Mallam Garba Kurfi, Managing Director/CEO, APT Securities and Funds Limited. In this interview with Financial Vanguard, he spoke on the performance of the oil and gas companies quoted on the Nigeria Stock Exchange against the backdrop of the negative returns being posted by the oil and gas index in stock exchange.
By Nkiruka Nnorom
THE financial results of oil THE financial results of oil & gas companies for the half year just released showed that some of them posted reduced profitability while some others are still running on loss despite reduction in Niger Delta crises. What necessitated this mixed financial performance? Niger Delta crises has little effect on the performance of oil companies listed on the Nigerian Stock Exchange, NSE, because most of them operate in the downstream and what they do is that they get refined products and sell to the market. If you look at Oando Plc for instance, you can see that its turnover almost doubled, meaning that they are selling and the company also got out of losses. For the past two consecutive years, they have been declaring losses. We can say that for Oando, it is good for them; turnover increased and they rebounded to profitability.
But when you look at Forte Oil, the reverse is the case. The turnover and the profit went down except for the Group performance which went up due to the performance of its electricity generating company (Genco). But you can see that earning per share went down drastically to N1.05 from over N2.00. Mobil Oil is neither here nor there if you look at their half year result. The profit fell below what they recorded last year, but that is understandable because whenever a company is being taken over, they will lay bare their books. MRS Oil made significant improvement in both their turnover and profit after tax. Eterna declared good profit with high turnover. When you summarise the oil and gas industry, you can see that majority of them did not disappoint the market.
They reflect what other sectors of the economy did by declaring higher turnover and improvement in their profitability. The improvement in profitability was reflected in Oando. It was reflected in Eterna Plc and it was reflected in MRS Oil. For Forte Oil that went down both in turnover and profitability, it means that the company was not able to lift enough oil in the first half of the year compared to the other marketers. Why is the return-on-investment, RoI, as reflected in the oil & gas index still negative as at today even with the improvement in the half year results of the companies? Yes, it has to be in the negative.
Who is the major player in the oil and gas sector? It is Onado. Recently, Onado’s shares went as high as N10.50. As at yesterday (Friday, August 11, 2017), it traded at N7.21 per share. Same for Mobil; it traded for as high as N320, but what is the present price of Mobil now. It is N240; it has lost about 25 per cent. Conoil went as high as N47, but it has gone down to N32. So, you can see that the companies have always gone up and come down and that is why the return is on negative.
Companies like Oando has not held its Annual General Meeting, AGM, for 2016. So, things like this affect investors’ confidence either positively or negatively and that is why you see that the oil and gas index is not going anywhere. And don’t forget that Oando is a major player in the oil and gas index with about 12 billion ordinary shares and that is why any movement in the shares either positive or negative affects the index. I had expected that the passage of Petroleum Industry Bill in May this year would have helped in boosting investors’ confidence in the sector? The problem is that the industry has been taken over by independent oil marketers.
If you travel from here to Ibadan, how many new filling stations do you see that are owned by Mobil Oil, MRS, Conoil, Seplat or Oando? But you will see more than 20 or 30 different petrol stations owned by independent marketers? This is so because the return is not worth what the major oil marketers are spending. This will tell you that they are not finding things easy. So, if the industry is not expanding, the petroleum bill will benefit the independent marketers rather than the major marketers.I am aware that there is a plan in the next Organization of the Petroleum Exporting Countries, OPEC, meeting to peg Nigeria’s oil production. So, where does this leave the oil and gas companies in terms of earnings? The peg is already there. Nigeria has been asked to maintain 1.8 million barrels per day it is already producing. Don’t forget that we have condensed oil and it is not regulated by OPEC. Today, we are generating over 200 barrels per day. And as long as there is peace in the Niger Delta and we are producing enough condensed oil, the regulation by OPEC may not necessarily have much effect on the companies’ earnings.