Oil companies operating in Nigeria have come under serious financial challenges due to the volatility in the global oil market, which has impacted on their operations and profitability.
Some of them are now slashing staff salaries, while others have either put on hold or reduced the quantum of investments in the country, LEADERSHIP findings have revealed.
Reliable sources in the sector told LEADERSHIP that fluctuations in the sector have led to a situation where some of the companies have slashed workers’ salaries by 50 per cent.
One of the firms, New Cross Petroleum Limited, a Lagos-based indigenous oil and gas company announced a 50 per cent pay cut for its workers recently.
The management of the company, in an email correspondence to its staff, said the 50 per cent salary slash would be for six months in the first instance.
A senior staff of the company who confirmed the development to LEADERSHIP, on the condition of anonymity as he was not permitted to speak on the issue, said the new salary regime is expected to take effect from this month.
“We are obviously not happy with the development but we are discussing with the management and since the month is yet to end, we do not know if they will reconsider,” he said.
Deregulation of products business in Nigeria which was expected to remove restriction to sales, the devaluation of the naira, scarcity of dollar, increasing vandalism in the Niger Delta among others ensured that most operators in the downstream and upstream sectors experienced profit decline in the first half of the year.
Available data showed that quoted firms in the Nigerian Oil and Gas Sector recorded 18 per cent losses after tax for the half year period ended June 30th 2016 at N23.594 billion from N19.974 billion in the same period in 2015.
Specifically, a review of 10 companies listed under the oil and gas sector of the Nigerian Stock Exchange revealed that losses incurred by four of them outweighed the profit garnered by the remaining six.
The companies with losses for the half year period under review are Oando Plc, Seplat Petroleum Development Company Plc, Capital Oil and Japaul Oil Plc. These companies posted a combined loss of N42.1 billion, compared to N18.5 billion profit made as at June 2016 by the other six companies namely Conoil Plc, Total Nigeria Plc, Eterna Oil Plc, Forte Oil Plc, Mobil Nigeria Plc and MRS Oil Plc.
While Oando reduced its losses of N35.014 billion incurred in June 2015 by 22.9 percent to settle at a loss of N26.991 billion, Capital Oil reduced its losses by 88.6 percent to a loss of N6.530 million from N57.359 million posted in the prior year. Seplat on its part recorded a loss of N12.808 billion falling 56.8 percent from a profit of N8.169 billion made in the corresponding period of 2015, while Japaul Oil’s losses increased 19.9 percent to N2.301 billion in June 2016 from N1.919 billion in the same period of 2015.
On the other hand, MRS Oil Plc recorded the highest profit growth, climbing 2,319 percent in one year after a profit of N909.7 million in June 2016 from N37.6 million profit in June 2015, this was followed by Total Nigeria Plc that grew its 2016 half year profit of N8.934 billion by 270.6 percent from N2.411 billion. Conoil Plc came third with a 190 percent growth in post-tax profit of N1.042 billion from N359.413 million in June 2015, while Eterna Oil Plc profit after tax appreciated 63.4 percent to N977.5 million from N598.3 million.
Mobil Nigeria Plc’s profit also increased 52 per cent to N4.416 billion from N2.910 billion and Forte Oil Plc posted a profit of N2.233 billion, 11.8 per cent lower than N2.530 billion in June 2015.
A further analysis on the performance of the oil and gas sector stocks showed that Total Nigeria Plc’s stocks recorded the highest year to date (ytd) returns of 88.99 per cent, Eterna Oil Plc followed with a ytd return of 71 per cent, Conoil Plc came third with a ytd return of 57 per cent. Seplat and Mobil yielded 28 and 24 percent ytd returns respectively while Capital Oil and Japaul Oil were flat.
Oando, Forte Oil and MRS Oil recorded a negative ytd return of 44 per cent, 32 per cent and 21 per cent respectively.
However, in spite of the nation’s foreign exchange volatility and lower oil price, these companies’ revenue for the period under review increased 14 per cent from N492.8 billion to N560.7 billion with a significant portion contributed by the sale of lubricants and other petroleum products sold and distributed by these oil companies nationwide.
When contacted, spokesperson for Royal Dutch oil giant Shell, Mr. Precious Okolobo declined comment.
Sola Adebanwo, of Chevron however asked our correspondent to send the inquiry to his mail to enable him treat the request but did not respond at the time of filling the story.
Global oil benchmark, Brent crude, yesterday extended its rally to hit the $50 per barrel mark, the third time this year. Oil prices have been on an uptrend since the Organisation of Petroleum Exporting Countries (OPEC) decided to cut output for the first time in eight years. Brent, against which half of the world’s oil is priced, had risen to around $48 per barrel last Wednesday, after OPEC agreed to reduce production, compared to $45 earlier that day.
It stood at $50.19 per barrel as of 4.53pm Nigerian time on Sunday, up from around $49.66 per barrel on Thursday.
OPEC agreed to cut production to a range of 32.5 million barrels per day to 33 million bpd from around 33.5 million bpd.
