How Oil, Gas Stocks in Nigeria Gained N59bn in last Three Months


Oil and gas firms listed on the main and premium boards of the nation’s equities market reported a gain of about N58.784 billion during the fourth quarter of 2020.

This was buoyed by positive sentiments witnessed at the local bourse.

The oil and gas sector gained N58.784 billion or 14.80 per cent to close at N455.923 billion in market capitalisation on December 31, in contrast to opening figure of N397.139 billion at the beginning of trading on October 2.

Market watchers believe the investors are taking position on oil and gas stocks following fair Q3 results declared by oil firms and also anticipation that gradual ease of lockdown will increase spending on transportation.

The consequences of the coronavirus (COVID-19) outbreak had 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, indicates 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 y/y.

The decline in aviation fuel consumption was even more severe given the closure of the international airspace to passenger flights and halting of commercial domestic flights, the survey did not extend to gauging spend on air travel during the pandemic for obvious reasons.

Given relatively softer petroleum products demand in H1’20, the near term outlook for the sector is certainly subdued. However, long term prospects appear more promising.

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.

“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 gasoline 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/US$ to N380 to test the durability of this template within this quarter.

Assuming all other inputs remain constant on the most recently published PPPRA gasoline pricing template, an adjustment of the FX rate assumption to current levels raises ex-depot prices by approximately 20 per cent.

“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.”

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