International agency, Moody’s, has predicted that major oil exploration companies may benefit from the sustained rally in crude oil prices this year.
The report noted that global oil majors such as ExxonMobil, Chevron, Royal Dutch Shell, Total and British Petroleum are set to reap huge benefit of a partial recovery in oil prices.
According to Peter Speer, Senior Vice President, Moody’s who led the report noted that the overall earnings before tax and interests are expected to rise while balance sheet leverage (debt/capital) will generally decline as oil prices firm up.
“Oil companies will continue to reap the benefits of a partial recovery in oil prices and also continue to pursue efficiencies and maintain competitive cost structures in order to reap the benefits of higher prices.”
Crude oil is up to around $70 in 2018, the report says it expects the Full Year 2018 earnings to be higher than 2017 results, noting that it expects a 5% annual increase in total capital spending for the oil companies.
How this affects quoted oil companies
Recall that a combination of improved efficiencies in their value chain and series of divestment has helped major oil and gas players listed on the stock exchange such as Seplat and Oando to cut their net debt positions and boost their bottom line last year.
Also, during the low crude oil prices of 2016, major players in the country resulted in various cost-cutting mechanism, while Seplat had a negative before tax at some point, but with oil prices recovering, and production recovery from the Forcados fire incident, the company is back on track with the company paying dividends to shareholders first quarter this year. The company has also revealed plans to make more revenue from gas business this year.
Another major player in Nigeria’s Oil and Gas is Oando Plc, despite a dip in the company’s production capacity in 2017 to 40,188 bpd from 43,503bpd its revenue surged by N41.7 billion and also as a result of series of divestment and debt restructuring, the company was able to bring down its debt profile by 50 percent to around N273 billion.
It is expected that the company, which is currently under investigation by the Securities and Exchange Commission (SEC), will continue to reduce its net debt profile in 2018 and also post a tax after profit this year.
Seplat shares are traded at N650 on the floor of the stock exchange as at 26 July 2018, with a one year return of 37.26%. While Oando Plc shares are traded at N4.85 on the floor of the stock exchange, year to date, down by 42.26%.
Moody’s Investors Service is the bond credit rating business of Moody’s Corporation. It rates debt securities in several market segments related to public and commercial securities in the bond market.