.

The trading division bulk imports and sells premium motor fuels and automotive gas oil, dual-purpose kerosene, base oils, and bitumen. low pour fuel oil and crude oil.

Conoil

Conoil’s prepayment dropped to N74.83 million in 2023 from N96.12 million in 2022.

The prepayments represent rents paid in advance to property owners where Conoil conducts business across various locations in Nigeria. Borrowings grew to N37.59 billion from N31.46 billion.

Trade and other receivables increased to N71.54 billion from N50.98 billion. Trade payables rose to N37.95 billion from N31.47 billion. Conoil’s after-tax profit increased to N9.63 billion from N4.95 billion.

Borrowings increased to N37.59 billion from N31.46 billion.

Trade and other receivables surged to N71.54 billion from N50.98 billion while trade payables increased to N37.95 billion from N31.47 billion.

The firm’s after-tax profit increased to N9.63 billion from N4.95 billion.

Conoil is a petroleum exploration and production company in Nigeria that extracts, produces, and sells crude oil as well as supplies a range of lubricants and household and liquefied petroleum gas for use by the domestic and industrial sectors.

The company supplies what is referred to as white products, which are premium motor spirits, aviation turbine kerosene, dual-purpose kerosene, low-pour fuel oil, and automotive gasoline/grease oil.