The effect of lower oil prices on West Africa-focused oil, gas companies

According to BP plc’s latest annual Statistical Review of World Energy, West Africa contains the largest oil producing nation and the third largest gas producing nation on the continent. The region contains active oil and gas fields, both onshore and offshore, across countries including Nigeria, Senegal, Sierra Leone, Liberia, Cote d’Ivoire and The Gambia and attracts both indigenous and international energy firms – but how are these energy companies coping with the ever-declining oil price?

Judging by Panoro Energy ASA’s second quarter results statement for 2015, the answer is not well. This West Africa-focused exploration and production company revealed a $34.13 million operating loss at the EBIT level during 2Q 2015, which was a significant drop from the EBIT level operating loss of $2.19 million posted during 2Q 2014 and $1.93 million in the first quarter of 2015. In spite of the losses however, the company reported a cash balance of $33.3 million as at June 30, compared to $36.1 million at March 31. Around $26 million of this cash was earmarked for the development of the Aje Cenomanian oil field, located in Nigeria, which is on schedule for first oil at the end of this year, according to Panoro’s second quarter 2015 results statement.

Mart Resources Inc., which focuses its activities in the Niger Delta region of Nigeria, echoed Panoro’s declining financial position, posting a net loss of $24.30 million for the six month period ended June 30, compared to a net income of $13.07 million registered in the first half of 2014. Net loss rose to $6.8 million in 2Q 2015 from $1.4 million in 2Q 2014 and one of the main reasons for this increase in loss was the lower oil price experienced by the oil and gas industry at the time, according to Mart Resources. Seven Energy, which has two core areas of operation in the northwest and southeast Niger Delta, posted an operating loss of $13.68 million in 1H 2015, which was $67.85 million less than its 1H 2014 operating profit of $54.17 million.

Côte d’Ivoire and Ghana-focused oil and gas company Azonto Petroleum Ltd. reported a similar waning trend in its 2Q 2015 results, reporting that its cash at the end of the quarter stood at $2.57 million, compared to $3.64 million at the end of 1Q 2015 and $5 million at the end of 4Q 2014. Azonto also recently sold its entire 35 percent stake in Vioco Petroleum Limited, the operator of the CI-202 block offshore Côte d’Ivoire, to Vitol E&P Limited for $4 million a few weeks ago, effectively ending its activities in the West African country. Azonto claimed that the increased cost growth experienced by the CI-202 Block’s Gazelle project in recent months was one of the reasons for the planned sale of its asset, as was the “increasingly challenging” oil and gas sector environment.

On the surface, Oando Energy Resources, which largely concentrates its activities onshore and offshore Nigeria, looks to follow in the financial footsteps of the aforementioned companies with a $50.35 million loss posted in the first half of 2015. Scratch a little deeper however and the company’s 1H 2014 financial statement shows a $177.54 million loss, which highlights a significant year on year improvement. Oando’s revenues more than tripled during this timeframe too, going from $62.60 million in 1H 2014 to $222.65 million in 1H 2015.

African Petroleum, which holds ten licenses across Côte d’Ivoire, Liberia, Senegal, The Gambia and Sierra Leone, revealed September 1 that the company reduced its year-to-date 2Q loss from $8.93 million in 2014 to $8.08 million in 2015, despite the fact that its revenue decreased from $2.93 million to $350,000 during the same period. According to its most recent comprehensive results statement, Nigeria-focused energy company Eland Oil & Gas plc also improved its losses from $26.14 million, for the year ended Dec. 31, 2013, to $16.29 million for the same period in 2014. In a separate financial statement, Eland revealed a cash balance of $13.1 million as of June 30, which was $4.9 million higher than the cash balance of $8.2 million as of March 1. Indigenous Nigerian upstream exploration and production company Seplat Petroleum Development Company plc managed to buck the trend of recording losses and registered a $71 million operating profit for the first half of 2015, despite suffering a 59 percent decrease in operating profit compared to the previous year.

As shown by the financial results of the aforementioned companies, some firms are coping with the lower oil price better than others. There certainly seems to be a trend of West Africa-focused oil and gas companies posting losses during the past few months, which echoes Edison Investment Research Limited’s analysis that “West African explorers have found it tough over the last year as a falling oil price has continued to suppress already poor sentiment across the sector”, although certain energy firms look to be improving their financial health in their most recent statements, while others are heading in the wrong direction.

ANDREAS EXARHEAS

Culled from Rigzone