Last Update 27 Nov 25
Fair value Increased 16%Conoil Producing Limited – Strategic Acquisition Update (Acquisition of TotalEnergies’ 40% Participating Interest in OML 136)
Author : Qudus Adebara (Founder of Wane Investment House)
Transaction Overview
Conoil Producing Limited (“Conoil” or “the Company”) has executed a strategic upstream expansion move by acquiring the 40% participating interest previously held by TotalEnergies EP Nigeria in Oil Mining Lease (OML) 136, an offshore Nigerian asset with material long-term gas development potential.
The transaction is part of a broader asset realignment agreement between the two long-term partners. While TotalEnergies consolidates interests elsewhere, Conoil strengthens its portfolio with deeper ownership of a gas-rich block.
About OML 136
OML 136 is an offshore lease with significant gas potential and long-term development value. The block forms part of Nigeria’s broader offshore gas corridor and aligns with the country’s energy transition agenda.
Key Characteristics:
- Offshore location with extensive gas-bearing structures
- Long-term monetization potential
- Strategic relevance for domestic gas supply and export-linked opportunities
This acquisition gives Conoil enhanced exposure to a block with robust upside potential and positions the company to shape the long-term development trajectory of the asset.
Strategic Rationale for Conoil
1. Strengthening Upstream Gas Portfolio
Acquiring TotalEnergies’ 40% stake deepens Conoil’s ownership in a key offshore gas-rich block, enhancing its long-term strategic positioning.
The move:
- Increases reserve exposure
- Expands participation in gas infrastructure opportunities
- Aligns with Nigeria’s national push for gas-led industrialization
2. Portfolio Consolidation and Value Capture
The acquisition enables Conoil to capture greater value from a long-term resource base by:
- Expanding revenue potential from future production
- Enhancing its bargaining power in future development decisions
- Reducing dependency on non-operated asset portfolios
3. Strategic Balance Between Oil and Gas Assets
With OML 136 now firmly under its control, Conoil rebalances its portfolio to include a stronger mix of gas-focused assets—improving resilience as global and domestic energy markets evolve.
4. Increased Control Over Development Pathways
The increased equity stake provides Conoil with:
- Greater influence in field development planning
- Improved ability to align project timelines with its capital strategy
- Enhanced strategic autonomy across its offshore portfolio
Operational and Financial Implications
Enhanced Long-Term Gas Development Capability
OML 136 holds multi-year development potential, giving Conoil a platform for:
- Future gas commercialization projects
- Participation in Nigeria’s growing gas infrastructure
- Leveraging regulatory support for gas monetization under the evolving energy framework
Stronger Future Cash Flow Optionality
While the block is long-cycle in nature, full ownership of TotalEnergies’ former stake gives Conoil the optionality to:
- Prioritize early-stage development
- Attract strategic partners
- Leverage financial flexibility when the asset moves toward execution
Analyst Commentary
“Conoil’s acquisition of TotalEnergies’ 40% participating interest in OML 136 is a strategically significant move for the company. It positions Conoil more prominently in Nigeria’s offshore gas landscape and enhances long-term value capture from a high-potential asset. While development timelines remain long-cycle, the transaction materially strengthens Conoil’s upstream gas foothold and deepens its strategic relevance in Nigeria’s energy sector.”
Key Implications:
- Conoil becomes a more influential player in offshore gas development
- Long-term reserves and gas monetization opportunities expand
- Portfolio diversification improves by adding a stronger gas backbone
- Greater autonomy in shaping future project timelines
Next Steps for Conoil
- Begin integration of OML 136 into the company’s long-term field development portfolio
- Conduct early-stage technical and economic reviews of resource potential
- Engage regulators and partners on asset transition and planning
- Evaluate strategic options (direct development, partnerships, phased investment)
Conclusion
Conoil’s acquisition of TotalEnergies’ 40% participating interest in OML 136 represents a high-impact, forward-looking strategic investment in Nigeria’s offshore gas sector. The transaction deepens Conoil’s participation in a long-term gas-rich asset, enhances its portfolio diversification, and strengthens its competitive positioning as Nigeria continues to push for a gas-led transition in its energy industry.
Executive Summary
Conoil Plc reported a challenging performance for the nine-month period ended September 30, 2025, reflecting significant earnings pressure driven by declining sales volumes, margin contraction, and elevated finance costs. Despite maintaining topline scale, heightened operating and funding costs materially weighed on profitability.
