Published On: Sun, Feb 25th, 2018

CRUDE PRICE RISE: Shares of oil sector remain weak

OKEY ONYENWEAKU

 

Despite the rise in international oil prices, stocks in the Oil and Gas sector still look limp. At the peak of the equity surge last year the market closed at a fast paced 42 per cent annual rise, compared to the Oil & Gas sectors stingy 6.2 per cent. The sector has continued to suffer severe setbacks that have kept it in the doldrums. Average stock gains have been about 5 per cent year- to- date (YTD) compared to gains of a sizzling 20 per cent in the banking sector.

The oil & gas sector could be said to be showing weak signs of recovery, but its gains do not reflect emerging price realities in global markets.

The price of crude suffered major drawbacks since early and mid 2017. But that has changed slightly as the price of crude now rests at an average price of $66 per barrel.

Unfortunately, the local shares prices of oil & gas stocks do not reflect this market improvement.

For instance, 11 Plc has lost -2.3 per cent year to date from N194.60 per share on January 2, 2018 to N190.00 per share on February 21, 2018 while Conoil Plc has gained 14.6 per cent. MRS Oil also declined by 1.67 per cent year to date. Eterna Oil , Forte Oil and Seplat have advanced 36 per cent, 7.1 per cent and 9.4 per cent respectively. Total Nigeria, one of the highest valued stocks in the Petroleum sector has lost 5.37 per cent.

Analysts are of the view that since Nigeria is mainly an oil and gas economy, the market performance of the sector should serve as an indicator of the overall health of the economy. Its continued sluggishness reflects internal problems plaguing the economy.

Interestingly, shareholders have mixed views on what the oil and gas subsector of the market has offered them lately. Commenting on the performance of the sector, Chairman Progressive Shareholders’ Association of Nigeria (PSAN), Mr. Okezie Boniface believes the Oil and Gas companies have not performed impressively since the economy tanked in 2014. Okezie explained that what has burdened the sectors companies is the huge sums that the government owes them regarding the importation of fuel during an earlier fuel subsidy regime.

According to him, ‘’ since then the companies have struggled to stay afloat’’.

‘’For those of them that are Upstream, the volatile price of crude has been affecting their bottom line. Oando has been generating a lot of interest and its results look good’’, Managing Director, High Cap securities, Mr. David Adonri

After performing well in 2010, the Oil & Gas subsector of the capital market has remained weak. Investigations by BH last week revealed that the worst may not be over for the beleaguered sector. Regretfully, this sector closed last year on a very feeble note compared to the market.

Investors are worried that the situation is not changing for good fast and be in tandem with the crude oil trend. Fortunately, the market is generally high and had closed on the positive note of 42%  and investors seem to be creaming off  higher returns. Perhaps the fixed income securities appear to have lost favour for investors currently. Individual stocks of the Oil & Gas companies have not done  significantly well.

Whereas the Nigerian currency ‘the Naira’ is still weak against other currencies of the globe, Broad street analysts blame the mono-economy as the major challenge impeding good growth.

Nevertheless, Mr Abiye Membere, the former Executive Director (Exploration and Production) in NNPC, noted that the focus of the stakeholders’ attention should be on mode of operations in the oil and gas sector.

“The oil and gas industry didn’t start well; basically, what we are doing in the last decade is to correct the anomalies.

“We started the oil and gas industry in Nigeria only looking for oil as if the gas aspect was not important.

“What has been happening in the last 50 years is that there is a major oil infrastructure in place but the gas infrastructure is still lagging behind,’’ he said.

They noted that the sector is also affected by inadequate finance, poor policy implementation, professional knowledge gaps and low capacity building.

Stakeholders have also listed some of the challenges as crude oil theft and pipeline vandalism. They underscored the need for the sector to surmount the challenges and maintain its position as Africa’s leading gas and oil producer.

Industry observers believe the remote determinant of the sector’s fortunes is linked to the performance of crude oil in the international market. They explained that the sector performed its best in 2008 when crude oil price stood at over $147 pbd.

 

Forte Oil Plc

Forte Oil Plc posted a profit of N5.073 billion for the nine months financial year ended September 30, 2017.

