Despite TOR shut down, price volatility

The oil marketing industry is fast establishing itself as one of the most profitable ventures in the country, with players making significant profits even in the toughest of times.

Despite frequent shortages in petroleum products in the country and the dramatic price swings on the global crude markets in the first nine months of the year, Total Petroleum Ghana Limited and Ghana Oil Company Limited (GOIL) managed to squeeze out from declining sales, some appreciable profit margins.

In their recent third quarter financial reports released to the GSE, the two listed companies reported significant improvement in their bottom lines. Total, the Industry leader, saw its turnover dip 12 per cent, with sales figures plummeting from GH¢430,018,000 recorded in 2008 to GH¢376,362,000.

But the oil marketing company (OMC) managed to push down cost of sales significantly, resulting in enhanced operating profits. Costs fell 16 per cent to GH¢344,562,000.

The reduction in sales costs could be attributed to prudent management and the near-completion of the company’s restructuring exercise since the Mobil merger. Declines in operations costs for the OMC could also be attributed to less frequent pump price changes this year, a situation that had forced OMC to demand an increase in the fuel margins last year.

There was however a higher jump of 25 per cent in TOTAL’s administrative expense to GH¢21,412,000 for the first nine months of 2009.

More impressively, the company’s operating profits soared 106 per cent to GH¢10,388,000, with after tax profits also advancing 140 per cent to GH¢9,967,000. Third quarter results for GOIL, the other major contender in the oil marketing sector, depicted a similar trend.

GOIL recorded a dip in its turnover of 12 per cent but managed to boost its bottom line substantially. The company’s after tax profits went up 82 per cent from GH¢2,371,000 in prior year to GH¢4,307,000 by the end of the first nine months of 2009.

This was underpinned by a solid growth in the company’s operating profits of 76 per cent to GH¢6,823,000, thanks to a drop in sales cost from GH¢ 314,854,000 in Q3 2008 to GH¢270,981,000 in Q3 2009. GOIL could also not tame its administrative expenses which went up 14 per cent to GH¢12,042,000.

Even though third quarter report for Shell was not readily available, Financial Intelligence checks revealed that the company remains resilient and profiting despite the hitches. Shell, the second largest participant in the sector and operating in the Over the Counter (OTC) market, remains one of the most enviable operators in Ghana’s downstream petroleum sector.

Even though most OMCs complained bitterly about the occasional product shortages that hit the nation as a result of the Tema Oil Refinery (TOR) shut down, giants in the industry including Total, GOIL and Shell, took the challenge in stride. The three companies together have about 70 per cent of market share among them. With the cut in supply to defaulting OMCs by the TOR, big players including the two companies stand to witness an impressive final quarter.

In the heat of the global economic meltdown, oil prices peaked at $147 per barrel in July 2008 and remained volatile until it hit a low $30 per barrel this year. Even though price volatility impacted negatively on their operations, Total’s turnover increased 41% by the close of 2008 to GH¢571,499,000 whilst GOIL bagged GH¢4,156,348 in after tax profits for the past year.

With the OMCs impressive performance in recent times following the deregulation of the sector, it would not be surprising to see government fall on it for additional resources in difficult times, just as the banking and communications sector bare the brunt in times of mobilizing extra resources for stabilization.