Four oil marketing companies’ prepaid expenses jump by 34% to N3.9bn

Ilenre Irele

The sum total prepaid expenses of four listed downstream oil companies on the Nigerian Exchange Limited jumped by 34 percent in 2023.

This is gleaned from the latest unaudited financial statements of Total Energies Marketing Nigeria Plc, Conoil Plc, MRS Oil Plc, and Eterna Plc, their prepayments increased to N3.85 billion from N2.87 billion in 2022.

TotalEnergies and MRS Oil witnessed a surge in prepayment of 86 percent and 26.5 percent respectively.

Eterna posted a 33.6 percent reduction in prepayment and Conoil posted a 22 percent decrease.

“The primary factor contributing to the decrease is limited cash flows,” said Jide Pratt, chief operating officer of Aiona and country manager of Trade Grid.

He stated that the decline in sales is a critical factor leading to cash flow challenges in the oil and gas industry.

“The higher cost of purchase has made people buy fewer volumes. Oil and gas firms need more cash to pay for Premium Motor Spirit and fewer inflows of cash due to lower purchasing power can lead to cash flow issues for the firms,” he added.

In the oil industry, prepayment serves as a means to stabilise supply chains and mitigate price fluctuations. It is an accounting term for the settlement of a debt or installment loan in advance of its official due date. A prepayment may be the settlement of a bill, an operating expense, or a non-operating expense that closes an account before its due date.

Prepayment allows oil and gas firms to secure future deliveries by paying their suppliers upfront. This practice has become prevalent due to some factors such as commodity market volatility and geopolitical uncertainties.

Since Africa’s biggest economy embraced market-driven petrol pricing, facilitated by President Bola Tinubu, petrol prices have steadily risen due to factors such as currency devaluation and international price hikes.

The dependency on the state-owned Nigerian National Petroleum Company Limited for petrol supply has increased among oil companies, despite the objective of deregulation to diversify suppliers.

Fluctuations in the naira’s value have also affected petrol prices, alongside seasonal and operational costs related to refining, marketing, and distribution.

A depreciation in the rate of the naira makes petrol more expensive even if the international price of crude oil is unchanged.

Pratt noted that the heightened cost of business due to higher interest rates posed a threat to the survival of companies without a corresponding return on investment.

“Clearly, with interest rates being higher now, the cost of business for them is much higher, sadly without a commensurate return on investment threatens the continued existence of those companies,” Pratt said.

Analysis of individual firms
TotalEnergies Marketing Nigeria
TotalEnergies recorded an increase in its prepayment to N2.72 billion in 2023 from N1.46 billion in 2022.

The firm’s prepayment includes employee prepayment which rose to N2.70 billion from N1.41 billion, and prepaid rent decreased to N15.90 million from N44.99 million.

According to a statement by the company, its prepaid rent represents short-term leases that have chosen not to recognise as right-of-use assets.

Trade and other receivables increased to N152.11 billion from N111.39 billion, and trade and other payables rose to N214.10 billion from N190.09 billion.

It recorded a decline in after-tax profit to N12.91 billion from N16.11 billion during the period reviewed.

TotalEnergies formerly (Total Nigeria Plc) is a marketing and services subsidiary of Total which is a multinational integrated oil and gas company and one of the seven major oil companies in the world.