Subsidy gulps Nigeria’s oil income as Norway reaps profit

While some of its peers including Abu Dhabi National Oil Company (ADNOC) and Norway’s Equinor have reported bumper profits, the Nigerian National Petroleum Company Limited
(NNPC) is struggling to generate enough oil revenue to cover petrol subsidy costs, which increased by 50 percent in the first six months of 2022.

With oil prices trading at over $100 per barrel, over 60 percent higher than a year earlier, national oil companies are reaping tens of billions of dollars due to a major surge in prices fuelled by the conflict in Eastern Europe and a months-long Western sanctions spree on Russia, a major global exporter.

Within the same period, new data from NNPC showed the federal government’s insistence on selling petrol well below half of the actual market price means Nigeria’s subsidy bill has risen by 51 percent from N210 billion in January 2022 to N319 billion in June 2022.

“Discussion surrounding Nigeria’s subsidy is getting stale; Norway, a country with an average of 2 million bpd, is boasting of significant earnings and more forward-thinking discussions,” said Luqmon Agboola, head of energy and infrastructure at Sofidam Capital.

Findings by BusinessDay showed Nigeria’s NNPC has the same oil production capacity as Norway’s Equinor. Equinor posted nearly $6.8 billion in net profit between April and June, up from $1.9 billion in the same period of 2021.
Second-quarter sales more than doubled to $36.5 billion, Equinor said.

“Equinor continues to provide high gas production from the NCS, including volumes from Hammerfest LNG, now safely back in production. Solid operational performance and high production combined with high prices resulted in strong financial results with adjusted earnings of more than 17 billion dollars before tax,” said president and CEO Anders Opedal.

Equinor’s board of directors has also decided to initiate a third tranche of share buybacks of $1.83 billion and increase the 2022 share repurchase programme from previously communicated up to $5 billion to up to $6 billion.

In the United Arab Emirates, the state-owned oil company’s net profit for the first half jumped by 34 percent to $379 million, while revenue increased 13 percent to $1.27 billion compared to the same period last year.

“Excellent half-year results and successful strategic execution are testaments to the vital role that the company is playing in enabling significant production capacity growth for ADNOC as well as the UAE’s objective to achieve gas self-sufficiency,” Sultan Al Jaber, ADNOC’s managing director, said.

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The company’s first-half earnings before interest, taxes, depreciation and amortisation (EBITDA) was $580 million, up 16 percent year-on-year, with a market-leading margin of 45.7 percent. Also, its EBITDA increased by 7 percent in the second quarter to $300 million for the period compared to the previous quarter.

Saudi oil giant Aramco saw its second-quarter net income surged to $48.4 billion, up from $25.5 billion a year earlier.

“Our record second-quarter results reflect increasing demand for our products — particularly as a low-cost producer with one of the lowest upstream carbon intensities in the industry,” Aramco President and CEO Amin Nasser said.

Brazil’s Petrobras smashed second-quarter profit and margin estimates, boosted by divestments and higher margins in its fuel and natural gas businesses, according to the firm’s financial statements.

In a securities filing, Petróleo Brasileiro, as the company is formally known, posted a quarterly net income of $8.86 billion, above Refinitiv’s estimate of $8.44 billion and almost 40 times greater than the same quarter last year.

The company’s EBITDA, adjusted for certain non-recurring factors, came in at $19.07 billion, up 58 percent in annual terms and well above the Refinitiv’s estimate of $16.1 billion.

In comments accompanying the figures, Petrobras attributed its results to strong Brent prices, as well as improved margins in its natural gas and fuels business, which includes gasoline, diesel and various other petroleum derivatives.

“Nigeria seems stuck with perennial issues while other state-owned companies are acting proactively to recent market development,” said Kelvin Atafiri who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector.

Pedro Omontuemhen, partner at PwC Nigeria, said the debate about liberalising petroleum products pricing should be an important discussion in the ongoing political activity climate.

“The real issue is the political decision – whether to liberalise the price or not. That is the biggest issue our politicians are not talking about,” he said.

Omontuemhen said the country must be willing to pay the market price and fix its refinery to solve its subsidy problem.

NNPC has failed to make remittances to the Federation Account Allocation Committee (FAAC) this year as the petrol subsidy bill surpassed oil earnings.

According to the national oil company, the value shortfall (subsidy) on the importation of petrol recovered from June 2022 proceeds is N319.17 billion while the outstanding balance carried forward is N1.4 trillion.

“The estimated value shortfall of N1.4 trillion (consisting arrears of N 479 billion-plus estimated June 2022 value shortfall of N1 trillion) is to be recovered from July 2022 proceed due for sharing at the August 2022 FAAC Meeting,” it said.