Total Plc, 11 Plc, MRS, Ardova and Conoil are some of the major downstream players (all quoted) that have suffered revenue declines and margin drops in one of the worst years in modern history due to the Covid-19 pandemic.
In general, revenues for the major oil and gas downstream players in the country fell by a whopping 21% from N646.8 billion in 2019 (9M) to N514.2 billion in the corresponding period in 2020.
Conoil Plc, one of the major downstream players reported its 2020 9 months’ results revealing revenue declined 21.84% YoY t0 N88.1 billion. 11Plc, another major player in the sector, also saw its topline revenues plummet from N141.5 billion in the first 9 months of 2019 to N114.7 billion in the corresponding period in 2020.
Total Nigeria Plc, one of the largest players in the downstream sector also recorded declining revenues. In 2019 it reported total sales of N181.6 billion compared to N117.3 billion in 2019. The 35% drop was the largest of the lot.
The Covid-19 pandemic triggered a nationwide lockdown for most of 2020 that has negatively impacted demand for petroleum products across the country. The lockdown has grossly affected volumes for downstream oil and gas companies hitting their margins and profitability.
Businesses across the country such as manufacturers, airlines, restaurants, schools, the transportation sector and motor vehicle owners have all reduced their demand for fossil fuel.
According to the Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mrs. Winifred Akpani, the inability to source forex from the official CBN forex window by independent marketers is continually hindering the effectiveness of the principles of demand and supply market forces.
Mrs. Akpani also explained that inability of marketers to source forex creates a situation which can be described as “pseudo subsidy” in the market, suggesting that being forced to sell petroleum products at fixed prices means they cannot recover their importation cost, most of which is paid for in US dollars.
This is further exacerbated by the fact that the federal government regulates pricing irrespective of the unique operating costs of these private oil companies.
Also, being the sole importer of petroleum products means the NNPC will likely pass on inefficiencies in managing cost to petroleum marketers, eliminating any chances of efficient pricing that can be obtained from increased competition. The effects of these are low profit margins and ‘never-shifting’ revenue positions, except for exceptional cases.
Despite these challenges, the sector will likely eke out some profits largely due to cost cutting initiatives and income from ancillary businesses. However, dividend payment might be a challenge as it will be advisable for these companies to set aside cash for what could be a pivotal year.