Experts said the fluctuations in the oil market had resulted in the slowing of output growth, slumping purchasing-manager indexes, widening credit spreads, declining corporate earnings, falling inflation expectations, receding capital investment and rising inventories for the oil companies operating in the country, who have had their profit slashed by over 70 per cent, while many of them have had their projects either cancelled or suspended.
Speaking with LEADERSHIP yesterday, managing director of Niger Delta Petroleum Resources Company Limited, Dr Layi Fatona, said considering the current challenges in the sector, the wisest thing for the oil firms to do is to review their operations in line with the current realities.
He pointed out that in order to overcome the present economic recession, there was a need for the federal government to boost revenues from the oil and gas sector by initiating business friendly initiatives.
Globally, oil firms have also slashed jobs, projects and investments to cope with the 60 per cent downturn in crude prices over the past two years, with consultancy firm, Wood Mackenzie, putting the drop in exploration and production spending by the top 56 oil and gas firms at 49 per cent or $230 billion over the period.
But hopes for a steep recovery in prices have been dashed by persistent oversupply, meaning companies must keep hammering costs for at least another year.
Also, apart from the oil majors, marginal field operators face similar difficulty in the development of the marginal fields in the country. The operators at the 2016 Africa Small and Marginal Oil Fields Development Conference, with the theme, “Find It, Commercialise It” in London, listed funding issues, shortage of foreign exchange (Forex) due to low oil prices, insecurity and deferred production due to attacks by militants, fiscal issues that pertain to royalty and Petroleum Profit Tax (PPT), as some of the challenges confronting marginal field development in the country.
Some of the stakeholders such as deputy director/Head, Upstream Department of Petroleum Resources, Emmanuel Bekee, and Managing Director, LADOL, Dr. Amy Jadesimi, listed other challenges to include low oil prices and market volatility, declining Foreign Direct Investment due to country risks, problems of technology, equipment availability, lack of standardised processes and failure of local banks to grow domestic investment market.
They also enumerated issues of multiple regulators from the side of government, and incessant risk emanating from host communities. The forum, stressed the need for government to align its policies to avoid multiple regulatory conflicts by its agencies, which frustrates the operations of marginal field companies.
It noted that it is expedient for government to recognise that for the objectives of promoting marginal field development to be achieved fully, it must be proactive to global issues, support marginal field operators and should not use same yard stick to bench mark or regulate marginal field operators, and international oil companies.
Also, speaking to LEADERSHIP on the uncertainties in the oil market, Meka Olowola, an energy expert and principal partner, Zenera Consult, said the challenges faced by oil firms in the country are not only as a result of the recession.
“Recession is one of the issues here, but the critical challenge apart from the dwindling oil price is absence of operating legislation,” he said.
The NEITI report recently released estimated that the country loses $200 billion yearly due to non passage of the Petroleum Industry Bill (PIB) and the agency alerted that another $15 billion is lost yearly in fresh investments to regulatory uncertainties”
Olowola said all these challenges have impacted on companies’ investment decisions, adding that some licenses are due for renewal but the oil companies are not keen to seek renewal as they don’t know where the policy is tilting to.
According to him, lack of investment in the sector is threatening job creation and that operating companies are downsizing.
“They will not tell you but that I know that employees are being relieved of their jobs,” he stated.
Mr. Johnson Chukwu, managing director, Cowry Asset Management Limited, told LEADERSHIP, said the downstream sector of the industry is also deeply challenged. According to him, demand for petroleum products have gone down by 40-45 per cent and this has a negative effect on their balance sheets, adding that most of the oil companies quoted on the Stock Exchange are not making much profit as demand for their products have declined marginally.
Recall that in August, the Nigerian Liquefied Natural Gas Ship Management Limited, a subsidiary of the Nigeria LNG Limited, announced that seafarers in its employ would from September 1, receive 50 per cent (half) of their current salaries.
The company had said at the time that the decision was in response to the more than 60 per cent reduction in the company’s revenues occasioned by the drop in the global oil price, which has fallen from $140 to about $40 per barrel in the last one year.
It further explained that decision was taken to minimise the need for staff lay-offs as had been the case in several companies in the industry.
Manager, Nigerian Content, NLNG, Mr. Charles Okon, who confirmed the review of manning levels and wage scale for officers of one of its subsidiaries, the Bonny Gas Transport Vessels, said “This action is in line with the depressed global market situation and consistent with prevailing industry rates, and has been taken in the interest of the sustainability of the business.
“In reality, the reviewed wage scale cannot be said to be a salary reduction as claimed. The fact is that the company has simply adjusted and aligned wages with internationally obtainable benchmarks,” he said.
According to him, the company’s Nigerian officers’ dollar- denominated wages, upon conversion at the existing rates, far exceeded wages for their peers who were being paid in naira.
He added that other conditions of service of all the NSML personnel, including leave days, would remain the same, while leave emoluments earned in line with current wage scales would also be unaffected.
