Petroleum products importing and marketing firms have overcome the economic difficulties that befell them last year, which saw profits shrink on falling subsidy payments and high finance costs, as third-quarter financial results show most of them returning to profitability.
The oil marketers borrowed money from banks at high interest rates to finance the acquisition of assets and expansion of their operations, which explains why they had huge finance cost in their capital structure, according to Emmanuel Usaga, controller, subsurface, Peak Petroleum, a downstream oil company.
“High interest rates which led to low earnings were one of the factors responsible for dwindling profits in 2012,” Usaga said. “The oil marketers could not service their debts to the banks on failing subsidy reforms by government and this culminated into huge finance cost.”
Most of the marketers have, however, returned to profitability in their most current earnings reports.
Conoil’s profit for the nine months through September quadrupled to N2.1 billion from N486 million a year earlier, it said on November 1. Sales grew by 6 percent to N121.8 billion.
Forte Oil’s profit in the nine months through September also rose to N2.7 billion from N656 million a year earlier, the company said on October 21. Sales climbed 29 percent to N92.1 billion.
Mobil Oil’s profit for the nine months to September rose by 53 percent to N2.6 billion from N1.7 billion a year earlier. Revenue fell slightly by 4 percent to N58.7 billion.
The firms (Forte, Mobil, and Conoil) reported a 44 percent reduction in finance costs to N4.5 billion in the nine-month period to September 2013, compared to the year-earlier period, except for Total Oil plc which recorded an increase in finance charges.
The combined total assets of these four firms (Forte, Mobil, Total and Conoil) as at September stood at N257.9 billion.
Subsidy payments to oil marketers have improved from what it used to be, according to Oyekunle Omotayo-Benson, analyst at Asset & Resource Management Company. “The companies can push greater volume, cut down on borrowing and have a moderation in finance charges,” he said.
Ebere Uneze, executive director, Centre for the Study of Economies of Africa (CSEA), said the sudden reversal of fortunes of the oil marketing companies was most likely a result of recent government policy of cutting the number of operators in the petroleum marketing sub-sector.
“Those who remain are therefore left with larger shares of the market as a result of economies of scale,” said Uneze in an interview with BusinessDay.
The oil marketers’ profitability, say analysts, has also been aided by the increased transparency in Petroleum Products Pricing Regulatory Agency (PPPRA) and the subsequent payments of N287.35 billion subsidy money by the Ministry of Finance, which was 30 percent of the total amount budgeted for 2013 fiscal year (971.1 billion).
“The burden of transactions with the Petroleum Products Pricing Regulatory Agency and the money being owned by the Ministry of Finance as a result of disagreement made it difficult for oil marketers to reduce finance cost,” Usaga said.
Conoil plc, which sells gasoline products, gained the most in nine years last week on speculation that faster subsidy payments by the government will boost earnings.
Conoil stock, which closed trading yesterday at N56.75, has gained 228 percent in one year; Total has gained by 37 percent; and Mobil is up by 4 percent, while Forte oil has gained over 1,000 percent in the past year.
Forte Oil plc’s net income will be up to N11 billion ($69 million) in 2014, from a conservative net-profit estimate of N3.4 billion for 2013, Akin Akinfemiwa, chief executive officer, said on October 28 in Lagos.
While Nigeria is Africa’s top producer of crude, it relies on fuel imports to meet more than 70 percent of its needs. Four state refineries with a combined capacity of 445,000 barrels a day are operating at a fraction of that because of poor maintenance and ageing equipment.