An income tax credit has catapulted the profit of Afren oil Plc, a company operating in the Nigeria upstream oil and gas industry as revenue continues to slow, fuelled by reduced share of production and lifting in one of its oil fields.
For the nine months through September 2014, the company’s net income rose by 30 percent to $167.1 million from $128.6 million the same period of the corresponding year (Q3) 2013.
Net profit margin, a measure of profitability and efficiency increased to 20.92 percent compared with 13.81 percent the preceding year.
The increase on the comparative period arises principally from an income tax credit to the income statement of US$1.3 million (Q3 2013: US$298.4 million charge), according to Toby Hayward, Interim CEO of Afren plc, while commenting on the company’s financial results.
“This is as a result of a five-year tax exemption period in the Ebok field and a smaller loss on the derivative financial instruments of US$0.6 million (Q3 2013: US$38.7 million),” said Hayward
However, the company’s revenue fell by 34 percent to $798.5 million in Q3 2014 from $1.20 billion the same period of the corresponding year (Q3) 2013.
The 34 percent decrease in revenue is principally attributable to reduced share of production and lifting from the Ebok field, following cost recovery, according to the company’s statement.
According to BusinessDay analysis, Afren’s cost of sales reduced by 17.40 percent to $521 million in 2014 from $630.7 million the preceding year. However, higher cost margins were recorded as cost of sales margin moved to 65 percent from 52.3 percent in 2014.
The slow growth at the top line level and the spiralling cost margins hindered the company from managing direct costs attributable to projects as in gross profit dipping by 52 percent to $277.5 million in the review period.
Afren’s total assets were up by 3.35 percent to $4.27 billion in Q3 2014 from $4.13 billion while total equity increased by 9.31 percent to $1.98 billion.
The company has projects in the pipeline that will place it on a growth trajectory and also expand its share of the market.
“With new incremental production wells now on-stream and close to completion across all of our existing producing assets in Nigeria, the Company remains on-track to achieve full year net production at the lower end of guidance of between 32,000 to 36,000 bopd,” said Hayward.
Furthermore, company has also incurred debt due to its aggressive expansion drive across a wide spectrum. Total borrowing in the balance sheet moved slightly by 2.23 percent to $1.15 billion from $1.13 billion while its debt to equity ratio reduced to 58.0 percent from $62 percent last year.
“On 30th September 2014, Afren signed a new US$100m loan facility for Okwok. The facility has a one year term and bears an interest rate of Libor plus 7.5 percent.The new facility will be used to fund ongoing capital and operating expenditure for the development plans and work programmes of Okwok and OML113,” said the company’s statement.
BALA AUGIE
