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What to expect from oil and gas stocks in 2023

The oil and gas index emerged as the best performer amongst other indexes in 2022, delivering handsome returns of 34.05%.

The oil and gas stocks listed on the Nigerian Exchange took advantage of Europe’s energy shortage occasioned by Russia’s invasion of Ukraine.

For months since Europe’s energy shortages began, crude oil prices have been averaging around $80 per barrel. And this has created positive sentiments for energy investors, especially in Nigeria. This explains the positive performance of the NGX oil and gas index.

Current index performance: Data tracked by Nairametrics has shown that the NGX oil and gas index, which measures the performance of the oil and gas firms quoted on the NGX, has already increased by 3.64% or 16.96 basis points this year.

The NGX oil and gas index comprises nine listed oil marketing and production companies – Ardova Plc, Conoil, Eterna, Japaul Gold and Venture, MRS Oil Nigeria, Oando, Seplat Energy, Total Nigeria and Capital Oil.

Analysts’ expectations in 2023: The analysts said that despite the government’s unstable oil policy, the oil and gas index is determined to sustain its position at the end of the year due to positive sentiment by investors.

They added that the Oil and Gas industry will continue to thrive with the expected increase in international oil prices.

Unstable oil policy: The Managing Director of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe, told Nairametrics that the sector has been unstable because of the unstable oil policy by the government.

Amolegbe noted that the passage of the PIA bill has not impacted positively on the sector adding that the success of the bill is supposed to be supported by full deregulation of the oil sector.

  • “The benefits might be felt if any of the three top presidential candidates emerge because all of them want market forces to control the sector and fuel subsidy removed.
  • “So we are waiting for a new government that will want market forces to rule the oil industry. Any of them emerging with full implementation of PIA will make the sector realise its potential, post-removal of the subsidy. The three candidates made it possible in their manifestos that they will remove the subsidy,” he said.

Dangote Refinery: Amolegbe noted that the coming onstream of the Dangote refinery will also change the supply side in the oil and gas sector, and other modular refineries will as well alter the supply side of the industry.

  • “If this is done, it will increase confidence in the sector going forward. A first quarter might see instability but from second to fourth quarters will see the road to success we expect, if the aforementioned factors come to play, the stocks listed on the sector will perform very well in 2023,” he said. 

Stocks traded: He noted that a lot of stocks traded in the sector are trading at a significant discount to their potential at the moment adding that that’s why there is a significant upside to their prices.

  • “Most of them are trading at a low base. If the industry factors are taken care of and if everything is equal, the sector will come out with impressive performance both in an increase in revenue and share price appreciation.
  • “To savvy investors with an investment appetite and willingness to hold the instrument for a relatively long time, these are stocks you must invest in because if the issues are addressed, it will be good stocks to hold or buy and hold,” he said.    

Commodity prices: Executive Vice Chairman of Hicap Securities Limited, Mr David Adonri, said some analysts believe that commodity prices may still go higher this year because of Ukraine- Russia war.

  • “Commodity prices may be elevated hence the fortunes of the oil and gas sector are still very high,” he said.

Adonri noted that companies that are in marketing segments are already affected by the scarcity of fuel which will impact negatively their profits.

He added that the companies operating in the upstream sector will witness a rise in profit because Nigeria depends more on the production of crude oil.

  • “Some of these companies like Total, and Seplat are expected to pay a higher dividend. 
  • But later in the year, when the Dangote Mega refinery comes on stream together with rehabilitated government refinery, the domestic fuel supply will stabilise and that will stabilise the earnings of oil and gas companies. 
  • The petrol marketing companies will from Q3 of this year stabilise after Dangote Refinery comes on stream. The prospect of the sector is bright and there is potential on the stocks so we endorse investment in the stocks,” he said.
  • The Managing Director of Cowry Asset Management Limited, Mr Johnson Chukwu said: “We should expect higher crude oil prices in 2023 and the sector’s stocks are good to pick for discerning We expect investors to take positions ahead of the financial year ended result release and dividend payment declaration”.