Uncertainty in the global crude oil market, unresolved local fuel subsidy, and anticipated industry reform combine to weaken the performance of oil and gas equities on the Nigerian Stock Exchange (NSE).
Cautious investors moved to the sidelines to see the policy direction of the government, leaving the NSE Oil/Gas Index with 4.63 per cent decline behind the NSE Banking Index (6.88 per cent) in June.
Domestic challenges weaken the confidence of oil marketers struggling to grow revenue due to the sharp drop in petroleum products supply.
The rise in importation cost occasioned by a weak naira exchange rate against the dollar and fuel subsidy payment disputes highlight the depressed earnings by players such as Forte Oil, Total, Mobil, Seplat Petroleum, Eterna Oil, and Oando.
Seplat, listed at N536 per share a year ago, tumbled by N206 to close at N331.25 at the end of June 2015. That month alone, the stock slipped from N338 to N331.25 per share.
The share price of Total fell 5.2 per cent to N165 per share, from N174 it opened with in June. Eterna Oil’s share price depreciated 12.4 per cent to close at N2.41 from N2.75 it opened with.
Price decline in Conoil shares was minimal, dropping 0.4 per cent to N40.85 from the N41 it opened with last month.
However, Forte Oil, the leading oil/gas company with the highest market capitalisation, recorded 3.4 per cent or N2.02 price appreciation to close at N182 up from N176.
Mobil gained 8.2 per cent from N146.8 to N158.85. But MRS Oil’s share price was left flat at N50.54.
Global oil outlook bleak
Analysts said the outlook of global crude oil market remains bleak, with further drop in crude prices expected, as Iran is likely to worsen crude oil glut if the United States and the other super powers lift sanctions sequel to a nuclear peace.
Iran has capacity to produce three million barrels per day but sanctions have chopped off half its crude supplies, which will be restored after the deal sails through.
A further glut in the oil market against the stance of members of the Organisation of Petroleum Exporting Countries (OPEC) to maintain market share, rather than cut supplies, will further crash crude prices.
Divestment into bond market
The doyen of brokers, Sam Ndata, said the crisis in the oil/gas sector signals divestment into the bond market, as “investors are interested in where their investments are safe.”
The oil/gas sector is facing huge challenges, he added, ranging from oil subsidy scam to scarcity of fuel, among others.
“The global oil prices slump is yet to be stabilised. All these have contributed to listed companies’ poor performance in first three-month results. As expected, investors will dump oil/gas shares and play safe.
“Once there is stability in that sector, that market index will witness growth.”
Nagging subsidy question
Highcap Securities Managing Director, David Adnori, explained that the oil price slump shows the urgent need for Nigeria to resolve subsidy on petroleum products.
“At the current price of crude oil, I believe fuel subsidy may no longer exist; however, the opportunity has come for the matter to be resolved once and for all.
“The oil/gas sector is in a struggling state, both in domestic and international markets. Internationally, the price of crude oil has continued to decline while domestically, we have crises in that sector.
“All these are reflecting on banking and oil/gas shares,” he stressed.
Adnori said the decline in banking index can be attributed to the financial institutions that finance most listed oil/gas companies on the NSE.
“If anything happens in the oil/gas sector, definitely, it will affect the banking sector. The foreign exchange has also played a negative role in the price deprecation of listed shares.”
NNPC up for reform
President Muhammadu Buhari has dissolved the board of the Nigerian National Petroleum Corporation (NNPC), and promised to carry out reforms that would strengthen the sector and raise revenue – which may bring resurgence to the sector.
The NNPC regulates the oil and gas sector and is also a joint venture partner representing the government in deals with oil multinationals.
It has been accused of large scale corruption, the latest being the alleged disappearance of $20 billion from its coffers.
An independent audit ordered by the government in 2014 concluded that the NNPC has an outstanding $1.48 billion to remit to the treasury.
