COVID-19: How Oil and Gas Firms Lost N84bn Revenue
-By Gideon Osaka
Revenues of some of the key oil and gas companies in Nigeria as quoted on the Nigerian Stock Exchange fell by about 38% in the second quarter of 2020.
This translates to estimated loss of N84.7 billion from their topline revenues.
According to data compiled from the recently released results of the listed companies in the oil and gas sector, these oil and gas coys include Mobile Oil (II), Ardova, Total, & Seplat, the only major oil and gas firms that have released their Q2 financials. Oando and Conoil, are yet to release their results.
Total, Mobil, and Ardova are oil marketing companies while Seplat is into upstream oil and gas production. They are also some of the biggest oil companies listed on the exchange and in Nigeria.
The companies reported combined revenue of N135.6 billion in the second quarter of 2020 compared to N220.3 billion in the corresponding quarter of 2019. Revenue in Q1 was N219 billion. The Nigerian economy, particularly the oil and gas sector has been hit hard by the oil price crash and the COVID-19 pandemic and could be a major reason for the loss in revenues.
The companies also recorded a combined loss before tax of N16.6 billion compared to N38 billion in pretax profits reported in the same period in 2019. The second-quarter losses compound an already bad situation for these companies after reporting a loss before tax of N28.7 billion in the first quarter of 2020. These companies have now seen a combined N45.4 billion wiped out of their profits.
Causes of Revenue Dip
A closer look at the data reveals most of the losses came from the oil marketing firms Total and Mobil. Over N56 billion of the revenue loss was between Mobil and Total. Seplat and Ardova lost just over N5 billion respectively.
Further careful review of their results suggests the companies suffered from a drop in demand for refined products such as fuel, diesel, and lubricants.
As it were, Nigerians were mostly on lockdown throughout April and May before reopening partially in June and July. However, the damage had been done as adherence to safety procedures meant fewer people were commuting impacting heavily on sales.
Seplat was also hit by dipping crude oil prices and weak demand for its crude. Recall that back in April, oil prices at some point fell to negative territory as demand waned globally.
Despite the drops, the companies continued to incur overheads and operating expenses which they could not entirely avoid despite the lockdowns. Gross Margins for the quarter fell by 61% year on year putting the companies on the path to losses.
Implication on Nigeria’s Economy
A review of some of the results indicates nearly all sectors recorded revenue losses. This is also likely the same situation across the country as Nigeria awaits the second-quarter GDP numbers sometime this month.
Though oil and gas firms faced a twin dose of a fall in crude oil prices and the Covid-19 situation, all sectors except for oil and gas and Agriculture sectors recorded high revenue declines. The companies under review last reported a similar drop in revenues and loss before tax in 2016 when Nigeria entered a recession.
The government is projecting a GDP contraction in excess of 3% and already reported a revenue shortfall of over 50% this year.
Fortunately, the companies still held a sizeable cash balance of N136.7 billion to the end of the quarter putting them in a position to weather the storm.
Recall that, oil prices fell drastically due to Covid-19 pandemic which has slowed global economy and halted activities of virtually all sectors of Nigerian economy.
The key underlying assumptions of the 2020 Budget included a benchmark oil price of US$57pb, later revised to $28pb; oil production of 2.18mbpd, revised to 1.8mbpd.
Subsequently, due to the impact of falling crude oil prices which serves as Nigeria’s major source of revenue, Ministries, Department or Agencies (MDA) of government have been ordered by the federal government not to include any proposal for new projects in the 2021 budget as funds will be released for only ongoing projects.
The federal government stated this in the 2021 budget call circular by the Budget Office which is projected at N12.65 trillion.
According to the circular, “MDAs are hereby advised that new projects will not be admitted into the capital budget for 2021, unless adequate provision has been made for completion of all ongoing projects.”
As such, it is certain that revenue shortfalls is not only taking its toll on oil and gas firms alone, but the government is also feeling the heat, a situation which has necessitated many experts to project negative GDP growth for second and third quarter of 2020 which will eventually plunge the country into a second recession in just four years.
