Earnings of dominant downstream oil and gas companies operating in the country are slowing to the lowest levels since 2013 after a jump in 2016 as these firms are adjusting to the new reality of the new template by regulators.
Operators in the sector lost revenue as the Nigeria National Petroleum Corporation (NNPC) began an almost 100 percent importation petrol due to rising crude oil prices.
For the year ended December 2017, after tax profits for the 6 major players in the industry that have reported results increased by a mere 3.73 percent to N32.73 billion from N31.53 billion the previous year.
This compares with a 67.84 percent increase in profits they recorded in the 2016 period.
The firms are; Total Nigeria Plc, Mobil Oil Nigeria Plc, Conoil Nigeria Plc, MRS Nigeria Plc, Forte Oil Nigeria Plc and Eterna Oil Nigeria Plc. The downstream oil and gas business has been very tough as these firms operate on a very tight margin. Premium Motor Spirit (PMS), a major source of revenue has been regulated, according to Olalekan Olabode, head of research at Vetiva Capital Management.
“The drivers of 2016 figures were due to the devaluation of the currency. In May that same year we saw the liberalization of the sector which saw pump price move to N145 per litre from N87 per litre. That decision also helps underpin sales based on the volume they had then,” said Olabode.
“In 2017 when oil prices went up most of the importation has been done by the NNPC and that has undermined revenue,” added Olabode.
While marketers’ margins take a one or two punch from the above scenario, analysts fret that NNPC may be unable to meet the demand of the entire country with rising population that crave for consumption. Nigeria’s daily fuel consumption for the month of May stood at 50.83 million litres, according to a recent report by the ministry of Petroleum Resources.
Nigerian consumers of Premium Motor Spirit (PMS) or petrol paid an average N150.2 per litre for the product in May.
This is -0.8 percent less than the average N151.4 paid in the previous month from N163.4 recorded in March 2018, as compiled from the National Bureau of Statistics (NBS) figures. The average price of petrol also decreased by 0.3 percent when compared to the average price of N150.7 recorded for May 2017.
The share price of these firms have been moving in tandem with earnings performance in the last five years.
For instance, Total’s share price hit an all-time high of N330 as at October 28 2016, but nosedived to N193.12 as at the last trading day of June 19 2018.
Similarly, Mobil’s Oil’s stock as traded at N324.33 as at December 2 2016, but touched down at N183 on the last trading of June 19 2018.
Forte Oil’s share price hit an all-time high of N342.19 in February 2 2016, but traded at N35.15 as at June 19 2018.
The old template whereby firms import and government pay them for importation was favourable, according to an industry expert who doesn’t want his name mentioned.
According to the Group Managing Director of the NNPC Maikanti Baru, the current Landing price of petrol is N171 per litre, meaning that at N145 per litre, the Federal Government is currently paying a subsidy of N26 on a litre of the commodity.
“Landing Cost of PMS, the Cost, Insurance and Freight price of PMS was $620 per metric tonne,” said Baru, adding that “at N305 to a dollar, the landing cost translates to N171 per litre.”
