Acquisition costs, debt squeeze oil firms’ N525bn profit growth

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Read History Go to My Account Log Out Enhanced by Google Market Intelligence Acquisition costs, debt squeeze oil firms’ N525bn profit growth Nigeria’s listed oil and gas companies generated substantially higher revenue in the nine months of 2026, but the expansion did

Listen to this article Share Nigeria’s listed oil and gas companies generated substantially higher revenue in the nine months of 2026, but the expansion did not translate into stronger combined profits as acquisition-related charges at Aradel Holdings and financing costs at Oando weighed on earnings.

Across seven listed companies in the Oil and Gas sector — Seplat Energy, Aradel, Oando, TotalEnergies Marketing Nigeria, Conoil, Eterna and Japaul Gold — combined revenue increased by approximately 58.6 percent to N11.81 trillion from N7.45 trillion in the corresponding period of 2025.

However, combined profit after tax fell 9.6 percent to N525.3 billion from N581.3 billion, showing that the growth in sales was not matched by an equivalent improvement in earnings.

The decline was concentrated in two companies. Aradel’s profit fell by N201.8 billion, while Oando recorded a reduction of N94.8 billion. Together, the companies lost approximately N296.6 billion in earnings compared with the previous year.

That deterioration was partly cushioned by Seplat, whose profit increased by N209 billion, alongside improvements at TotalEnergies, Conoil, Eterna and Japaul. Excluding Aradel, the other six companies recorded a combined profit increase of about N145.9 billion.

The divergence reflects the different financial outcomes of expansion across the sector. While higher production, realised prices and sales supported operating performance at several companies, acquisition obligations, borrowing costs, and cash requirements determined how much of that growth could reach shareholders.

Aradel’s expansion meets a heavy acquisition bill

Aradel was the largest contributor to the sector’s profit decline, even as its enlarged business generated a sharp increase in revenue and operating earnings.

Revenue rose more than sevenfold to N3.95 trillion from N538.8 billion following the consolidation of ND Western and Renaissance. Operating profit increased to N1.56 trillion from N167.5 billion, while EBITDA reached N2.10 trillion.

But group profit after tax fell to N43.3 billion from N245.1 billion, largely reflecting the financial obligations associated with its enlarged asset base and acquisition arrangements.

Finance costs increased to N841.1 billion from N21.4 billion. This included a N529.1 billion charge arising from the unwinding of contingent consideration linked to Renaissance’s acquisition of Shell’s former Nigerian assets, alongside N251.1 billion in interest on bank borrowings.

Tax expense also increased sharply to N721.4 billion from N55.6 billion, partly reflecting the tax rates applicable to the newly consolidated businesses.

The accounting charge and cash paid towards earn-out arrangements are separate items. Aradel reported approximately N543.9 billion in earn-out cash payments during the period, while its outstanding contingent consideration liability remained at about N1.32 trillion at September 2026.

Aradel is quite a tricky case because the company’s operating performance was considerably stronger than its reported group profit suggested. Net cash from operating activities reached N2.46 trillion, and production exceeded its full-year guidance range. The company also reported first oil from the acquired Olo marginal field and a hydrocarbon discovery from Renaissance’s JK-004 exploration well.

Adegbite Falade, CEO of Aradel, said the company was in constructive engagement with the seller over the earn-out arrangements. The outcome of those discussions could influence future acquisition-related charges and cash obligations, while the enlarged portfolio will need to sustain the production and cash generation underpinning the expansion.

The distinction between acquisition-related accounting charges and recurring financing costs is important in assessing the sustainability of Aradel’s profit decline.

Abiodun Ogunniyi, head of research and strategy at GTI Investment Group, said the N529.1 billion earn-out charge was a significant one-off accounting item, while higher borrowing costs represented a more recurring financial burden.

“Excluding the earn-out charge, Aradel’s profit after tax would have been substantially higher,” Ogunniyi said.

He added that the acquisitions could begin contributing more meaningfully to shareholder earnings as integration progresses, production efficiencies improve, and financing obligations decline.

Oando’s operating recovery is still constrained by financing costs

Oando was the other major contributor to the sector’s earnings decline, with profit after tax falling 47 percent to N106.5 billion from N201.3 billion.

Revenue increased 9 percent to N2.78 trillion, but the more significant improvement was at the operating level. The company returned to an operating profit of N159.7 billion from a loss of N109.7 billion, while adjusted EBITDA recovered to N181.8 billion from a negative N194.1 billion.

The recovery reflected higher production, better facility reliability, and lower operating costs. Average production rose 14 percent to 42,985 barrels of oil equivalent per day, facility uptime improved to 96.1 percent from 85 percent, and production operating costs declined 22 percent to $15.39 per barrel of oil equivalent.

However, the operating improvement was offset by a reversal in its financing position. Oando moved from net finance income of N128 billion in the prior-year period to net finance costs of N235.2 billion. The earlier period benefited from substantial interest income on loan receivables and bank deposits, which did not recur at the same level.

The company also reported a pre-tax loss of N74.7 billion, with a tax credit of N181.1 billion supporting its positive net profit. Consequently, the reported profit does not yet demonstrate that its underlying financing pressures have been resolved.

