Oil, gas stocks record N56bn loss in one month

Oil, gas stocks record N56bn loss in one monthOil and gas firms listed on the main and premium boards of the nation’s equity market reported a loss of about N56.19bn last month as spending in transportation declined considerably over coronavirus pandemic.

Checks by our correspondent revealed that the oil and gas sub-sector lost N56.19bn or 14.17 per cent to close at N340.48bn in market capitalisation on July 31, in contrast to N393.67bn at the beginning of trading on July 1.

The impact of the coronavirus outbreak has threatened the resilient outlook for Nigeria’s economy, mainly supported by the oil and gas sector.

A recent survey conducted by REACH Technologies, a Nigeria-based fintech, on behalf of FBNQuest, indicated a substantial decline in household spending on transportation.

According to respondents, spending on all forms of road transportation – private and public modes – declined by around -20 per cent year-on-year.

The decline in aviation fuel consumption is even more severe, given the closure of the international airspace to passenger flights and halting of commercial domestic flights.

Given relatively softer petroleum products demand in the first half of 2020, the near-term outlook for the sector is certainly subdued.

The downstream oil and gas business is typically a low margin one. However, other factors, mainly constraining policies, have led to historically low investments in the sector over the last decade.

The report said, “In our view, the fortunes of the sector could change with the growing possibility of full pricing deregulation.

“We believe the re-introduction of a market-friendly pricing template for petrol in March and the central bank’s current attempt at unifying foreign exchange rates increase the prospects of the end of mandated gasoline price ceilings.

“The newly adopted pricing template takes into consideration several factors such as the petroleum product cost and the foreign currency conversion rate at which oil marketing companies import petroleum products.

“We expect the recent adjustment of the naira official FX rate from N306/$ to N380 to test the durability of this template within this quarter.”

The report said assuming all other inputs remained constant on the most recently published petrol pricing template, an adjustment of the FX rate assumption to current levels raised ex-depot prices by approximately 20 per cent.

It said, “Competition within major marketers is growing with new ownership/management. Ardova (formerly Forte Oil, not covered) and 11 Plc (formerly Mobil Oil, not covered) are leading the charge.

“In the event that the Federal Government decides to continue with the new pricing template, effectively deregulating the sector, we see competition intensifying over the long term. Under this scenario, reach and distribution will be a key competitive advantage.”

They said in the near term, we the industry would take a hit from measures adopted to stem the spread of the COVID-19 pandemic.

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