Earnings of the largest major oil marketers have gone up in flames, as a once lucrative industry is gradually becoming unprofitable. While these companies declare huge profit, accelerating input costs and huge debt obligation makes it difficult for them to deliver higher returns to shareholders in form of share appreciation and bumper dividend.
Analysis by of the financial statement of 5 largest players in the industry (Total Oil Nigeria Plc, 11 Nigeria Plc, Forte Oil Nigeria Plc, Conoil Plc, and Eternal Oil Nigeria Plc) shows combined net income fell by 16.19 percent to N10.89 billion in June 2019 from N13.0 billion as at June 2018.
A myriad of challenges have continued to undermine earnings of downstream oil and gas firms, as margins are increasingly deteriorating.
The rally in crude oil price in the fourth quarter of 2016 and subsequent devaluation of the Naira resulted in higher landing costs have taken food away from the table of companies, while failure of government to refine petroleum product to meet local demand is undermining industry growth.
Also, the delay in subsidy payments by federal government worsened the financial capacity of companies to import as banks refused to extent further credit because of high defaults.
Average industry operating profit margin, a measure of operating efficiency, reduced to 3.33 percent in June 2019, from 4.28 percent in June 2018.
The strongest margins (6.97 percent) were recorded in 2016, thanks to the introduction of a special exchange rate by government and rebound in crude oil price.
Total Nigeria is the hardest hit from the pangs of a tough business environment as analysts expect it to record its first loss in more than decade, which could undermine dividend payment of a company that has been consistently rewarding shareholders from distributable profit.
Total Nigeria profit fell to 97.70 percent to N129.13 million in June 2019 from N5.67 billion as June 2018, the steepest slump in 5 years, according to data compiled by Businessday.
The downstream oil and gas firm has a negative cash flow from operating activities of N9.85 billion as at June 2019, which means it lacks the financial strength to pay future dividend, fund expansion plans, and settle debts. However, capital injections by owners could bolster a weak liquidity position.
Total Nigeria may not be able to generate cash to satisfy its debt obligation as debt to equity ratio has hit a time high of 200.10 percent in June 2019; the simple translation is that debt is 2 times equity.
The disagreement between the Federal Government and depot operators over pricing template causes fledging fuel crisis as petroleum markers hoard Premium Motor Spirit (PMS). Analysts are of the view that removal of petrol subsidy will help government liberate itself from the current fiscal struggles and give it the way to free up more funds that can be channelled to more productive sectors of the economy.
According to the latest data from the NNPC, Federal Government spent N650.20 billion in subsidising PMS, a figure that is 79.20 percent of N820.0 billion government earmarked for capital spending in the in the 2018 budget as presented.
The landing costs for litre of petrol according to marketers hovered between N170/litre and N200/litre in the second quarter of 2019.