Stakeholders paint gloomy future for oil, gas sector
Some stakeholders in the oil and gas sector have expressed concerns that Nigeria faces dire prospects in the oil and gas sector if the current challenges in the sector are not urgently addressed.
According to them, the current challenges in the sector might frustrate the achievement of major production targets in future.
They listed the challenges to include vandalism of oil facilities in the Niger Delta which has affected oil production and falling crude oil prices in the international market.
The concerns were expressed in separate interviews with the News Agency of Nigeria (NAN) in Lagos, on the occasion of Nigeria’s 56th independence anniversary.
They said that effects of these challenges on the economy were already manifesting.
The Nigerian National Petroleum Corporation (NNPC) reported that Nigeria lost N51.388 billion to oil pipeline vandalism in the last four months.
The report said that the country would record more of such losses if the current spate of pipeline bombings by militant groups in the Niger Delta region was not addressed.
The NNPC monthly financial and operations report for April 2016 reported that the corporation spent N33.994 billion on pipeline repairs and management during the period and that as a result of the vandalism, N10.335 billion worth of crude oil was lost, while petroleum products losses between January and April 2016 stood at N7.059 billion.
The Minister of State for Petroleum Resources, Dr Ibe Kachikwu, said that following the spate of attacks on oil and gas assets, Nigeria’s output of crude oil had declined to 1.4 million barrels per day from 2.2 million.
The Head of Energy Research at Eco Bank, Mr Dolapo Oni, said that oil prices would continue to slide in future with some rather extreme scenarios to under 40 dollars per barrel.
Oni said that if the crude oil prices declined further, many oil and gas companies in Nigeria would face difficulties with meeting repayment obligations to banks.
He said that currently, there were cost efficiency problems in the oil and gas industry and the development could make it impossible for government and other stakeholders to reposition the sector effectively.
The oil expert said that one of the challenges facing the sector was the noticeable delay in the contracting processes and this challenge also included funding and security problems.
He frowned at the situation where priority attention was given to oil to the detriment of gas production and advised that efforts should be made to tackle Nigeria’s dependence on oil to the detriment of gas when the country had about 184 trillion cubic feet of proven natural gas reserves.
The Chairman of Divoc Energy, Mr Samuel David, advised that Nigeria should continue to diversify its resource base and stop its heavy reliance on crude oil revenue.
David said that diversification required strong leadership, good policies and the political will as well as money.
“So ironically, income from oil is required to diversify Nigeria’s economy to fill the infrastructure gap, to provide power and to create and grow other industries that are holding the country back.”
A former public relations officer of PENGASSAN, Mr Oluwaseyi Gambo, said that the ongoing insecurity in the Niger Delta had forced many multi-national international oil companies to commence divestment in oil blocks and marginal fields.
Gambo said that many of these assets were Nigerian onshore assets that had been plagued by industrial-scale oil theft, insecurity and spillages.
The Chairman, Board of Trustees, IPMAN, Alhaji Abdulkadir Aminu, also said that in spite of the relatively large volume of crude oil reserves, Nigeria’s oil production was being hampered by instability and supply disruptions.
Aminu said that the non-passage of the Petroleum Industry Bill (PIB), which had been pending before the National Assembly since 2009, was also a major concern to stakeholders.
Aminu said that the country was still facing serious issue of gas flaring in spite of long standing laws against gas flaring, adding that the shifting of deadlines to end the practice had made the activity to continue with serious health consequences to the people living nearby.
Security concerns have led some oil services firms to pull out of the country and oil workers’ unions to threaten strikes over security issues.
Experts agree that now is the time for Nigeria to stop its dependence on crude oil revenue and stop paying lip service to the diversification of its revenue sources.
We’re Opposed To Assets’ Sale, Not Concessioning – Senate
Following the Senate’s refusal to throw its weight behind the proposed sale of national assets by the federal government, the Red Chamber has said that further consideration into the matter is not foreclosed, as concession remains another viable option.
Majority Leader of the Senate, Senator Mohammed Ali Ndume, made the disclosure while briefing journalists in his office at the National Assembly, Abuja, at the weekend.
Recall that the federal government had recently considered the sale of critical national assets in order to raise funds to end the current economic recession in the country.
Senator Ndume said the reason behind the Senate’s rejection of the sale of assets as contained in its recommendations to President Muhammadu Buhari last week, was due to non-adherence to constitutional provisions for the planned sale.
According to the Senate Leader, further consideration into the matter was not foreclosed, since the federal government could go ahead with concession plans of some assets, a decision which he maintained the senate was not opposed to in anyway.
“The Senate of the federal republic of Nigeria in its recommendations rejected the sales of national assets as a way out of the country’s economic problems. Let me however make it clear that what prompted its decision was because the process was without recourse to the laid constitutional provisions of doing so.
“However, it is safe to say much as the Senate rejects the sales of our nation assets, there is the other option of concessioning which we are open to. As such, it cannot be said the matter is foreclosed.
“Under concessioning agreement, the nation will over time take back these assets after being run and managed by those with whom a Memorandum of Understanding was entered into,” Ndume added.