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Covid-19 Crisis Erases a Year’s Profit from Downstream Oil, Gas firms

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Downstream oil and gas companies have lost 69 percent in half year profit to the coronavirus pandemic that triggered a lockdown that reduced petrol consumption as vehicles were parked in the garage.

That’s the deepest slump among sub sectors of companies quoted on the bourse, but the adoption of the market based system by government that allows for total deregulation of the industry could ease the pains of companies.

The combined net income of (Total Oil, Ardova Nigeria, MRS Oil, Conoil, Oil, and 11 Plc) dipped by 69.35 percent or N6.79 billion to N3.0 billion as at June 2020, from N9.79 billion the previous year.

On an annualized basis, profits would be down some N13 billion or more than the total combined profits for the 2019 period.

The decision of the Nigerian National Petroleum Corporation to be the sole importer of petroleum products was a blow to the downstream oil and gas firms who were unable to access foreign exchange.

On top of that is subsidy arrears owed by government that hinders entities from honoring obligation to banks with the attendant consequences of a default in loan convent.

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.

The total deregulations of the downstream sector could unlock the potentials in the economy and attract more foreign investors who could build more refineries across the country.

Interestingly, the 445,000 barrel a day Dangote Refinery will be completed in 2021, which raises concern about state local refineries that are lying fallow.

Downstream companies are grappling with deteriorating margins, and that’s on top on the slim margins that they operate on.

For instance, the average industry net margin has reduced to 0.60 percent as at June 2020 as against 1.85 percent the previous year.

Total Nigeria recorded a loss of N537.18 million in the period under review, as revenue dipped by 29.25 percent.

The company’s balance sheet is funded more by creditors’ money than equity investors as debt to equity stood at 121.80 percent in the period; that means loan term borrowing is 1.21 times total equity.

Analysts at United Capital Limited however have a pessimistic outlook on the downstream oil and gas industry in the third quarter of the year (H2-2020).

The pessimism or negative prognosis is angled on the possibility of federal government jettisoning or making a U-turn on the market-based price regime once crude oil prices start tracking higher.

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