Details showed an increase of N2.277 billion or 81.44 per cent compared with N2.

796 billion reported December 31, 2017.

The company’s profit before tax fell from N5.633 billion recorded in December last year to N5.585 billion in the nine month, representing a drop of N48 million or 0.85 per cent.

Its gross profit also grew from N15.495 billion in December to N16.908 billion within the period under review while operating profit increased to N9.706 billion from N7.866 billion.

Its finance income went up from N1.275 billion to N1.509 billion, indicating a growth of N234. 0 million or 18.35 per cent.

Earnings per share declined from 2.27 kobo to N0.50 kobo.

 

CONOIL Plc

Oil marketing major, Conoil Plc said on its pre-tax profit for the period ended September 30, 2017 depreciated 25.4 percent to N2.02 billion from N2.71 billion posted the same period of last year.

Post-tax profit for the period of the oil marketing firm, also declined 25..0 percent to N1.35 billion from N1.80 billion declared the same period of 2016.

Revenue of the company increased from N63.95 billion in the third quarter of 2016 from N70.22 billion in the review period of 2017; indicating a growth of 9.8 percent.

 

Oando Plc

Oando Plc recorded impressive third quarter 2017 financials as turnover increased by 16 per cent to N383.5 billion from N329.9 billion in comparative period of 2016.  The company also reduced  its debt by N18 billion, from N247 billion as at December 2016 to N229 billion.

The company’s gross profit increased by 148 per cent to N71.2 billion from N28.6 billion, while profit-after-tax increased by 120 per cent  to N7.1 billion from a loss of (N35.8 billion) in Q3 2016. Commenting on the results, Wale Tinubu, Group Chief Executive, Oando Plc said: “After five consecutive quarters of contraction, Nigeria’s official exit from the recession buoyed by improved performance in the oil, agriculture, manufacturing and trade sectors of the economy is laudable news. “The continued increase in oil prices to a 2017 high of $58 in September, coupled with ongoing peace efforts in the Niger Delta have significantly impacted our 4th successive profit declaration.”,

Said Wale Tinubu, Group Chief Executive, Oando Plc

According to him, “Our third quarter financials are reflective of the continued implementation of our strategic initiatives of growth through our dollar earning upstream portfolio; deleverage through recapitalization and asset divestments and the expansion of our oil export trading business.

 

Eterna Oil Plc

Eterna Oil Plc’s results for the third quarter ended 30th September 2017 achieved profit of N2.974bn , representing 20 per cent over the N2.471bn achieved in 2016. Its profit after tax also grew by 20.4 per cent from N1.680bn in 2016 to N2.022bn in 2017. While revenues leapt by 73.7 per cent to N125.4bn, Earnings per share rose 20.2 per cent.

Eterna Plc, a quoted public limited integrated energy company engages in the manufacturing and sale of lubricating oils, importation and bulk/retail sale of petroleum products including PMS, AGO, LPFO, base oils, bitumen and export of lubricants/fuels, bunkering, Gas distribution and marketing (LPG and NG), Offshore and Onshore oil services, Gas Processing, equipment supply services and other engineering and technical services for the energy industry.

Total Nigeria

Total Nigeria (Total) reported Q3 2017 results  showed a disappointing performance in the period October 2017. Analysts observed that the company recorded declines across all key P&L line items. According its results,  sales of N68.3bn declined -9% y/y, PBT and PAT of N2.4bn and N1.3bn both declined by -42% y/y and -50% y/y respectively. Proshare reckons that  ‘’These y/y declines are unsurprising given the strength of Total’s Q3 2016 performance, a period the firm, as well as other major marketers, benefitted from the FG’s fx preferential treatment. The topline decline was driven by a double-digit y/y fall in sales to N50.8bn at service stations’’,

‘’ In 2018, we anticipate steeper competition within the downstream sub-sector of oil & gas industry due to relatively better access to fx for product importation’’, added Proshare.

Total Nigeria Plc distributes and markets refined petroleum products and fuels. The company further sells LPG and operates lubricant blending plants in Nigeria.

However, with the strong optimism that the economy will recover strongly this and reduce the non-performing loans that are trapped in the oil and gas industry and give the industry a breathing space.

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