NNPC, IOCs’ bleak earnings signify more troubles ahead

The recent financial results released by the Nigerian National Petroleum Corporation and some global oil majors signify more troubles ahead for the oil and gas industry.

The NNPC recorded a cumulative operational loss of N267.14bn in 2015 according to the latest data from its group financial report for the month of December has shown. The Nigerian state oil firm lost N11.861bn in the month of December alone, down from the N14.29bn loss recorded in November.

Its gross revenue for the 2015 financial year was put at N2.046tn, while its expenses were N2.3tn, leaving a loss of N267.138bn.

While four of its subsidiaries, the NNPC Retail, Nigerian Petroleum Development Company (NPDC), Integrated Data Services Limited (IDSL) and the Nigerian Gas Company (NGC), made profits of N5 billion, N16 billion, N2 billion and N34 billion respectively, its seven other subsidiaries made losses with the Corporate Headquarters recording the highest loss of N162.736 billion.

The refineries continued their poor performance throughout the year as the three of them posted a combined loss of N82.09bn in the period under review. The Kaduna Refinery and Petrochemical Company lost N34.7bn, while the Warri Refinery and Petrochemical Company and Port Harcourt Refining Company lost N24.308bn and N23.09bn, respectively.

NNPC’s product supply and distribution arm, the Pipelines and Products Marketing Company (PPMC), posted a loss of N62 billion, and all the three refineries made a combined loss of N82 billion in the year under consideration.

The corporation noted in the report that it paid N1.095 trillion to the Federation Account Allocation Committee (FAAC) from what it realised from the sale of 245 million barrels of focalised crude oil it lifted on behalf of the federal government.

For the oil majors, BP posted the worst loss in recent memory, down $6.5 billion for the full-year of 2015. Earnings were down by 91 percent in the fourth quarter, which was also the sixth consecutive quarter in which earnings were lower than the previous. BP’s market cap is now below $100 billion for the first time since the Deepwater Horizon disaster in 2010.

ExxonMobil fared better, with earnings of $16.1 billion for the full-year, although those figures were 50 percent lower than for 2014. The oil majors continue to show determination in sticking to their dividend policies, although it is unclear how long that can keep up. Net debt continues to rise in order to fund the generous dividends.

BG Group ended the year on top with its total earnings coming in at $2.3 billion, a significant improvement from a $1.1 million loss in 2014. However, the UK giant did report a loss of $29 million in Q4 2015. BG’s Q4 earnings loss was not nearly as devastating as its $5 billion loss the company reported in Q4 2014. The company reached $2.3 billion with the inclusion of a $1.7 billion gain from disposal of non-current assets that was mainly due to the QCLNG pipeline sale to the APA Group.

Chevron has reported a loss of $588 million for fourth quarter 2015, compared with earnings of $3.5 billion in the 2014 fourth quarter. Full-year 2015 earnings were $4.6 billion compared with $19.2 billion in 2014. Sales and other operating revenues in fourth quarter 2015 were $28 billion, compared to $42 billion in the year-ago period, the statement also said.

Chevron, however, stated that the company added approximately 1.02 billion barrels of net oil equivalent proved reserves in 2015. These additions, which are subject to final reviews, equate to approximately 107 percent of net oil-equivalent production for the year.

Oil firms still holding on

Despite the crunch, oil firms are still holding on and absorbing the short-term losses in the hope of a price rebound, according a new study by research group Wood Mackenzie. Citing up-to-date analysis of production data and cash costs from over 10,000 oil fields, Wood Mac said it believes 3.4 million b/d, or less than 4 percent of global oil supply, is unprofitable at oil prices below $35 per barrel.

For many producers, being cash negative is not enough of an incentive to shut down fields as restarting flow can be costly and some are able to store output with a view to selling it when prices recover.

“Curtailed budgets have slowed investment, which will reduce future volumes, but there is little evidence of production shut-ins for economic reasons,” Wood Mac’s vice president of investment research Robert Plummer said in a note. “Given the cost of restarting production, many producers will continue to take the loss in the hope of a rebound in prices.”

Even since oil prices began sliding in late 2014, there have been relatively few outright field production halts due to low prices, with only around 100,000 b/d shut in globally, according to the study.

Wood Mac said Canada is currently feeling the lion’s share of the oil price slump with 2.2 million b/d of production currently at negative cash operating costs, mainly from oil sands and small producing conventional wells in Alberta and British Colombia. Venezuela is the second-hardest hit, according to the study, with 230,000 b/d from its heavy oil fields, followed by 220,000 b/d from aging UK North Sea fields.

FRANK UZUEGBUNAM