Published On: Mon, Jun 11th, 2018

Rising Price of Crude: Mixed performance trail Oil and Gas companies

By OKEY ONYENWEAKU

Contrary to investor expectations the Oil and Gas sector of the local stock market is failing to provide the market with the boost needed to shake it out of a bearish rut. Indeed, the sector seems to be in a depressed mood that even global oil price increases have found difficult to dislodge as stock prices of large-tier oil marketers drop like pins from a leaky pocket. After five months of activity the sector has shown major weakness.

As at the close of business last week June 7, 2018, the sector showed tepid growth. Not even acrude oilprice of $76.39(62 per cent above the 2018 budget benchmark price of $47 per barrel) could turn the sectors frown into a smile.

The oil and gas sector, according to the markets main board, gained 3.12 per centyear-to-date yield which is a far cry from the 42 per cent total market yield posted at the end of 2017.

However, a sector like the banking sector has sprinted ahead nicely edgingpast the oil and Gas sector which is considered to be the main revenue stay of the country.

While the All Share Index (ASI) gained 2.09 per cent, the banking sector chalked upa nifty 3.2 per cent, while the Insurance sector racked in a 0.32 per cent gain. On the flipside, the Consumer Goods sector lost -9.05 per cent of its value,as the Industrial index pulled off a fairly decent 2.6 per cent improvement.

While the price of crude closed at $76.7pbd last Friday, the question on the lips of many stakeholders is why the sector is still limp?  A few analysts have attributed the weak performance of the Oil and Gas sector of the market to the weak economy.

Companies in the oil and gas sector include; Seplat Petroleum Development Company Plc, Conoil Plc, Forte Oil Plc, MRs Oil Plc, Total Plc and 11 Plc.

While majority of the oil and Gas companies have attracted substantial capital gains, shareholders of a few of them are licking their wounds, due to loses. In the last five months, Seplat Development Company Plc has gained 13.5 per cent, Conoil Plc 14.2 per cent, Total Nigeria 15.9 per cent, 11 Plc 10.43 per cent. On the contrary Forte oil lost -11.90 per cent, while MRs oil -24.7 per cent

Nigeria’s current economic woes was primarily kick-started by the petroleum sector, which was and still is the major source of foreign exchange earnings for the country and the key driver of growth.

While there isa general hike in prices, inflation has moderated a bit, trade and industrial activity including export declare have bounced forward. However, unemployment is still very high, while Gross Domestic Product, GDP, figures is picking up though very slowly at 1.95 per cent in the first quarter 2018.

A worker inspect facilities on an upstream oil drilling platform at the Total oil platform at Amenem, 35 kilometers away from Port Harcourt in the Niger Delta. Amenem is the hub of Total oil production with two oil well producing over 100,000 barrels of crude daily. AFP PHOTO / PIUS UTOMI EKPEI (Photo credit should read PIUS UTOMI EKPEI/AFP/Getty Images)

OIL COMPANIES RESULTS

Total Nigeria Plc

Oil marketing major, Total Nigeria Plc achieved decline in profit Before Tax by 38 per cent from N4.250 billion in 2017 to N2.629 billion in the first quarter 2018. Revenues also dropped by 5.9 per cent from N80.463billion in March 31, 2017 to N75.646billion in 2018. At the close of business in March 31, 2017, Total Nigeria’s profit after Tax plunged 37.5 percent from N2.672 billion to N1.669 billion in 2018.

The company also recorded a slump in its annual performance for the period ended December 2017 as pretax profit dropped 42.0 percent to N11.79 billion from N20.35 billion recorded a year earlier.

Post-tax profit followed the same trend as it dipped 45.8 percent to N8.01 billion from N14.79 billion declared in the 2016 financial year end (FYE).

Total Nigeria said revenue of the company depreciated from N290.95 billion in 2016 end to N288.06 billion in the review period of 2017; indicating a marginal decline in revenue of 1.0 percent.

Meanwhile, the company paid a dividend of N14.00 per share to its shareholders, compared to N7.00 paid in the previous year.

Forte Oil

Forte Oil Plc which plans are to sell its upstream services and power businesses in Nigeria and divest from Ghana in order to focus on its core fuel distribution operation in the country, said proceeds from the divestment would be used to expand its downstream fuel distribution business and also invest in storage infrastructure.

The company achieved N2.963 billion in profit after tax for the first quarter ended March 31, 2018, representing 57.27 per cent increaseover N1.884 billion in the first quarter of 2017. Revenue grew by 20.63 per cent to N39.81 billion from N33.003 billion in 2017 while cost of sales gained by 21.36 per cent to N33.01 billion from N27.2 billion in the corresponding period of 2017. At the close of business in the Q1, Forte Oil’s gross profit rose to N6.8 billion as against N5.8 billion in 2017.

