Nigeria is one of many countries with a national oil company like the Nigerian National Petroleum Company Limited (NNPCL). Saudi’s Aramco and Brazil’s Petrobras are examples of national oil companies with similar mandates.
All three companies are the dominant players in their respective country’s oil sectors and are among the top 3 oil producing countries in each of their respective regions. For instance, in Africa, Nigeria is the second-largest oil-producing country. Brazil is the third-largest oil-producing country in North America. Likewise, Saudi Arabia in the Middle East.
However, this is where the similarities end, as Nigeria’s oil company has not been able to compete with these companies in terms of profits, nor has it been able to attract sizeable investments. The Nigerian oil and gas sector, the lifeblood of Africa’s biggest economy, is facing one of its most challenging periods in history, thanks to a litany of old woes as profit and fiscal sustainability continue to be significant challenges for NNPCL.
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Saudi Arabia’s oil company, Aramco, in December 2019 made history by listing on the Saudi Stock exchange market. This was a move to make more profit and have public investments in the organisation. This development at its inception led to raising $29.4 billion on the Saudi stock exchange market, Tadawul.
Brazil’s state-owned oil company, Petrobras, also listed its shares on the Brazil stock exchange market to ensure profit maximisation and public investment in its business. Currently, the organisation has an investment of US$8.8 billion.
In a bid to position the NNPCL to make profits like its successful colleagues, on September 20, 2021, the NNPC transitioned to a limited company incorporated under the provisions of Nigeria’s Corporate Affairs Commission.
A path different from its two counterparts but with a similar goal, increasing profits.
A review of the Q1 and Q2 financial statements of the NNPCL shows that this move is yet to yield fruits.
Even the surge in global crude oil prices in Q1 and Q2 2022 did not carry enough power to bring the newly transitioned NNPCL’s profits to life.
Global oil prices moved from an average of $83.9 in January 2022 to as high as $112.4 at the end of the first quarter.
At the end of the second quarter, the average price of Crude oil stood at $116.8.
A rise in crude prices should mean more money for oil companies, and this assertion proved true in the case of Aramco and Petrobras, who attributed the profit recorded so far this year to the higher prices of Brent crude. But not so for the NNPCL, who recorded exactly zero nairas in profits and
Aramco’s Q1 2022 revenue figures show that Aramco posted a gross revenue that is 5307 per cent more than the NNPCLs revenue in Q1 2022. And its revenue in Q2 is 4838 per cent higher than what NNPCL posted in Q2 as revenue.
Petrobras also made 1159 percent more revenue than NNPC Ltd made in Q1, 2022, and another 1119 percent more than Nigeria’s oil company made in Q2, 2022.
Increased profit and revenue have continued for Aramco and Petrobras in Q3, and although the NNPCL is yet to publish its Q3 report, it may not be much different from the previous quarters.
Saudi Arabia’s state-owned oil company, whose existence dates back to 1933, is currently the world’s biggest oil company. It is the world’s second most valuable company, by market capitalisation, with a total market cap of $1.885 trillion, according to Dataphyte’s findings.
Petrobras, Brazil’s state-owned oil corporation, was established in 1953. As of November 2022, Petrobras is estimated to have a market cap of $68.54 billion, ranking as the world’s 196th most valuable company by market capitalisation.
Why is Nigeria’s oil company performing so poorly compared to Aramco and Petrobras?
Poor Production, Unprofitable Partnerships, and Unfavourable Expenditures are a Noose on the Neck of NNPCLs Profits
Nigeria is not producing enough crude to meet its quota on the international market, currently pegged at 1.830 million barrels per day by the Organization of the Petroleum Exporting Countries (OPEC).
Crude oil theft, poor pipeline facilities, and vandalism have continually plagued the Nigerian oil company limiting its ability to boost its revenue and profit.
The same illness does not plague its counterparts as a review of OPEC reports shows that while Nigeria produced an average of 1.238 million barrels of Crude oil per day in March 2022, Saudi Arabia produced 10.3 million barrels daily while Brazil produced 2.98 million barrels.
Earlier this year, Nigeria reportedly lost 272 million barrels of crude oil to theft and sabotage in five years. That translates to 149,000 barrels of crude oil daily over the five-year period.
Asides poor production, Nigeria’s heavy petroleum subsidy burden cuts its revenues off at the knees, reducing the financial resources at its disposal. The money is recorded as under-recovery in the oil company’s accounts. It is a “self-imposed penance” for the country’s dependence on the importation of refined petroleum despite spending billions on the rehabilitation of refineries.
For instance, NNPCL stated that it deducted N525.71 billion as a shortfall for the importation of petrol (subsidy) in August 2022 in its September monthly presentation to the Federation Account Allocation Committee (FAAC) meeting.
The FAAC document obtained by Dataphyte showed that due to the subsidy payment, the oil company failed to remit any funds to the federation account for the eighth consecutive time.
President Muhammdu Buhari, who has dilly-dallied on scrapping the subsidy, admitted that subsidising refined petroleum was unsustainable. An admission that comes after his administration spent N7.3 trillion on the “unsustainable” practice.
Without the subsidy bill, NNPC could have had at least the sum of N1.59 trillion as profit between Q1 and Q2 2022.
The NNPC has also maintained dalliances with unprofitable subsidiaries. Dataphyte has reported a series of monies spent by these subsidiaries running into billions that qualify as frivolous spending.
What does NNPCL’s continued Financial state mean for Nigeria and Nigerians?
Poor returns by the NNPCL affect what is available to states and the Federal government to carry out statutory obligations, especially because of the country’s mono-economy syndrome. A review of the FAAC document shows that the NNPC has not remitted any money to FAAC between January to July 2022.
These poor financials for a crude oil-driven economy is contributory to the country’s heavy reliance on loans to finance its budget leading to the accumulation of debts.
Aside from the availability of funds, continued subsidy payments impact Nigeria’s currency, placing a demand on scarce foreign exchange, further weakening the naira.
The economy has contracted twice in the space of five years, and that has caused poverty to deepen. Inflation is at a 17-year high, and the unemployment rate is the second highest in Africa after Namibia. In 2018, Nigeria earned the dubious title of the world’s poverty capital, overtaking India with five times its population.
Analysts say Nigeria needs to begin full implementation of its petroleum industry law, engage professionals to run the sector, and execute smarter policies like full deregulation of the downstream sector to have a fighting chance of reaping the benefits of its vast resources before the world completely moves away from oil.