While collapsing crude oil prices have been good for consumers in importing countries, it now looks like companies in these markets are beginning to feel the brunt of lower prices. Engen Botswana Limited, the local petroleum company has raised alarm that the softening of prices could affect its full year earnings for 2014 as it prepares to release its results.
The Botswana Stock Exchange (BSE) listed outfit said it would release detailed results for the year ended 31 December 2014ÔÇönext week on 27 March 2015.
“……the Board of Directors advise that the Group expects to announce that the consolidated profits for the year ended 31 December 2014 will be significantly lower than those reported for the corresponding year ended 31 December 2013,” the company headed by Managing Director Chimwepa Monga said.
“This is mainly due to the decline in international crude oil prices which necessitated a revaluation of inventories during the course of the year.”
The company’s share price plummeted at the close of the market of Friday by 1.5 percent to trade at 935thebe. Crude oil prices have collapsed since last year with the softening of prices benefiting importing countries like Botswana, but cursed by exporters. The World Bank said a “perfect storm” of conditions has led to a plunge in prices since mid-2014. Oil prices have dropped 55 percent in seven months, from the most recent high of $108 per barrel in mid-June 2014 to about US55. The World Bank has warned that the current slide continue could surpass the previous records of a seven month decline of 67 percent, set in 1985/86, and a 75 percent drop in 2008. This forced government to pass the benefit to consumers as retail prices to for unleaded petrol 93 were decreased by 104 thebe per litre, unleaded petrol 95 decreased by 103 thebe per litre while retail prices for illuminating paraffin went down by 65 thebe per litre.
However, Investec, which manages US$116 billion globally and has offices in Botswana said the oil price is unlikely to stay below the industry’s cash operating cost for an extended length of time. The asset management group had forecast that Brent oil will average $60/$70/$80/$85/bl in the four quarters of 2015, to give a full-year average of $70-75/bl, representing 40-50 percent upside in the commodity price from today’s level.
“The recovery is likely to surprise investors in its speed and scale, just as the sell-off has, and we fundamentally believe that we are approaching the bottom in terms of sentiment, investor positioning and valuation,” said the company adding that that the sell-off has been driven by Opec’s surprise actions.
The next OPEC, the oil cartel, meeting takes place 5 June 2015. Engen Botswana has therefore advised its shareholders and investors “to exercise caution when trading in the company’s securities until the results for the year are formally published.”