Bears maul oil and gas stocks

.           Experts predict bleak outlook

Okey Onyenweaku

Oil and gas sectior stocks have taken a mauling on the Nigerian stock exchange since the begining of the year as investors dump them for other hidden value oportunities. Festering recession (the economy has witnessed its fifth straight quarter of negative national income (GDP) growth)  has taken its toll on the stock market with several sectors witnessing major price declines.

While a 0.2 percent drop in the NSE Oil and Gas Index may not be seen as a significant drop, some stocks in the sector have taken a bad bruising. For instance; the shares of Conoil has lost -11 per cent year to date from N37.48 per share on January 3, 2017 to close at N33.25 per share on May 23, 2017. Similarly, forte Oil shares plunged by -43 per cent, MRS Oil declined by 9 per cent and stocks of Total Nigeria Plc slid by -13 per cent.

While investors in Seplat Petroleum lost -2 percent, Investors in Oando Plc and Mobil Nigeria Plc gained 101 per cent and 13 per cent respectively.

Analysts are of the view that since Nigeria is mainly an oil and gas based economy, the market performance of the sector represents the most accurate indicator of the overall health of the economy. It’s sluggishness therefore, reflects the depth of the malaise affecting the economy.

Apart from the apprehension in the market, foreign investors have not fully returned to the market as they still fear that the market may dive into deeper losses.

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 Oil and Gas sector of the market, Chairman Progressive Shareholders’ Association of Nigeria (PSAN), Mr. Okezie Boniface believes the Oil and Gas companies have not performed impressively since the struggling Nigerian economy tanked. Okezie explained that what has burdened the oil and gas companies is the huge sums that the government owes them regarding the importation of fuel they did during the fuel subsidy regime.

According to him, ‘’ever since that the companies have been struggling to stay afloat’’.

In the same vein, Chief Timothy Adesiyan, National shareholders Association of Nigeria, who blamed the volatile price of oil which fell from $114 on June 2014 to $30 and now hovers between $48 and $53 per barrel, said that price fluctuation is the major challenge the oil and gas sector is grappling with.

Adesiyan however, noted that some oil and gas firms like Mobil Nigeria and Total Nigeria Plc have paid good dividends ranging from N6.00 to N8.00 in the financial year ended.

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

After performing significantly well in 2010, the Oil & Gas subsector of the capital market has gone south. Investigations by Business Hallmark (BH) last week revealed that the worst may not be over for the beleaguered sector. Regretfully, this sector closed last year on a negative note and is not doing any better now.

Investors are worried that this hopeless situation may further deteriorate. Unfortunately, the market is generally low and had closed at the negative position of -6% and investors seem to be migrating to the more viable sectors with higher returns. Perhaps the fixed income securities appear to be the toast for investors currently. Individual stocks of the Oil & Gas companies have also lost significant weight.

Whereas the Nigerian currency ‘the Naira’ is weakening against other currencies of the globe, Broad street analysts blame the economic crunch for the major challenge in the market.

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.