9M-19 Earnings for Oil & Gas Companies: Elevated costs, Volatile prices

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For 9M-19, the financial performance of the Oil & Gas players – both downstream and upstream reflected burning issues in the local and global oil markets. Upstream companies struggled with lower realized prices, as global crude oil prices declined on the back of geopolitical risks and trade tensions. As such, SEPLAT recorded a 12.6% y/y decline in revenue, which was also worsened by a 6.2% drop in average working interest production (47,163boepd). However, profit for the period was up by 102.5% y/y, as tax credit masked the tepid performance.

9M-19 Earnings for Oil & Gas Companies: Elevated costs, Volatile prices - Brand Spur

Analyzing the downstream sector, growth in revenue was mixed, as MOBIL (+13.2% y/y) and FORTE (+30.3% y/y) recorded growth across major product lines, while TOTAL’s revenue fell by 2.2% y/y. However, with capped PMS prices, growth in the cost of sales outweighed revenue, causing gross profit to decline across the board (MOBIL: -10.2%y/y, FORTE: -3.8%y/y and TOTAL: -19.0%). For MOBIL, despite lower operating expenses, PAT dropped by 19.4%, as income from its property business fell. TOTAL recorded the worst position y/y, declaring a loss of N204.8mn, due to expensive borrowing and higher administrative expenses. However, FORTE recorded a massive 1408.2% increase in PAT, due to gains on disposal of a subsidiary and interest from the subsidy.

Looking into Q4-19, the weaker outlook for oil prices, due to prolonged uncertainty in global trade and weakening growth, will have negative implications on upstream production revenues. Also, with deregulation unlikely this year and the recent border closure cutting off revenues from neighbouring countries, the downstream players will remain in a high cost/ capped price environment.

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