Plummeting crude oil prices hit Nigerian firms’ balance sheet

Niger-Delter-E&P-Asset-CopyTumbling oil prices have hit the earnings of Nigeria’s indigenous energy companies, in one of the first tangible signs of how the oil supply glut is reverberating across the global economy.

For instance, indigenous oil firm, SEPLAT Petroleum Development Company Plc, reported a fall in revenue and profit in the first nine months of 2015 as a substantial lift in production was not enough to offset the large fall in oil prices.

According to the company in its third quarter report, after lifting adjustments, crude revenue was $367 million, 36 per cent lower than in 2014 against a 55 per cent decrease in average oil price.

The company’s gross profit stood at $192 million and net profit $62 million.

Capital investments incurred during the first nine months totaled $98 million against operating cash flow before working capital of $168 million. Cash at bank was $445 million and net debt $480 million at period end.

The company said that the outstanding NPDC net receivable as at 30 September was $461 million, down from $504 million at mid-year, the reduction coming primarily as a result of the agreement signed between Seplat and NPDC in July whereby gas revenues attributable to NPDC’s interest in OMLs 4, 38 and 41 are offset against the balance of arrears.

“Our operating performance in the third quarter has been very strong, and has restored momentum to the business after a first half that was heavily impacted by infrastructure downtime. Having gone through a period of sharp adjustment to the drop in oil prices, the business is on a sound financial footing, we remain profitable and are on track to deliver our production guidance for the year,” said Austin Avuru, Seplat’s Chief Executive Officer. “But perhaps most notably, it is pleasing to witness the positive impact our gas business is having in Nigeria with the uptick in our gas output correlating directly to an increase in gas fired power generation in July onwards. This is a direct result of the substantial investments we have made at OMLs 4, 38 and 41 that have enabled the full and accelerated development of the blocks’ potential,” he added.

Another strong indigenous oil firm, Oando Plc, has also been affected by the plummeting oil prices.

The company said in its third quarter result that net revenue was $132.5 million in the third quarter of 2015, a decrease of $52.3 million from $184.8 million generated in the third quarter of 2014.

Oando was quick to attribute the declining profit to the significant decrease in crude oil prices, which was partially offset by the production increase between the periods.

Chief Executive Oando Energy resources, Pade Durotoye stated: “In the face of lower and increasingly volatile crude oil prices, we continue to carefully manage costs and execute low Capex activity that optimize our overall production base whilst benefiting from our hedging strategies. Despite the unfortunate operational incidents that temporarily impacted production in July, Oando delivered total production levels of 4.9 MMboe, an average production level of 53,169 boe/day thanks to quick bypass and recovery systems executed by the Operator and our diverse portfolio of producing assets. We remain committed to working with our joint venture partners to further consolidate the assets we acquired last year and optimize production, whilst also continuing to implement cost reduction strategies and prudently manage our balance sheet.”

Also, Lekoil reported a net loss of $6.6 million for the period ($5.3 million in the prior corresponding period).

The Group ended the period with $41.4 million available in cash and cash equivalents ($61.7 million at the end of the prior corresponding period and $49.2 million at the year end).

BMI Research, a Fitch Group Company, said that Nigeria will continue to struggle with its readjustment to low oil price.

It added that some policies being pursued by the president and the Central Bank will further constrain growth in the near term.

BMI forecast a real Gross Domestic Product (GDP) growth expansion of 3.8 per cent for Nigeria in 2016.

According to the research company, the CBN will maintain the key policy rate at 13 per cent at the next Monetary Policy Committee meeting in December, as concerns over weak real GDP growth will come to the fore. “We believe that the bank’s more unorthodox policies must also be relaxed if growth is to be maintained.

“Nigeria’s current account balance will remain in deficit in 2016, as exports will fail to recover from the 2014 oil price collapse. The deficit will narrow from 2015, however, as an inevitable naira devaluation will limit imports”, it added.

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