The outbreak of COVID-19 and the lockdown measures implemented since March-2020 have had a twin impact on the Nigerian downstream oil and gas industry. On one hand, the Nigerian government leveraged the significant decline in global crude oil prices to somewhat remove the controversial fuel subsidy regime, as the NNPC reported over-recovery.
Accordingly, the Petroleum Product Pricing Regulatory Agency (PPPRA) implemented a monthly market-based pricing regime, to provide prices reflective of market reality for Oil Marketing Companies (OMCs). However, this was met with huge difficulty, as monthly prices were reduced (from a high of N145/litre pre-market regime to N121.5/litre for Jun2020 sales), with OMCs still carrying inventory bought at higher prices.
On the other hand, the restrictions in movement across the country, significantly dragged the Revenue and Profitability of most of the industry players, with only ARDOVA (formerly Forte Oil) recording a mild increase in Revenue during the review period.
Looking ahead, we have a pessimistic outlook on the downstream oil and gas industry in H2-2020. This is as we expect margins of major industry players under our coverage to remain constrained over the period. Hence, profitability will come under severe pressure as observed as H1-2020.
Also, the possibility of the FG backtracking the market-based price regime once crude oil prices start tracking higher (above $50.0/b) remains the biggest downside risk for players with high inventory exposures.