Forte Oil Plc post-tax profit for the period ended December 31, 2017 also grew 323 percent to N12.22 billion from N2.89 billion in the corresponding periodof 2016

Pretax profit of the company increased significantly by 99 percent to N10.62 billion from N5.32 billion declared the corresponding period.

Revenue declined from N148.60 billion in 2016 to N129.44 billion in 2017; representing drop of 12.9 percent.

MRS Oil Nigeria Plc

Shareholders of MRS Oil Nigeria Plc will takehome a 20 per cent increase in their shares as the board of the oil-marketing company promises to distribute bonus shares on the back of a N2.38 billion tax gain.

Its board stated that it recommended the distribution of bonus issue of one new ordinary share for every five ordinary shares held by shareholders as at the close of business on July 6, 2018. Details reveal the distribution of 50.8 million ordinary shares to shareholders. This exercise is expected to increase the bonus issue of MRS Oil Nigeria’s issued share capital from 253.99 million ordinary shares of 50 kobo each to 304.789 million ordinary shares of 50 kobo each after listing.

MRS Oil Nigeria for the year ended December 31, 2017 had posted poor result which showed a pre-tax loss of N996.61 million. However, the tax windfall, tax write-back or gain of N2.38 billion in 2017,helped the company achieve net profit to N1.39 billion.

MRs Oil’s turnover dropped marginally from N109.64 billion in 2016 to N107.09 billion in 2017. Profit before tax reversed from N2.29 billion in 2016 to a loss of N996.61 million in 2017. Tax gain stood at N2.38 billion in 2017 as against tax provisions of N821.44 million in 2016. Earnings per share stood at N5.45 in 2017 compared with N5.77 in 2016.

SEPLAT

Seplat Petroleum Development Company Plcposted a 282 per cent growth in Revenue of N55.2 billion in March 2018 from N14.5 billion achieved in 2017.

The Group explained it has adopted IFRS 15 as issued in May 2014 which has resulted in changes in accounting policy of the Group. IFRS 15 replaces IAS 18 which covers revenue arising from the sale of goods and the rendering of services, IAS 11 which covers construction contracts, and related interpretations. The group’s revenue from contracts is inclusive of Crude oil (78 percent) and Gas (22 percent) sales.

Its Net gains on foreign exchange rose 8 per cent to N572 million from N529 million over the previous year’s performance.Basic earnings per share increased to N10.68 from a loss per share of N10.39 in the previous period.The company returned to profitability as profit rose to N6.3 billion from a loss position of N5.9 billion in March 2017.

At the close of business in December 31, 2017, net assets improved 1.2 percent to N465 billion from N460 billion.

The company paid an interim dividend of NGN15 (US$D 0.05) per fully paid ordinary share. The aggregate amount of the proposed dividend expected to be paid out of retained earnings as at 31 March 2018, but not recognised as a liability at period end, is N9 billion; USD 29.4million as against none proposed for 2017.

“We have made a good start to 2018. Our core production base remains strong and predictable, the gas business has once again set a new record for quarterly revenue contribution and the steps we took to refinance the balance sheet have significantly strengthened our liquidity position and will allow investments to be scaled up’’, Austin Avuru, Seplat’s chief executive officer, said.

11 Plc

11 Plc (formerly Mobil Oil Nigeria Plc) posted Revenue of ₦45.08 billion for the period ended March 2018 compared to ₦25.17 billion achieved in the corresponding period ended March 2017, representing a 79% increase for the comparative period in 2017.

Profit before tax increased by a whopping 9,381% from N43.34 million in March 31, 2017 to N4.08billion in 2018

The company’s profit after tax for the period ended March 2018 rose by 21.100% to ₦2.76 billion in 2018 from ₦13.06 million achieved in March 2017 while earnings per share increased by 19000% to  764 kobo for the period ended March 2018 from 4 kobo as at March 2017.

Analysts believe that the general weakness of the economy in Nigeria is not favourable to any sector. Apart from the apprehension in the market, foreign investors have also pulled out a substantial part of their funds from the market for fear of deeper losses. Many observers think there is huge uncertainty in the air given the coming 2019 election. Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the crunch in the economy as the major challenge in the market.

The development may have put pressure on the market which has further been weakened by investor apathy and lack of confidence. Managing Director of Crane Securities & Investment limited, Mr. Mike Ezeh, reckons that low demand for stocks generally, induced by lack of money is also affecting Petroleum Marketing shares. He explained that with limited funds investors would prefer to buy shares which values are lower than oil and gas shares with higher prices. David Adonri of Lambeth Trust & Investment Limited believes that in addition to low trading, the Petroleum stocks lack liquidity. A big investor, Mr. Fred Nwaogazi, thinks that the Petroleum Marketing companies are only down -stream players and mainly importers of fuel, adding that they cannot benefit from the oil windfall since they are not main-stream participants.

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