Pressured by obligations to creditors and suppliers, retirement benefits, rising trade debt, and dividend payment, the once cash pile firms operating in the downstream oil and gas sector are running out of cash.
For the first three months through March 2017, Total Nigeria Plc’s cash and equivalents fell by 39.15 per cent to N13.24 billion from N21.84 billion as at December 2016. It used up N30.07 billion in operating activities as the company failed to collect more money owed to it by customers.
Mobil Nigeria Plc’s cash and equivalents declined by 45.19 per cent to N4.62 billion, fuelled by huge retirement benefits paid in the period under review. It used up N8 billion on operating activities.
Fort Oil Nigeria’s cash and equivalents fell by 20.15 per cent to N13.55 billion as the company’s trade debts spiked.
Eterna Nigeria Plc’s cash and equivalents reduced by 18.71 per cent to N5.78 billion while it used up N10.11 billion on operating activities.
However, MRS’s Oil Nigeria Plc’s cash and equivalents increased by 14 per cent to N14.10 billion in the period under review.
These firms have to intensify on their debt collection policy. By so doing, they will maintain a level of cash position that will give them the leeway to embark on expansion plans.
In spite of the delay in the payment of subsidy money by the Federal Government, the cumulative earnings before interest, tax and amortization (EBITA) of the five dominate firms in the industry can cover finance costs.This means they can honour obligations.
Cumulativ interest coverage ratio of 4 times is higher than the 5 times globally accepted industry average.
Cumulative capitalization of ratio of Total, Mobil, Forte, MRS and Eterna increased to 87.0 per cent in March 2017 from 73.19 per cent as at December 2016.Combined total liabilities, that is the combination of long term debt and equity, stood at N335 billion as at March 2017.
Federal Government owes independent petroleum marketers subsidy arrears and foreign exchange differential of $1.2 billion. This debt has hindered these firms from honouring obligations to banks.
Analysts expect earnings of firms operating in the downstream oil and gas sector to falter in the subsequent quarters. The drop will be fuelled by a weak naira, higher oil prices and liberalization of the industry.
This means the landing costs of imported petroleum product will spike with its attendant effects on bottom lines.
“Downstream performances in 2017 will be weaker than last year. In 2016, some downstream companies reported record profits due to the liberalization of the PMS pricing which allowed them to increase margins” said Pabina Yinkere, head of research at Vetiva Capital Management Limited.
“However, since the liberalization in May, oil prices have risen whilst the naira has depreciated – the combination of these give higher landing cost and since prices have remained fixed, margins have shrunk,” said Yinkere.
The cumulative net income of Total, Mobil, Forte, MRS and Eternal, dipped by 10 per cent to N5.65 billion due to heavy drop in Mobil’s profit.