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Friday, March 31, 2023

Conoil’s Profit Surges on Cost Cuts

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The cut control measures put in place by the management and board of Conoil Nigeria Plc have yielded fruit as profit margins surged in the first quarter of the year.

For the first three months through March 2021, Conoil Nigeria’s net income spiked by 62.81 percent to N423.91 million from N260.38 million the previous year.

Net profit margin increased to 1.28 percent in the period under review from 0.68 percent the previous year.

The improvement in margin was largely driven by cost reduction as poor policies have continued to stifle growth in the downstream oil and gas industry.

Cost of sales were down 12.92 percent to N30.73 billion as at March 2021 from N35.29 billion the previous year while distribution and administrative expenses fell by 20.13 percent to N1.72 billion in the period under review from N2.15 billion the previous year.

The major players in the downstream oil and gas industry are operating in a tough and unpredictable macroeconomic environment and the coronavirus pandemic added another layer of concern.

The virus forced the government to impose a lockdown policy that significantly disrupted economic activities and shrank the consumption of petroleum products by high demand sectors such as aviation and transportation.

For evidence, the International Energy Agency (IEA) estimates that global aviation and road transport activity declined by c. 60.0 percent and between 50.0 percent to 75.0 percent respectively.

Analysts and investors have said for the umpteenth time that liberalization of Premium Motor Spirit (PMS) pump price would unlock potentials in the sector and add impetus to oil and gas marketers revenue.

For instance, the partial price liberalization of 2020 led to improved margins for companies, but the Nigeria National Petroleum Corporation (NNPC) remains the sole importer of the product.

It is noteworthy to note that oil and gas marketers are reeling from severe foreign exchange scarcity that hinders them from bringing in petroleum products.

It is expected that the passage of the Petroleum Industry Bill (PIB) that has been lying fallow  in the parliament will remove some of the bottlenecks that are hindering growth.

The coming on board of the Dangote Refinery will accelerate the total deregulation of the sector, and speedy renovation of the major refineries will bring on competition and true capitalism.

There is room for improvement and there are growth potentials in the country as rapid urbanization is increasingly driving the usage of Liquefied Petroleum Gas (LPG), which beckons on oil and gas marketers to invest in the segment so as to magnify revenue.

“We note that some major marketers have acknowledged the product’s potential as an important topline contributor and are already making plays towards realising the untapped gains in the gas business,” said analysts at Codros Securities Limited.

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