Will oil & gas companies sustain Q1’23 momentum?

Oil and gas companies in Nigeria have shown impressive first-quarter revenue growth, with analysts projecting that this momentum will continue into the full year. Vetiva Research anticipates that the top-line performance of oil firms, including Seplat and Total Energies, will be sustained throughout the year. Victoria Ijugu, an analyst at Vetiva Capital, recently discussed the company's projections for these key players. When examining Total Energies, Victoria noted the company's strong revenue growth but highlighted a drop in earnings as a concern. This decline in earnings can be attributed to pricing pressures for downstream players, as they struggle to pass on increased costs due to price caps and sustained subsidies. The petrol subsidy in particular continues to impact these firms' margins and earnings negatively. The lack of market forces at play in the pricing dynamics has contributed to the challenging environment for downstream players like Total Energies. Additionally, the continued petrol subsidy has added to the pressure on earnings for these companies. On the other hand, Total Energies' operating performance saw only a marginal increase in operating expenses, hinting at effective cost management within the company. This prudent approach to expenses has helped offset the impact on gross profits, leading to a stable operating performance for Total Energies. Turning to Seplat, the company's story has been one of resilience and improvement. After suffering material losses due to pipeline vandalism and oil theft in the previous year, Seplat has managed to turn things around significantly. A crackdown on oil thefts, along with rerouting export routes through a less vulnerable subsea pipeline, helped in reducing losses and improving earnings. The newfound stability and improved earnings have positively influenced sentiment towards Seplat, leading to a stock rally post its earnings announcement. The company's strong financial position, increased dividend payments, and stable upstream segment have garnered investor confidence, resulting in a 7% increase in its stock value. Overall, investor sentiment towards Seplat, Total Energies, and other players in the Nigerian oil and gas sector remains positive. Despite challenges like pricing pressures and subsidy issues, investors see potential in these companies in the medium to long term. The outlook for Seplat and Total Energies, as well as other key players in the industry, is favorable due to expectations of a gradual removal of subsidies and the resulting margin improvements. As the sector adapts to changing dynamics, including the removal of subsidies, there is optimism that these companies will continue to deliver strong performances in the future.