National oil companies around the world are reporting better financial performance, even declaring dividends despite lower oil prices and the coronavirus pandemic, but Nigeria’s state-owned firm, the NNPC, still struggles to improve earnings.
Nigeria’s financial dependence on oil is no secret. The slump in oil prices has hit government finances hard, leading it to rely even further on borrowing to finance its spending, but the uncompetitive nature of the NNPC leaves Nigeria more vulnerable to oil shocks.
State-owned Nigerian National Petroleum Corporation (NNPC) has the same oil production capacity as Norway’s Equinor, but that is where the similarity ends. Equinor reported adjusted earnings of $0.78 billion and $0.27 billion after-tax in the third quarter of 2020 while a cash dividend of $0.11 per share is expected to be paid out in the same period.
“We see the results of our forceful response to the market turmoil, with significant cost improvements and strict financial discipline. Net impairments in the quarter are mainly due to reduced price assumptions,” Eldar Sætre, president and chief executive of Equinor ASA, said.
Equinor delivered total equity production of 1,994 million per day in the third quarter, up from 1,909 mboe per day in the same period in 2019, with an increased share of gas – an underlying adjusted production growth of around 9 percent.
So far this year, Equinor has completed 26 exploration wells, with 13 commercial discoveries, while there are a further two wells under evaluation.
Equinor is also on track to deliver on the action plan launched in March 2020 of $3 billion to strengthen financial resilience, including a reduction of operating costs of $0.70 billion.
In Malaysia, the state energy firm Petronas will pay the government a dividend of $8.2 billion in 2020, despite posting losses in the second quarter of 2020.
The Malaysian state-owned firm posted a loss of $5.1 billion (21 billion ringgit) in the April-June period, its first quarterly loss in nearly five years, amid weak demand and lower oil prices due to the coronavirus pandemic.
In Saudi Arabia, Aramco declared a dividend of $18.75 billion for Q3 2020 despite recording a net profit of $11.8 billion for the quarter, down by 44.6 percent on the year as low oil prices continued to bite into its financial performance.
Saudi Aramco also said it had free cash flow of $12.4 billion at the end of the three-month period.
Integrated oil companies net off losses incurred when crude prices dip with better refining margins and conversely during an oil rally, but these gains continue to elude Nigeria’s state-owned NNPC.
According to figures from NNPC’s operations and financial report for 2018 actuals, modest gains of N204 billion made by its upstream and gas processing subsidiaries such as the Nigerian Petroleum Development Company (NPDC), National Engineering & Technical Company Limited (NETCO), Nigerian Gas Company Limited (NGC), RETAIL and Petroleum Products Marketing Company (PPMC) were wiped off largely by its downstream subsidiary operations and non-functioning refineries which recorded deficits north of N270 billion.
“Dominating the increased deficits posted by all other Strategic Business Units (SBUs) including Central Headquarters (CHQ); for reasons around low sales volume, reduced debt collection and high average product landing cost,” NNPC said in its latest 2020 August Financial statement.
The combined value of output by the three refineries (at Import Parity Price) for the month of August 2020 amounted to approximately N0.70 billion. No associated crude plus freight cost for the three refineries since there was no production, but operational expenses amounted to N7.78 billion. This resulted in an operating deficit of N7.09 billion by the refineries.
“We have a systemic problem. The complexity of government is huge, and there is a need for better coordination. As a nation, we need to solve governance issues, in terms of directors, roles, and responsibilities of NNPC and its subsidiaries,” Yinka Akinbowale, CEO at Sofidam Energy Resources Limited, said.
“This is where the discussion about transparency and accountability in the operations of the NNPC comes in,” he said.
NNPC’s situation is worsened by crude oil theft and over 806 vandalised points recorded between August 2019 and August 2020.
“Products theft and vandalism have continued to destroy value and put NNPC at disadvantaged competitive position,” NNPC admitted.
Unlike Equinor and Petrobras, which are mixed-ownership NOCs with government and private shareholders, Petronas and (to all intents and purposes) Saudi Aramco are wholly government-owned like NNPC.
Private shareholders in both Petrobras and Equinor are entitled to nominate their own directors onto the board, unlike NNPC whose board of directors are easily seen as political appointees.
Both Petronas and Saudi Aramco value diversity of expertise on their leadership teams or boards. In particular, five of the current 11-member board of Saudi Aramco are independent directors.
