Nigerian energy stocks close in on best quarterly performance in nine years

Nigerian energy stocks are right in the neighbourhood of their best quarter in nine years, enjoying a boost from the unusually strong investor sentiment that has come to shape trade after the new government announced a resolve to pursue several market-friendly reforms.

It has never been so fruitful for the energy shares of Africa’s second-biggest bourse since the second quarter of 2014 as now, according to the NGXOILGAS – the index which tracks the performance of that sector – having yielded 50.7 per cent since April as of Tuesday. That is only lower than the three months to June 2014 when such stocks returned 62.5 per cent.

The index is only outperformed by the one monitoring the progress of insurance equities out of the five sector indexes on the Nigerian Exchange.

While oil & gas equities have yielded 66.5 per cent since the start of the year, they have added 41.2 per cent in 52 weeks, according to the Nigerian Exchange data.

MRS Oil leads the pack of the six benchmark stocks, with a yield of 182.6 per cent so far this quarter.

Eterna Oil, acquired by unlisted Rainoil Limited some 18 months ago, and Mike Adenuga-backed Conoil come next, returning 180.9 per cent and 115.8 per cent in that order.

Nigeria’s biggest oil & gas company by market value, Seplat Energy, is up by only 21.7 per cent this quarter. But the oil driller thrilled shareholders in April when it announced a novel windfall dividend, doubling the cash it paid them for the last quarter of last year as a global oil price boom catapulted the firm to record revenue.

Seplat Energy, which has a secondary listing in London, is the company stock of the 156 equities quoted in Lagos paying dividends for each of the four quarters of the year.

Energy stocks and new reforms

A tide of policy shifts in Africa’s biggest oil producer in the wake of President Bola Tinubu’s rise to power in May, including the cessation of a popular but costly petrol subsidy scheme, is rejuvenating participation in energy stocks and helping return liquidity to the market.

Eliminating the subsidy “will also spur investments in both the upstream and downstream sectors over the medium term, as crude production for domestic refining is not subject to OPEC quota,” analysts at Vetiva Securities Limited said in a note this month.

CEO Mele Kyari of the state-owned Nigerian National Petroleum Company Limited (NNPCL) said a few weeks ago that local oil marketers could start importing fuel this month, weaning its firm off the monopoly of bringing in petroleum products from abroad.

That positive is also drawing investors to energy stocks, considering that the move could free up more cash for oil & gas companies.

Nigeria’s Petroleum Industry Act, which came to life in 2021, forbids NNPCL from importing above 30 per cent of the country’s gasoline needs.

The conversion of NNPCL itself into a publicly quoted company is in the works, having been bogged down by loss-making, mismanagement, graft and decrepit infrastructures for years under a government corporation structure.
Energy companies exiting the market in droves

The boom in the valuation of energy stocks coincides with a time when retaining such companies is increasingly problematic for the Nigerian stock market authorities and winning new ones is perhaps far more harrowing.

Oando, also listed in Johannesburg, and Ardova are on the line-up of companies set to take their leave from the main stock exchange in Lagos as their core investors have declared the aspiration to take them private.

While oilman Abdulwasiu Sowami, who holds a 74.1 per cent interest in Ardova, has tabled N17.4 billion (premium inclusive) to buy the remaining shares, Oando’s top shareholders, Wale Tinubu and Omamofe Boyo, are talking others into taking a premium of 58 per cent on the share price as of 28 March as an incentive to divest.

Rak Unity Petroleum, which is in liquidation, teed off final payments to shareholders last month, setting the stage for the company to formally go under.