Oil marketing firms under pressure as profits tumble

Most of the major players in the downstream sector of the nation’s oil and gas sector saw their profits tumble in the first six months of this year, as they lamented that their margins “are eroding”.

An analysis of the financial statements of the oil marketing companies listed on the Nigerian Stock Exchange showed that only Conoil Plc and Forte Oil were able to grow their profits in the first half of 2019.

MRS Oil Nigeria Plc posted a loss of N990.71m in the six months-period ended June 30, 2019, compared to a profit after tax of N505.55m in the same period last year.

The company suffered an operating loss of N1.5bn in 2018, compared to an operating profit of N0.10bn in 2017.

Total Nigeria Plc, a subsidiary of French oil major Total Group, suffered a 98 per cent drop in its profit after tax to N129.96m from N5.67bn.

Total is the only international oil company operating in the downstream sector of the Nigerian oil and gas industry.

11 Plc, formerly known as Mobil Oil Nigeria Plc, saw its profit after tax dip by 23 per cent to N4.17bn in the first half of 2019 from N5.45bn in the same period of 2018.

The United States-based ExxonMobil divested its 60 per cent stake in Mobil Oil Nigeria in 2017 to Nipco Plc, an indigenous Nigerian downstream oil and gas company.

Eterna Plc’s profit after tax plunged by 88.37 per cent to N165.04m in the first half of this year from N1.42bn in the same period last year.

Oando Plc, an indigenous integrated energy group, recorded a 15.59 per cent drop in its H1 profit after tax to N7.17bn from N8.49bn.

Oando announced in July 2016 that it had completed the partial divestment of its interest in its downstream business to Helios Investment Partners and the Vitol Group. It sold 60 per cent stake in Oando Marketing Limited, which was renamed OVH Energy after the acquisition.

Conoil grew its profit after tax to N1.03bn in the first half of the year from N550.65m in the same period last year.

Forte Oil posted a profit of N5.45bn in the six month-period ended June 30, 2019, compared to N366.55m last year.

“Our major problem now is our margins. Given the depreciation of the naira in recent years, the margins have been depreciating in real terms. And this is the same environment where not only are governments requiring us to pay more money for various things, employees are asking for more money; that is why the profitability has continued to go down,” the Chairman of the Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, told our correspondent.

According to the petrol pricing template of the Petroleum Products Pricing Regulatory Agency, margins for retailers and dealers are N6 and N2.36 per litre while transporters’ allowance is N3.36 per litre.

Adetunji, who is the Managing Director, 11 Plc, said the recent divestment by some indigenous operators who bought assets from the IOCs “is a signal that all is not well in the sector.”

Asked what would be the likely implications if the trend of declining margins continued, he said, “Many companies will start to contract and downsize; investment will dry up and then eventually, people will go out of business. As you may know, many of private depot owners have closed now; many owe the Asset Management Corporation of Nigeria.”

OVH Energy Marketing Limited, a licensee of the Oando retail brand, said early this month that it had sacked 70 of its employees.

The MOMAN boss said an immediate relief would be to grant a margin increase to the marketers in the absence of full deregulation.

“The best solution would have been for government to stop fixing petrol price and let the people price in such a way that they can recover their costs and generate enough to help them make investment in the business,” he added.

On the declining profitability of most of the downstream players, analysts at Financial Derivatives Company Limited said, “Margins are contracting and profitability thinning; local players trading at a discount to global players. The downstream sector is in dire need of deregulation. Most players are divesting and going into gas.”

The Chairman, MRS Oil Nigeria, Mr Patrice Alberti, in his speech at the company’s 2018 annual report, said there had been “a passionate and consistent appeal to government to embrace deregulation, so that marketers can be allowed to import petrol and sell products at competitive prices.”

“Experts reaffirm that total deregulation would liberalise the sector and enable sale at deregulated prices. Full deregulation would curb the huge amount government spends on subsidy, which can be invested in the development of other sectors,” he added.

The Chairman, Total Nigeria Plc, Mr Stanislas Mittelman, said the importation of Premium Motor Spirit (petrol) was very difficult last year as the landing cost was higher than the pump price and for most of the year, the Nigerian National petroleum Corporation assumed the role of sole importer of petrol, importing about 91 per cent of the country’s consumption.

“The PMS unit margin is still a major source of concern as it remains grossly inadequate in comparison to rising costs of operations and investment,” he added.

In his speech at the company’s annual general meeting in June, he lamented that the late payment of subsidies and late payment of the interest and foreign exchange differential element of same.

“This has placed a huge financial burden on your company. The company has continued to experience sustained pressure on its cash flows due to late payment of subsidies, resulting in huge financial expenses (high and unanticipated interest charges). All these add significant costs to doing business, had negative impact on our sales and affected our profitability.”

The Chairman, Conoil, Dr Mike Adenuga, said at the company’s AGM in August that the uncertainty over government’s plan to fully deregulate the downstream petroleum sector had continued to pose serious challenges to operations in the sector.

He said the prohibitive cost implication of importing petroleum products, especially the PMS, on the back of crippling bank charges, posed a critical challenge to the operations of downstream companies last year.

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