What to expect from the Oil and Gas sector in 2024

Standing out prominently among the sectors, the oil and gas index exhibited exceptional performance, recording an impressive surge of 125% over the year to emerge as the best-performing index of the year.

This optimistic outlook can be attributed to a synergy of factors, foremost among them being a series of policy reforms initiated by the administration of President Bola Tinubu since his inauguration in May.

A major shift was the discontinuation of the hugely expensive fuel subsidy program, a contentious initiative that had long been a drain on public coffers.

This decision, seen as a crucial move towards fiscal prudence, reignited interest in energy stocks on the NGX. The consequent influx of capital not only significantly bolstered liquidity in the market but also spurred a more widespread upswing across various sectors.

Oil and gas index performance

As per data sourced from the Nigerian Exchange Limited and tracked by Nairametrics, the oil and gas index, reflecting the performance of quoted oil and gas firms on the NGX, surged by an impressive 125.5% or 580.58 basis points.

It concluded the year at 1,043.06 index points, a significant ascent from the opening index of 462.48 at the commencement of January 2023.

The constituents of the NGX oil and gas index include prominent oil marketing and production companies such as Conoil, Eterna, Japaul Gold and Venture, MRS Oil Nigeria, Oando, Seplat Energy, Total Nigeria, and Capital Oil.

Following closely, the NGX banking index also recorded substantial gains, with an increase of 114.89% or 479.7 basis points. It wrapped up the trading year at 897.20 index points, a notable climb from the initial figure of 417.50 in January.

Investment analysts in an exclusive chat with Nairametrics believed that the current growth of the index showed that the sector points at sustaining its position at the end of the year following positive sentiment from investors.

They added that optimism abounds in the Nigerian oil and gas sector for 2024, fueled by deregulation, liberalization, and anticipated major listings on the Nigerian Exchange Group (NGX).

Financial analysts outlook

The Managing Director of Crane Securities Limited, Mr. Mike Eze, in an exclusive chat with Nairametrics predicts a surge in activity as these factors converge.

• “We have very high expectations for the oil and gas sector this year,” said Mr. Eze in a recent interview with Nairametrics. “Deregulation and liberalization efforts are creating a more attractive environment for investment, and we expect to see a significant uptick in activity.”
• One of the most anticipated developments is the potential listing of the Nigerian National Petroleum Corporation (NNPC) on the NGX.
• “We believe NNPC could list as early as the first quarter of 2024,” Mr. Eze elaborated. “Their strong performance in recent years has paved the way for a successful public offering, which would be a major boost for the market,” Eze said.

He noted that the arrival of Dangote Refinery also adds to the excitement, adding that with its official launch expected soon, the refinery’s potential listing further enhances the sector’s appeal.

• “Dangote understands the importance of market participation and its contribution to their international stature,” Mr. Eze noted. “Their listing would send a strong signal of confidence in the Nigerian market and attract further investment.”

Looking forward, Mr. Eze anticipates significant returns for investors who enter the oil and gas sector during this pivotal period.

• “Robust activity, high dividends, and a generally healthy business climate point towards a lucrative year for those who capitalize on the opportunities emerging in this sector,” he concluded.

Mr. Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management Limited and former President of the Chartered Institute of Stockbrokers (CIS), expressed optimism regarding the recent deregulation of the Oil and Gas industry in Nigeria.

In his view, this long-awaited move paves the way for potential growth in investment inflows to the sector over the medium to long term, potentially leading to enhanced overall performance.

• “With the removal of regulatory hurdles, I expect increased investor interest in the oil and gas space,” Amolegbe commented. “This could significantly boost the turnover of companies within the downstream sector, though it’s crucial to monitor how rising costs may impact overall profitability.”

Amolegbe’s cautious optimism acknowledges the potential benefits of deregulation while also highlighting the need for further assessment of potential challenges, such as cost inflation.

To him, this balanced perspective offers valuable insights for both industry stakeholders and investors considering opportunities in the newly reformed sector.

Mr. David Adonri, Executive Vice Chairman of Hicap Securities Limited, Adonri said that with the commencement of domestic crude oil refining and the anticipated listing of Dangote Refinery, the Nigerian oil and gas sector is poised for a dominant performance in the 2024 equities market.

Adonri noted that this news offers promising prospects for investors seeking lucrative opportunities in the Nigerian economy.

He said that the long-awaited commencement of domestic crude oil refining in Nigeria marks a significant milestone for the nation’s energy sector.

According to him, this shift towards self-sufficiency in refined petroleum products is expected to attract substantial investment and boost economic growth.

• “With the commencement of domestic refining of crude oil, the petroleum sector is expected to remain attractive in 2024,” he said.
• The highly anticipated listing of Dangote Refinery, Africa’s largest single-train refinery, further fuels optimism for the oil and gas sector. Its entry into the Nigerian Stock Exchange (NGX) is expected to be a landmark event, injecting significant liquidity and attracting both local and international investors.
• “The market is eagerly awaiting the listing of Dangote Refinery this year,” notes Mr. Adonri. “With this, the Oil/Gas sector will be dominant in the Equities Market.”

Nigeria’s oil and gas sector is poised for a significant upswing in 2024, driven by a confluence of positive factors, according to Mr. Victor Chiazor, Analyst and Head of Research at FSL Securities Limited. Chiazor projects a surge in activity within the sector due to increased investments by Dangote Refinery and the positive impact of subsidy removal.

• “The long-awaited completion and operation of Dangote Refinery, Africa’s biggest single-train refinery, is expected to be a game-changer for the Nigerian oil and gas landscape.
• This massive new player will not only boost domestic refining capacity but also attract further investments throughout the oil and gas value chain.
• The recent removal of fuel subsidies, while initially causing price adjustments, is expected to have long-term benefits for the sector.
• This move promotes market efficiency, attracts foreign investment, and encourages exploration and production activities,” he said.

Kasimu Garba Kurfi, Managing Director/CEO of APT Securities and Funds Limited, also shared an optimistic outlook for the Nigerian oil and gas sector in 2024, particularly regarding its potential for capital gains and share appreciation. Speaking with Nairametrics, he highlighted several key factors driving his positive expectations:

• Recent policy changes, such as the removal of fuel subsidies and continued emphasis on deregulation, are expected to create a more attractive investment environment within the sector. This could lead to increased exploration, production, and refining activities, creating a ripple effect throughout the value chain.
• The imminent launch of Dangote Refinery is viewed as a game-changer. It will significantly enhance domestic refining capacity, potentially reducing dependence on imported fuels and stimulating further investments in related sectors.
• While subject to fluctuations, current forecasts suggest stable or even rising oil prices in 2024. This bodes well for the profitability of upstream and downstream oil and gas companies, potentially translating into higher share prices and attractive capital gains for investors.

What you should know:

Despite the potential challenges, Nigeria’s oil and gas sector presents a compelling opportunity for investors and stakeholders in 2024.

With increased activity driven by Dangote Refinery’s investments and the benefits of subsidy removal, the sector is well-positioned to play a vital role in driving economic growth and job creation.

It is believed that the confluence of promising factors positions the Nigerian oil and gas sector as a significant driver of capital gains and share appreciation in 2024.

Investors seeking exposure to this potentially lucrative sector should carefully assess individual companies and risks before making investment decisions.

However, cautious optimism and effective management of potential challenges will be key to unlocking the full potential of this exciting sector.