Poor returns for oil and gas investors

FELIX OLOYEDE |

Analysts have lowered their dividend expectations for oil and gas companies at the end of the year. The downward dividend revision is in spite of the lively performances of some companies. Top among the short list of oil companies that have declared large dividend payouts in spite of an economic downturn are 11Plc. (former Mobil Oil Nigeria Plc), and French oil major, Total Oil Nigeria Plc. Both oil majors have not only seen significant capital appreciation in 2017, but they have also maintained consistently attractive dividend payouts.
Going by their six months (H1) results, investors in the oil and gas sector may witness a significant drop in dividend payments one year forward.
Total Oil Nigeria Plc. is the only other oil and gas company listed on the Nigerian Stock Exchange (NSE) that has given investors double digit dividends consistently over the last five years.
Analysts have concluded that the French oil major may not be able to pay as much dividend as it paid last year as its profit for the period was almost halved in H1 2017, dipping -48.44 per cent to N4.61 billion against N8.93 billion in H1 2016 due to administrative expenses and finance cost that rose 17.16 per cent to N N8.75 billion and 273.51 per cent to N1.03 billion during this period.
The company’s revenue only increased 5.15 per cent to N152.97 billion in H1 2017 (H1 2016: N145.48 billion), slowed down by weaker growth in the petroleum product sales, which was up just marginally 0.55 per cent to N127.98 billion.
Commentators at Reuters projected that Total Oil dividend would decline -28.57 per cent at the end of 2017, but would appreciate 2.13 per cent in the next five years.
Over the last five financial years, the company’s dividend sprouted54.55 per cent from N11 in 2012 to N17 in 2016. Last year’s dividend was 21.43 per cent better than the N14 paid in 2015.
“Despite the unimpressive earnings of TOTAL, 11PLC and CONOIL in the year so far, we are still very optimistic as regards their dividend paying prospects on the back of their consistent payment culture historically alongside our outlook on the medium to long-term performance of these companies.
“We therefore, still expect an interim and final dividend for Total, and as such arrived at a forecasted total dividend of NGN15.00/share for FY2017. For Conoil and 11Plc, our expected dividends for FY2017 are NGN1.50/share and NGN6.80/share respectively,” Meristem Securities Limited Research Department told Business Hallmark in an email.
MrKayodeTinuoye, Portfolio manager/Head of research, United Capital Plc told Business Hallmark that oil majors in the country would still pay dividends at the end of year.
“We don’t have the third and fourth quarter results, there is possibility that there may be turnaround in their performance and they would declare better dividends than they declared last year,” he postulated.
Tinuoye is optimistic that Total, 11 Plc, Conoil and even Seplat would declare dividend at the end of the year.
Despite the fact that the country’s economy shrank the most last year, the oil marketing outfit rode above this and achieved one of its best financial performance in recent years. Coming of two years consecutive decline in profit-after-tax (PAT), Total Oil’s PAT leaped 213.35 per cent to N20.35 billion in 2016 from N6.5 billion in the previous year. This sterling performance was underpinned by 39.86 per cent rise in revenue to N290.95billion boosted by 38.02 per cent and surge in petroleum products sales to N251.99 billion and 53.04 per cent increase in revenue from lubricants and others to N38.97 billion in 2016. Other income also rose 20.33 per cent to N1.45 billion during this period.
11Plc has been paying out good dividends in the last five financial years.Its dividend payoff has increased 60 per cent in the last five years from N5 in 2012 to N8 in 2016. And it was up 11.11 per cent year-on-year at the end of 2016 in the face of the economic headwind, having paid N7.20 in the preceding year.
This improved dividend in 2016 stems from higher revenue which increased 46.54 per cent y-o-y to N94.11 billion on the back of 45.92 per cent rise in third party sales. The petroleum products marketing company’s bottom-line was also buffered by finance income which grew massively by 251.69 per cent to N260.73 million and 35.90 per cent upswing in other income to N6.35 billion during this period.
And consequently, it recorded a 67.34 per cent increase in profit-after-tax to N8.15 billion (FY 2015: N4.87 billion).
In first six months of this year, however, 11Plc has not been able to replicate the sterling performance it pulled this same period last year. Its was only able to muster 11.86 per cent appreciation in turnover to N56.22 billion compared to N50.25 billion in H1 2016. But conversely, cost of sales was up 20 per cent to N49.39 billion instead of N41.16 billion in the first half of last year. Expectedly, the firm’s profit for the period almost halved, declining -43.98 per cent to N2.47 billion (H1 2016: N4.42 billion).
And as a result of this, analysts are projecting that shareholders of 11Plc may not get as much dividend they got in the previous year at the end of 2017.
But what 11Plc investors may lose in dividend they would gain in capital appreciation as the company’s stock, which stands at N213.81 at the close of business on Friday has appreciated 30.38 per cent y-o-y. So, if the market continues in the present trend in the remaining two quarters of the year, investor’s would still have something to cheer about.
Although not in the class of Total Oil and 11Plc, Conoil Plc has also been consistent in its dividend payout. Last year investors were thrilled with N3.10 dividend per share, 3.33 per cent higher than N3 they got in the preceding year. The best dividend the company’s investors have enjoyed in the last five years was in 2013 when they got N4 per share.
Analysts are hope that Conoil is one of the major that would manage to declare dividend in 2017, but they believed investors may get some cuts in the dividend they would get from it. It profit for H1 2017 dipped significantly -59 per cent eroding the hope of dividend for investors. The decline in ConoilPlc PAT resulted from massive -95.09 per cent drop in other income, especially interest from delay in subsidy payment, which it did not get in H1 2017.
In 2016, the petroleum product marketing firm increased its profit 22.98 per cent to N2.84 billion. Though it only grew its revenue 2.54 per cent to N85.02 billion, it succeeded in trimming cost as distribution expenses and finance cost were down -6.05 per cent and -53.03 per cent respectively during this period.
Tinuoye said Oando is not likely to declare dividend this year because it is still trying to clear its huge debts. The company total debt to equity ratio is one of the highest in the oil and gas sector, currently standing at 192.32, while the sector average is 34.17. It has not declared dividend in the last two years.
The company stock has however increased 29.4 per cent in the last one year, closing at 6.91 on Friday.
And with the relative stability in crude oil price, there is also hope that oil prospecting firm, SeplatPlc which has been struggling due to fall in oil price and militancy activities in the Niger-Delta, would declare dividend at the end of 2017.
The company which is listed both on the Nigerian Stock Exchange and London Stock Exchange witnessed 29.03 per cent increase in its revenue to N40 billion H1 2017. And its loss also lowered to N8 billion from N13 billion in H1 2016.
Seplat’s shares have appreciated considerably in the last one year, increasing 100.83 per to N482 on Friday.