Reversing investor apathy will require bold, sustained reforms

Once the pride of Nigeria’s capital market and a reliable driver of government revenues and foreign exchange earnings, the country’s oil and gas sector has become an underperformer on the Nigerian Exchange (NGX). Currently, investor sentiment has decisively turned against listed energy companies, exposing deep-seated structural issues and calling for urgent reforms to regain investor confidence.

Despite relatively stable global oil prices, averaging around $85 per barrel for much of this year, Nigerian oil and gas stocks have struggled to reflect this optimism. As of late September 2025, the NGX Oil and Gas Index slumped by 9.8 percent year-to-date, a clear contrast to the 37.1 percent gain in the broader All-Share Index (ASI), according to data compiled by BusinessDay. In comparison, the Banking Index is up 38.9 percent, and Consumer Goods has surged by 93.9 percent, cementing oil and gas as one of the year’s worst performers.

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Within the oil and gas sub-index, individual company performance has been uneven. Eterna Plc is the lone standout, rising 14.8 percent, buoyed by a return to profitability. In sharp contrast, Conoil Plc has plunged 45.5 percent, Oando Plc has declined 25.8 percent, Seplat Energy is down 5.6 percent, Aradel Holdings lost 6.4 percent, and TotalEnergies Marketing Nigeria is off by 8.3 percent.

“Improved security, tackling crude theft and pipeline vandalism will stabilise production and boost export revenues. Fuel pricing stability, a clear, transparent framework post-subsidy will help marketers manage margins and plan operations.”

Behind these numbers lie complex challenges that transcend individual firms. For downstream marketers, the entry of the Dangote Refinery is already altering supply dynamics, pressuring margins and raising competitive risks. According to Nathan Olaniyi, a US-based capital market analyst, “The rise of the Dangote refinery has reshaped pricing and squeezed marketers like TotalEnergies and Conoil, making the stocks less attractive.”

Company earnings for H1’ 2025 paint a mixed picture. Eterna Plc posted a net income of N573.8 million, a turnaround from a N4.8 billion loss the year before. However, thin margins and limited scale remain concerns.

Conoil’s profit collapsed to N900 million, down from N8.02 billion in H1’ 2024. Finance costs doubled to N4.76 billion, eating into margins and sending investor confidence into freefall.

Similarly, Oando Plc declared a half-year profit of N63.3 billion, barely up from N62.7 billion in 2024. But a staggering N49.7 billion Q2 loss spooked investors.

Aradel Holdings showed strong growth with N146.4 billion in profit, up from N104.4 billion the previous year. Yet its share price still fell, underscoring how broader sectoral sentiment is overshadowing earnings performance.

The story is the same across most firms: even strong profits do not necessarily translate into higher share prices. Investors are signalling concern over deeper issues, high borrowing costs, policy uncertainty, and foreign exchange instability.

Until recently, Nigeria’s record-high interest rates, peaking at 27.5 percent before a slight cut to 27 percent by the Central Bank in September, choked access to affordable credit and inflated finance costs. For many downstream players, this meant their operating profit was quickly consumed by debt servicing.

Conoil’s case is instructive. Its rising debt burden doubled finance costs, slashing bottom-line earnings. Oando and TotalEnergies faced similar pressures, worsened by a volatile FX market that eroded import margins and added to costs for imported petroleum products.

Upstream firms were not spared either. Although Seplat and Aradel earn in dollars, the FX translation losses resulting from a highly unstable naira have undermined their earnings. Persistent FX scarcity and inconsistent monetary policy remain significant risks for investors.

Nigeria’s inability to convert oil wealth into stable investor returns is at the heart of the problem. Crude production remains erratic, only recently ticking up to 1.68 million barrels per day (bpd) in Q2’ 2025, still below Nigeria’s OPEC quota of 1.8 million bpd.

Production gains are constantly threatened by crude theft, pipeline vandalism, and years of underinvestment. The Petroleum Industry Act (PIA) promised to fix this by streamlining regulation and attracting capital. Yet, implementation has been sluggish, with international oil firms continuing to divest onshore assets over security and regulatory concerns.

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Analysts also blame the steady delisting of oil firms like Ardova and MRS Oil for shrinking investor options and weakening the sector’s visibility. “Investors don’t trust the stability and predictability of the sector,” Olaniyi explained. “There’s no clear outlook on pricing, regulation, or margins.”

As oil and gas stocks flounder, investors are turning to more stable sectors. Banks have benefited from high interest rates boosting net interest margins, even as profit growth slows. Consumer goods firms, on the other hand, have successfully passed inflationary pressures onto consumers, preserving profitability and earning investor favour.

Reversing investor apathy in the oil and gas sector will require bold, sustained reforms, such as fully implementing the PIA. Fast-tracking reforms can restore investor trust and unlock long-term investment, particularly in upstream and midstream operations.

Improved security, tackling crude theft and pipeline vandalism, will stabilise production and boost export revenues. Fuel pricing stability, a clear, transparent framework post-subsidy, will help marketers manage margins and plan operations.

FX liquidity – a consistent, market-driven FX regime is essential for both upstream dollar-reporting firms and downstream importers. Monetary easing – sustained interest rate reductions will reduce finance costs and ease the debt burden on energy companies.

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While oil continues to be Nigeria’s fiscal lifeline, its equity market relevance is fading fast. Without reforms, oil and gas stocks will remain unattractive to both local and foreign investors. As one portfolio manager aptly put it, “Oil still pays Nigeria’s bills, but in the stock market, it is paying fewer dividends.”