Oil and gas firms are expected to deliver full year profit margin of 9.26 percent from 2.36 percent recorded in the corresponding period of 2017, according to data gathered from Bloomberg Terminal.
Similarily, Bloomberg Intelligence also expects full year return on equity (ROE) of 24.59 percent as against 7.36 percent the corresponding period of 2017.
Experts are of the view that firms third quarter will be a reflection of full year results because the environment was uncharacterically benign for the most part of the year.
This is because there were no disruptions of oil facilities in the Niger Delta region and fuel scarcity brought on by delay in the payment of subsidy monies.
Seplat Petroleum Development Corporation Plc has done a good job by adjusting its budget to the lower oil price environment.
Crude’s collapse forced Nigerian upstream oil and gas companies to slash spending, reduce costs, and delay projects, a decision that has paid off as some of them delivered double digit returns to their owners.
Seplat’s free cash flow surged by 685.13 percent to $99.70 million in September 2018, from $12.70 million the as at December 2017. Cash flows were beaten down in 2016 when oil prices were at an all-time low of $23 per barrel while damages to Forecado terminal by Niger Delta militants resulted in loss of investment.
Brent crude oil trades at $62 as at 2:00 pm while West Texas Intermediate stood at $55 a barrel, according to data gathered from Bloomberg.
Global ratings agency- Flitch- has upgraded the Seplat to ‘B’ after further progress in de-risking its business.
“The stable outlook reflects Seplat’s comfortable debt position and its ability to grow the business both organically and inorganically in the coming years without weighing on the rating,” according to the ratings agency.
The proportion of debt on the capital structure of the company is low as debt to equity ratio fell to 34.86 percent in September 2018 from 51.66 percent the previous year.
Analysts at Afrinvest in their 2018 upstream oil and gas outlook placed Buy ratings on Seplat, but added that future earnings will depend on stable oil production and an improvement in uptime to an average of 80.0%, the success of the company’s diversification in its export rout, and stability in oil prices above $50.0/barrel and persistent improvement in gas production.
Downstream oil and gas companies are adjusting to a new business model after Nigeria National Petroleum Corporation (NNPC) changed the template such that the corporation is sole importer of petroleum products.
The new template is however a boon for companies because they are no longer borrowing to cover subsidy costs; it means they can better manage liquidity without the need to lock horns with government over prompt payment of subsidy monies.
However, the fact that NNPC now handles importation means it will now dictate margins to the companies, hence industry operators will have to manage costs to improve profitability.
Total Nigeria Plc recorded profit margins of 2.82 percent in September 2018, this compares with 1.98 percent recorded the corresponding period of 2017.
However, return on equity fell to 10.87 percent in the period under review from 41.12 percent the previous year.
Mobil Nigeria Plc or 11 Plc’s profit margin fell to 6.19 percent in the period under review from 6.62 percent the previous year while return on equity increased to 38.03 percent in September 2018 as against 31.45 percent the previous year.
Forte Oil’s net margin increased to 21.60 percent in the period under review from 17.37 percent recorded in the corresponding period, thanks to N9.0 billion profit realized from disposal of one of its subsidiaries.
NSE oil and gas index is down -5.36 percent, underperforming NSE ASI of 0.32 percent
