While Seplat, Nigeria’s largest indigenous firm rebounded to growth on the back of improved crude oil price, Erin energy and Savannah Petroleum both midsized firms continues to gasp for breath as it sweeps in an ocean of losses over major assets acquired.
Seplat surmounted the headwinds brought on by lower oil price and political unrest the Niger Delta region as it recorded a profit after tax of $265 million to end 2017 financial year from a loss of $165 million the previous year.
On the other hand, Erin Energy, a small oil and gas firm recorded a 6.3 percent increase in its loss after tax to $151.9 million in 2017 from $142 million in 2016 while Savannah Petroleum, another small player in in the industry recorded an astronomical 178 percent increase in loss after tax of $27.3 million in 2017 compared to $9.8 million in 2016.
The lifting of a force majeure in the third quarter of 2017 was a boon for Seplat as it resumed production and recorded returned to profitability however the two other firms gave reasons for their loss.
Erin Energy said they have being investing money in the acquisition of new assets and shareholders will have to wait for dividend payment while share-buy backs could be delayed.
“2017 had its challenges for our industry and our company, but Erin Energy’s perseverance and some stabilization of the commodity price, allowed for good progress in many of our efforts.” Femi Ayoade, ceo of Erin Energy said on the company’s official website.
Savannah Petroleum is faced with the same dilemma as Erin Energy; the company acquisition of integrated gas company, Seven Energy increases its operating expenses by 222 percent to $27.1 million in 2017 from $8.4 million in 2016.
Savannah Petroleum CEO Andrew Knott said “the acquisition of assets from Seven Energy creates a full cycle exploration and production company, capable of paying a dividend from the cash flows generated by its upstream assets.”
“The increase in overall general and administrative expenses during the year was as a result of exceptional business development costs of $18.5 million in relation to the Seven Energy transaction,” Knott said on the company official website.
In 2017, Seplat recorded a Profit before tax of $44 million in 2017 after making a loss after tax of $173 million in 2016 in 2016; Erin Energy increased its loss to $151.9 million from $142 million in 2016 while Savannah Petroleum Plc announced a loss of $27 million which was a 170 per cent increase from $10million in 2016.
Jubril Kareem an energy analyst with Ecobank Research group said when oil company assets are in exploration phrase it’s normal to make loss in Nigeria Oil and Gas industry.
“Compare to International oil companies and Seplat which already have established revenue stream, majority of Erin Energy assets are exploration and developmental phrase so there revenue is in the future when these assets they are investing in will start making profits,” Kareem added.
BusinessDay investigation showed at full year 2017 Seplat expanded revenue by 78 per cent to $452 million from $254 million in 2016; Erin Energy had an increase of 30 per cent to 101.2 million in 2017 from 77.8 million in 2016, while Savannah Petroleum year-on-year operating loss remained flat at $8m, as the Group remained in the pre-revenue exploration and development phase of operations.
In 2017, Seplat shareholders fund stood at $1.5billion, while Erin Energy and Savannah Energy Shareholders fund stood at $251 million and $289 million respectively.
Investigation in net cash flow from operating activities showed Seplat recorded increase of 161.40 percent to $447 million from $171.59 million recorded last year, Erin Energy recorded an increase of 333 percent to $26 million in 2017 from $6 million in 2016 while Savannah Petroleum recorded 85 percent increase from $8.4 million in 2016 to $15.6 million in loss net cash flow in 2017.
The indigenous upstream oil and gas giant Seplat had a $450 million in free cash flow in 2017, which represents a 275.75 percent surge from $119.76 million recorded as at December 2016, while Erin Energy and Savannah Petroleum both have a negative free cash flow of $26 million and $17.4 million respectively
A negative free cash flow from operating activities means oil and gas firm has been investing money in the acquisition of new assets albeit shareholders will have to wait for dividend payment while share-buy backs could be delayed.
Further investigation revealed Seplat has a free cash flow yield of 0.11 percent, while Erin Energy and Savannah had free cash flow yield of 3.2 percent and 7.8 percent respectively.
The free cash flow yield is a powerful tool, mostly because it establishes the relationship between the money you put in a company compared to the returns it generates.
The recession as well as a slump in oil prices had many companies on their knees in 2016. Seplat, Erin Energy and Savannah Petroleum were part of them, after sinking to less than $28 in 2016; oil prices rebounded to give vim to the economy with oil companies cashing in big.
The price of Brent crude, Nigeria’s benchmark grade, cooled 0.13 percent to $68 per barrel Friday, according to Bloomberg data, Oil production on the other hand has recovered to 1.8 million barrels as at February 2018, according to OPEC data, from as low as 1.2 million barrels daily in the thick of militant disruptions.
These factors contributed to lifting the economy from recession in the second quarter of 2017, according to the National Bureau of Statistics (NBS). The economy has consolidated its exit from recession after growing 0.8 percent in 2017 compared to a 1.6 percent contraction the previous year.
DIPO OLADEHINDE
