Revenues of some of the major oil and gas companies quoted on the Nigerian Stock Exchange fell by about 38% in the second quarter of 2020 wiping out a whopping N84.7 billion from their topline revenues.
This is according to data compiled from the recently released results of the listed companies in the oil and gas sector. They include Mobile Oil (II); Ardova; Total; and 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.
Why the revenue drop?
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.
A cursory review of their results suggests the companies suffered from a drop in demand for refined products such as fuel, diesel, and lubricants. 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. 1stNews reported back in April that oil prices at some point fell to negative territory as demanded 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 quartet fell by 61% year on year putting the companies on the path to losses.
Implication on the wider economy
A review of some of the results already seen indicate 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.