(Sundiata Finance – A sharp fall in income tax expenses and a reduction in operating and production costs have spurred Nigeria’s Forte Oil to growth as second quarter profit surged amid a volatile and unpredictable macroeconomic environment. For the first six months through June 2017, Forte Oil’s net income rose by 84.0 per cent to N4.10 billion as against N2.23 billion recorded in June 2016.
Sales were however down 22 per cent to N65.64 billion due to a 41.48 per cent drop in revenue from fuels while revenue from power generation spiked by 283.15 per cent to N16.78 billion.
Growth in the bottom line was underpinned by 26.05 per cent reduction in cost of sales, 22.06 per cent drop in operating expenses, and 69 decline in income tax expense to N53.46 billion, N5.55 billion and N628.82 million.
Despite Forte Oil’s impressive performance in the period under review, federal government prolonged delay of subsidy payment is undermining the cash flows of the company and other operators in the downstream oil and gas sector.
Federal Government’s inability to pay major petroleum marketers arrears of their subsidy claims of over $2 billion has hindered these firms from paying interest on loans borrowed from banks for the importation of petroleum products.
Moreso, the continued weakening of the Naira to over N305 while federal agencies base their reimbursement calculations on N197/$, means major oil marketers’ will pay more on interests on money borrowed from banks.
With no allocation for subsidy payment in the 2017 budget, analysts say Oil majors such as Oando, Forte, Mobil, and Total may be forced to cut back on dividend payment with the possibility of a downsize in staff numbers as the firms seek to cut cost.
Forte Oil’s long term borrowing stood at N40.90 billion in June 2017, 75.37 per cent increase from N23.32 billion of June 2016. Total liabilities were up 2.57 per cent to N99.92 billion in the period under review from N97.42 billion the previous year.
Despite the indebtedness of major oil marketers, Forte Oil is lowly geared as gearing ratio stood at 68 per cent in the period under period.
However, there appears to be some flicker of light at the end of the tunnel for major petroleum oil marketers as the Federal Government has said it is awaiting approval of the National Assembly to settle its liabilities to fuel marketers for subsidy claims. The National Assembly is billed to resume on September 19.
Further analysis of Forte Oi’s financial statement showed net margins increased to 6.24 per cent in June 2017 from 2.64 per cent as at June 2016. (BusinessDay)