Oando generated N285 billion in operating cash flow and invested N110.7 billion in capital expenditure, mainly drilling across its OMLs 60–63 assets. Borrowings stood at N2.16 trillion, down from their peak in 2024.

Its seven-well development programme and production growth are expected to support higher output, but the financial benefit will depend on whether additional cash generation can reduce acquisition debt and financing costs. The company has also identified a planned equity raise as part of its capital management programme.

Seplat accounts for most of the sector’s earnings

Seplat provided the strongest counterpoint to the earnings deterioration, accounting for approximately 68 percent of the seven companies’ combined profit after tax.

Its profit increased 142.5 percent to N355.6 billion from N146.6 billion, while revenue rose to N3.78 trillion from N3.36 trillion.

The improvement was supported by higher production and stronger realised prices. Working-interest production averaged 144,999 barrels of oil equivalent per day, up 7 percent, while its average realised oil price increased to $96.19 per barrel from $71.93.

The company’s production growth, stronger oil prices and relatively low leverage distinguish its earnings performance from the financing pressures affecting Aradel and Oando.

Its operational priorities include increasing output from onshore and offshore assets, developing gas production and bringing additional capacity online. The ANOH project recorded its first commercial gas sales through the OB3 pipeline in September, while its idle-well restoration programme added production capacity.

After the reporting period, Seplat also announced an oil and gas discovery at its Aku-01 exploration well, with preliminary estimates of 19 million barrels of oil and 157 billion cubic feet of gas in place. Further appraisal and development will determine the discovery’s commercial contribution.

The concentration of earnings in Seplat also exposes the extent to which the sector’s aggregate profitability depends on a relatively small number of companies. Its N355.6 billion profit provided a substantial cushion against the deterioration at Aradel and Oando, without which the overall decline would have been considerably steeper.

However, Seplat’s earnings growth was driven more by higher realised oil prices than by production expansion, highlighting its exposure to movements in the crude market. Ogunniyi, GTI research analyst, said realised crude prices increased by 34 percent, compared with 7 percent growth in production, indicating that pricing contributed more significantly to the company’s improved profitability.

He added that this leaves earnings vulnerable to oil price corrections, although sustained production growth, operational efficiency and gas monetisation could provide longer-term resilience. These factors will become increasingly important in determining whether Seplat can sustain its earnings performance if crude prices weaken or production growth slows.

Downstream earnings improve, but financing pressures remain

The improvement extended to downstream companies, although the strength of their recoveries varied.

TotalEnergies Marketing Nigeria returned to profitability, reporting profit after tax of N5.8 billion against a loss of N14.1 billion in the corresponding period of 2025.

Revenue increased 12.6 percent to N661.9 billion, while operating profit rose to N19.2 billion from N5.7 billion. Finance costs declined 40.1 percent to N12.3 billion, helping the company move to a pre-tax profit of N8.02 billion from a loss of N11.92 billion.

Higher sales of white petroleum products, including petrol, automotive gas oil and aviation fuel, supported turnover. However, net profit remained below 1 percent of revenue, while finance costs continued to absorb a substantial portion of operating profit. Its return to profitability therefore remains dependent on protecting operating margins and containing financing expenses.

Conoil also improved its earnings contribution, with profit after tax increasing to N5.31 billion from N1.46 billion, while revenue grew 37.4 percent to N280.12 billion from N203.83 billion.

White petroleum products generated N274.26 billion, accounting for almost 98 percent of turnover. Lubricants contributed a much smaller share, while the company recorded no revenue from liquefied petroleum gas during the period.

However, the increase in sales came alongside a weaker liquidity position. Borrowings rose to N64.8 billion from N54.9 billion at the end of 2025, while cash and bank balances declined to N9.09 billion from N12.91 billion. Finance costs of N12.99 billion also remained significant relative to earnings.

Its third-quarter pre-tax profit fell year on year despite higher revenue, suggesting that the nine-month improvement does not eliminate the pressure on quarterly margins and financing costs.

Eterna and Japaul show different paths to earnings growth Eterna recorded one of the strongest percentage increases in profit among the seven companies. Its profit after tax rose to N7.34 billion from N325.9 million, while revenue increased 71.7 percent to N365.56 billion.

Fuel sales generated N339.92 billion, accounting for approximately 93 percent of revenue. Gross profit more than doubled to N23.33 billion, while operating profit climbed to N11.19 billion.

Unlike companies facing rising borrowing obligations, Eterna reduced its borrowings to N46.75 billion from N69.31 billion at the end of 2025, while cash and bank balances increased to N15.35 billion.

Its earnings improvement therefore combined higher sales, stronger operating profitability and a reduction in borrowings. However, its heavy dependence on fuel distribution leaves its performance closely tied to petroleum-product pricing, sales volumes and distribution margins.

Japaul Gold’s profit after tax also increased to N1.5 billion from approximately N496 million, while revenue grew 59.1 percent to N4.22 billion.

The more significant development was its changing business mix. Dredging generated N4.19 billion in revenue, compared with N359.4 million a year earlier, while offshore services revenue fell to about N1.1 million from N2.23 billion. Dredging has therefore become the principal source of the company’s turnover.

However, the improvement in reported earnings did not translate into positive operating cash flow. Japaul recorded a net cash outflow of N612.6 million from operating activities, while investing activities absorbed N6.92 billion. Private-placement proceeds supported its financing cash flow.