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As oil prices keep ralling, the incapacity of the Nigerian National Petroleum Corporation (NNPC) to operate as a fully integrated oil company is short-changing Nigeria as Oslo and New York Stock Exchange listed Statoil which recently changed its name to Equinor continues to show how a state-owned corporation should work.
Like other oil producers including Brazil’s Petrobras and Mexico’s Pemexv, who all saw improved financial results in 2017 and made operating profits, Equinor is reaping the benefits of a rally in crude prices supported by production cuts from OPEC and its partners and geopolitical tensions; the reverse is the case for Nigeria.
Integrated oil companies often net off losses incurred when crude prices dip with better refining margins and conversely during an oil rally.
But this gain eludes the NNPC which has recorded deficit for the seventh successive month due to poor refining operation and subsidy now called “under-recovery” on local consumption of petrol.
“There is lots of secrecy with NNPC; also despite doing so much under recovery how come a loss making organisation has not gone bankrupt,” said Luqmon Agboola, head of energy and infrastructure at Sofidam Capital.
BusinessDay analysis of the latest report of NNPC showed modest gains of N36.7 million made by NNPCs upstream and gas processing subsidiaries such as the Nigerian Petroleum Development Company (NPDC), RETAIL and Nigerian Gas Processing Transportation Company Limited, were wiped off largely by its downstream subsidiary operations which recorded deficits north of N1.5 billion according to figures from the organisation’s operations and financial report for 2018 actuals.
The combined value of output by the three refineries (at import parity price) for the month of January 2018 amounted to N26.18billion while the associated Crude plus freight costs and operational expenses were N28.88billion and N10.88billion respectively; resulting to an operating deficit of N13.59billion by the refineries.
Agboola added, “Nobody is even asking question surrounding the revenue for the 450,000 barrels they get daily.”
Group operating revenue for the months of December 2017 and January 2018 were N406.83billion and N323.19billion respectively which represent 110.63 percent and 87.89percent respectively of monthly budget. Similarly, operating expenditure for the same periods were N413.64billion and N324.76billion respectively, which also represents 130.22percent and 102.24percent of budget for the months respectively.
“The amount of money spent on subsidy or underrecovery can provide lots of infrastructure for the teaming population,” Agboola told BusinessDay by Phone.
Despite Equinor losing an arbitration dispute to the tune of $1.1 billion against its partners, including Chevron and Petrobras, over the redetermination of shares in Nigeria’s largest deepwater oilfield Agbami, the state-owned company pre-empted the decision by making a provision for it.
Higher oil prices and rising production helped Equinor’s increase earnings by a third in the first quarter, although the results lagged slightly behind analysts’ consensus expectation.
An increase of 2 percent in Equinor’s production to 2.18m barrels per day allowed the Norwegian group to lift adjusted net earnings to $1.47billion, from $1.11 billion in the same period last year.
Eldar Saetre, chief executive of Equinor’s, said the “solid earnings across all segments” were testament to “a lower cost base enabling us to capture high value from higher prices.”
Cash flow from operations increased by a fifth to $7.1 billion and the group’s net debt ratio fell from 29 per cent to 25.1 per cent in a reflection of the strength returning to balance sheets across the oil and gas sector as prices rise.
However, Equinor said its rising cash flows were offset by higher transportation costs and royalty payments, while a $100m increase in depreciation expenses for a Norwegian production field also weighed on the results.
The company which originally started as Den Norske Stats Oljeselskap AS in 1972 before changing to Staoil and now Equinor said the name change was a natural step after it decided last year to become a “broad energy” firm, investing up to 15percent to 20percent of annual CAPEX in “new energy solutions” by 2030, mostly in offshore wind.
NNPCs situation is worsened by crude oil theft and over 1336 vandalized points recorded between January 2017 and January 2018.
During the period under review, refineries combined capacity utilization was just 10.89 percent.
“There are people working in these refineries that are being paid and promoted for not doing anything but yet receive hefty salaries, so the refineries are loss centres and not profit oriented compared to other oil producing countries which is a shame, but we hope the Petroleum Industry Governance Bill (PIGB) will help address all of these lapses,” Adeola Adenikiju, a gas and policy analyst for the world Bank and professor of Economics at University of Ibadan said.
BusinessDay investigation into the 2017 financial books of Equnor showed the company made a provision of $1.1 billion net of tax, which reflects a reduction of 5.17 percentage points in Statoil’s equity interest in the Agbami field.
The state owned Equinor which announces dividends on a quarterly basis told BusinessDay that the company does not foresee any changes in their financial situation however they acknowledged the company will take into account the award and will update the market in the event of any material change to the situation.
“Statoil is currently evaluating the arbitration ruling, which has no impact on Statoil’s accounting for the Agbami redetermination as the outcome of the expert ruling has been provided for,” Elin Isaksen, Communication Manager, New Energy Solutions (NES) and Marketing, Midstream & Processing (MMP) at Equinor told BusinessDay.
Isaksen added, “The eventual financial impact of an implementation of the redetermination process has been accrued and reported in our annual report.”
The Norwegian State is the largest shareholder in Statoil, with a direct ownership interest of 67 percent. Its ownership interest is managed by the Ministry of Petroleum and Energy. US investors hold 11 percent, Norwegian private owners hold 8percent, other European investors hold 8percent, UK investors hold 3 percent and others hold 2 percent.
Shareholders in Norway’s largest company last Wednesday approved the board’s proposal to change its name to Equinor which means “Equi” for Equality or Equilibrium and “Nor” for Norway as the company seeks to diversify its business and attract young talent concerned about fossil fuels’ impact on climate change.
A barrel of Brent oil, the benchmark for Nigeria crude sold for $79.15 on Friday May 18, according to data obtained from the Bloomberg terminal.
DIPO OLADEHINDE
