…As bank borrowings reduce 16.2% •Analysts predict further rise in profit despite declining pump prices
By Peter Egwuatu
There are indications that the downstream segment of Nigeria’s petroleum sector has began to reap full benefits of subsidy removal as their financial records show huge rise in revenue and profit in 2025.
Also the operators have significantly reduced their reliance on banks for funding, a development which has boosted their profitability margin.
The financial details of top seven companies in the sector showed that they recorded a combined turnover growth of 66.2% to N2.98 trillion in the first quarter of 2025, Q1’25, against N1.79 trillion in Q1’24. They grew their Profit Before Tax, PBT, by 42.1% to N334.6 billion in Q1’25, against N235.5 billion in Q1’24.
Meanwhile, finance cost declined by 36.3% to N534.135 billion in Q1’25 from N838.581 billion in Q1’24, driven by reduced bank borrowing.
Market analysts and economy experts have attributed the impressive performance recorded by the sector to deregulation policy which positive impact outweighed the negative impact of high cost of funds driven by monetary and fiscal policies.
They noted that the final removal of Nigeria’s longstanding fuel subsidy in the third quarter of 2024 marked the beginning of a new economic reality, significantly altering the country’s oil sector.
The companies covered by Financial Vanguard include Seplat Energy Plc, Total Energies Plc, Eterna Plc, MRS Oil Plc, Aradel Plc, Oando Plc, Conoil Plc.
The financial reports of the firms show that borrowings reduced by 16.2% to N2.074 trillion in the Q1’25 from N2.474 trillion in Q1’24.
Details of the borrowing shows: Conoil N42.445 billion, Eterna Oil N40.244 billion, Total Energies N103.150 billion, Aradel N141.663 billion, Oando N1.691 trillion; and Seplat Energy $100 million. MRS Oil did not borrow during the review period.
Analysts’ comment.
Speaking, the Vice President, Highcap Securities Limited, Mr. David Adnori, explained that the growth in the period under review was driven by increase in petroleum price, stressing that increasing business activities, also a driving factor.
Adonri, said: “The growth in the profit made by petroleum marketing and gas companies is a fallout from the deregulation of the Oil/Gas sector and consequent colossal increase in price of petroleum products. Their cost also increased astronomically because of higher cost of sales, high finance cost and impact of the general rise in inflation.
“ The elasticity of demand for petroleum products is quite high hence they were able to transfer their costs to consumers. Secondly, through several turnovers of their capital employed, they were able to massively outperform inflation”.
On the sectoral borrowing, he said: “Petroleum and gas business requires very huge working capital outlay which many operators cannot afford hence the resort to bank credit. Though, in Q1’25, according to the data gathered the companies reduced borrowing due to high lending rate. With the reduction in borrowing despite escalation of cost of sales, their finance cost reduced. Their healthy returns after deduction of finance cost mean that their short term debt servicing capacity is strong.”
While commenting on the outlook in 2025, Adonri said : “Expectation of impressive performance and increased dividends from the petroleum and gas sector is high among investors. This is because of the encouraging trend since beginning of last year. Since 3rd quarter of 2024, distribution of petroleum products has nearly normalized meaning improving income for operators. Consequently, 2025 is even expected to be a better year for the industry in terms of return.”
Commenting as well, Olatunde Amolegbe, former President Chartered Institute of Stockbrokers, CIS said: “It’s clear that the decision to deregulate the downstream energy sector has had a profound impact on the performance of companies operating in that sector.
“Firstly since prices are no longer regulated players now set their own pump price relative to their cost, operating expenses, margins and other parameters, it therefore means that they are able to squeeze more profitability from their businesses. That is why we are seeing high profit margin and turnover as the product has inelastic demand.
“Secondly the cost of borrowing has remained high, that is why some of the companies have reduced their borrowing from banks and look for alternative as the businesses are a capital intensive.
“Furthermore, they are also benefitting from sourcing products locally with the coming on stream of Dangote Refineries which reduces their FX exposure/ risks and also improves product availability.
“So the profit spike they’ve seen this year has to do with this fundamental change in the functioning of the sector. It’s likely that margins will stabilize as the industry settles into its new reality and intense competition sets in”.
In his own reaction, the Chief Operating Officer of InvestData Consulting Limited, Mr Ambrose Omordion, attributed the increase in revenue of these companies to higher-margin crude oil products, stressing that the ease of movement also contributed to revenue and profit.
According to him, “These companies reported an increase in revenue due to higher margin in products they sold this year. The reforms in the oil & gas sector have impacted on revenue that translates into profit. Also, last year witnessed a significant petrol price hike, which put a strain on the economy. The price hike of petrol and gas has contributed to exacerbate the economic hardship faced by Nigerians”.
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