The operating milieu for oil and gas sector has remained very challenging with enormous economic and securities issues. DGossip247 looks at Mobil Nigeria Plc’s financials
The downstream petroleum sector has witnessed its share of mixed fortunes, as it remained partially deregulated. Aside from the deregulation, the Nigerian economy took a downward path with the slump in global oil prices in 2014. This trend, which continued into the first quarter of 2015, further worsened in the second quarter.
Massive disruptions in both the upstream and downstream sectors created an obvious dip in revenue due to lower sales volume. Security challenges were and have remained a major concern across the country, as petroleum marketers continue to experience violence, most especially in the northern parts of the country.
The industry has also continued to experience sustained pressure on its cash flows due to late payments of subsidies resulting in huge financial expenses. Market pundits believe that the sector has been affected by the delay in payment of subsidy claims, as the Federal Government works to weed out corruption in the system.
This has placed a huge financial burden on petroleum companies. The global decline in crude oil prices, devaluation of naira, and rising interest rates, has also significantly affected the operations of the sector. However, while it was accepted generally that the overall economic and business climate was a mixed due to mounting economic challenges, Mobil Nigeria Plc was not insulated. Its share price has also remained susceptible to the challenges facing the oil and gas business in Nigeria.
Mobil, which ended the year 2014 with good numbers in spite of harsh challenging environment, began the 2015 on unimpressive note, as the company remained in limbo following inability to show good figures from the first quarter of 2015. Market analysts had also predicted that the company’s profit was likely to decline further following a disappointing start for the year, as it recorded decline in most key performing indices.
According to analysts, the overall, current results reflected Mobil’s natural vulnerability to volume slowdown due to hash enabling environment. Market sentiments for the shares of the company have also dropped in response to the general sell off that had pervaded the nation’s local bourse.
Nonetheless, the company has continued to retain the top two spot in the petroleum and petroleum products distributors’ sub-sector of oil and gas sector in terms of share price. Financial analysts believe this would be sustained in the next few years. The share price, which closed at N173.01 per share in September 30, 2014, has recorded dropped. At the close of business last Friday, the company’s share price stood at N154.00, a decline of N19.01 or 10.98 per cent year to date.
Financials
Mobil results improved significantly in 2014 versus 2013. Its 2014 audited year-end profit after tax (PAT) increased 84 per cent to N6.39 billion from N3.48 billion recorded last year, the oil marketer said in a filing with the Nigerian Stock Exchange (NSE). Also, profit before tax (PBT) grew by 64.9 per cent to N8.44 billion from N5.12 billion reported in 2013. However, revenue increased marginally by 1.1 per cent, as the company recorded N79.58 billion in 2014 compared with N78.744 billion in 2013. Despite the significant improvement in 2014 financials, Mobil Nigeria began the year 2015 in a negative trajectory as its first quarter financial results showed weak performance at both top and bottom line levels.
For the first quarter of 2015, a cursory look at the numbers showed that the downstream oil and gas company’s pre-tax profit for the period ended March 31 2015, declined 56.6 per cent to N2.06 billion from N4.74 billion reported a year earlier. Similarly, profit after tax (PAT) fell by 61.5 per cent to N1.48 billion from N3.86 billion in the Q1 of 2014. Revenue also decreased from N22.41 billion in the first quarter of 2014 to N16.49 billion in the review period of 2015, indicating a drop of 26.4 per cent.
The trend continued in second quarter of 2015, as Mobil Nigeria also posted 40 per cent drop in profit after tax during the half year ended June 2015. The company’s net profit declined from N4.816 billion during the comparable period of 2014 to N2.910 billion, accounting for a drop of 40 per cent.
Its half year pre-tax profit also fell 33 per cent to N4.111 billion compared with N6.153 billion in the same period last year. Gross earnings of the local fuel marketer, was also down by 25 per cent to N31.828 billion from N42.167 billion in the previous year.
Outlook
Mobil is currently constructing a new gasoline tank and converting another tank for diesel storage. Chairman/Managing Director of the company, Mr. Adetunji Oyebanji who made this disclosure recently at the 37th annual general meeting (AGM), said that the initiative would increase the company’s storage capacity and provide greater flexibility for its terminal operations. He noted that additional investments are on-going to upgrade the company’s loading rack and tank farm for improved operating safety and efficiency.
“The retail chain has also benefited from selective investments consistent with the returns earned on regulated products. Our alliance partner, UAC continued to reposition and invest in the back-court food offering. These investments will help Mobil Nigeria to remain competitive in the market place. We continue to add capacity in the lube oil blending plant by building additional storage tanks for bulk additives and have embarked on a filling line automation and upgrade.
“We successfully completed the major investment upgrade of Mobil Court on-time and on-budget. This upgrade was originally planned to be financed by a long-term loan, but instead, we deployed internally generated funds and those generated from the sale of surplus asset in Ikoyi.
This investment comes with a lease that will guarantee steady future market based income,” he said. Oyebanji said that the economic conditions, which have prevailed since 2014 were expected to continue in line with the country’s foreign exchange and cash flow challenges, adding that instability in the world crude oil market would persist. He said: “We do not expect much difference in the factors that will be critical to business in 2015 versus 2014. We hope, however, that government policies and regulations, especially those that inadvertently subject business to undue uncertainties will be reviewed and appropriate solutions designed.
“Fixed margins on regulated products have not been reviewed for over eight years. In addition, we continue to experience significant delays in the reimbursement of our subsidy claims. This jeopardises the viability of the fuels business. We sincerely hope therefore, that Government will reconsider the recommendations that had already been made by the Major Oil Marketers Association Nigeria (MOMAN) on this subject, and that some relief with regards to gasoline and kerosene margins will be granted. “We will continue to focus on growing sales of non-regulated products and on enhancing the value of our property investments.”
Conclusion
While the country’s general economic outlook within the first half of the year grossly affected the earnings of several companies including Mobil Oil, many forecast that the economy may take more time to fix, as the new administration is yet to put a clearer direction on its economic policies. It is, however, high time for the authorities to expedite action on policy direction to settle the subsidy claims and provide the enabling environment for oil marketers and businesses in the country to thrive.
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