Revenue declined 18% YoY to ₦203.8 billion, reflecting lower petroleum product sales. Gross profit dropped 35% YoY to ₦16.7 billion, underscoring pricing and cost pressures in the downstream marketing segment. Profit Before Tax fell sharply by 88% YoY to ₦1.88 billion, while Profit After Tax contracted by 88% YoY to ₦1.46 billion.
EPS dropped from ₦17.47 to ₦2.11, highlighting the steep decline in shareholder return. Rising finance costs (+178% YoY) and increased receivables suggest tightening liquidity and working capital stress.
Despite earnings pressure, Conoil’s asset base strengthened, with total assets rising 10% YTD to ₦126.2 billion, supported by increased receivables and strategic investments in property, plant & equipment. However, borrowings increased by 38% YTD, signaling higher leverage to support operations.
Financial Highlights – Statement of Profit or Loss
₦’000Q3 2025Q3 20249M 20259M 2024
Revenue 60,179,847 68,557,244 203,827,031 249,130,924
Cost of Sales(54,864,953) (60,541,308) (187,149,022) (223,587,708)
Gross Profit 5,314,894 8,015,936 16,678,010 25,543,216
Distribution Expenses (779,032) (1,588,753) (3,124,704) (3,471,387)
Admin Expenses (1,673,775) (1,149,846) (4,782,497) (4,352,967)
Finance Cost(2,133,815) (253,386) (6,895,506) (2,476,094)
Profit Before Tax 728,273 5,023,951 1,875,302 15,242,767
Tax (163,861) (923,035) (410,472) (3,120,081)
Profit After Tax 564,412 4,100,91 61,464,830 12,122,686
EPS (₦) ₦0.81 ₦5.91 ₦2.11 ₦17.47
Revenue Performance
- Revenue declined 18% YoY to ₦203.8bn, linked to:
- Lower product lifting volumes
- Supply disruptions and pricing pressures in downstream marketing
- Gross margin declined due to higher landing and operating costs
Market Interpretation: Downstream operators continue to face FX volatility, deregulated PMS dynamics, and intensified competitive pricing pressures, impacting retail and aviation fuel sales margins.
Profitability & Margins
- Gross Profit: ₦16.7bn (-35% YoY)
- Gross Margin: ~8.2% (vs ~10.3% YoY) – margin squeeze from rising costs
- Operating Expenses: flat YoY but elevated relative to reduced revenue base
- Finance Cost: ₦6.9bn (+178% YoY) – reflecting borrowings and increased rates
- PBT: ₦1.9bn (-88% YoY) – major profitability drop
- PAT: ₦1.5bn (-88% YoY) – weak bottom-line delivery
Commentary: Sharp finance cost surge indicates working capital financing strain, a major headwind under current deregulated downstream market dynamics.
Balance Sheet Overview
₦’000Sept-2025Dec-2024% Δ
Total Assets 126,191,188114,951,450+10%
Total Equity 40,955,10539,490,276+4%
Borrowings 39,690,05328,675,018+38%
Cash & Bank 9,270,2387,264,201+28%
Retained Earnings 36,783,36035,318,531+4%
Interpretation
- Higher PPE points to continued network infrastructure and operational upgrade investments
- Inventories dropped significantly, offset by rising receivables — liquidity and collection cycle under pressure
- Borrowings climbed to fund working capital needs
Key Ratios & Indicators
Metric Trend
Revenue Growth↓ (-18% YoY)
Gross Margin↓ (8.2% vs 10.3%)
PBT Growth↓ (-88% YoY)
PAT Growth↓ (-88% YoY)
EPS Growth↓ sharply
Asset Growth↑ 10%Borrowings↑ 38%
Insight: Leverage increasing in a declining earnings environment — potential risk to cash flows and credit profile if not reversed.
Strategic Insights
- Nigeria’s deregulated petroleum market demands operational agility and cost management
- Working capital pressure requires efficiency and improved receivables cycle
- Asset expansion positions Conoil for volume rebound if macro and supply conditions improve
Strengths
- Strong brand presence in retail downstream fuel distribution
- Expanding asset base supports future sales growth
- Positive retained earnings and growing equity base
Weaknesses
- Weak earnings and compressed margins
- High borrowing costs and rising finance leverage
- Rising receivables may strain liquidity
Outlook
Conoil faces a transitional operating environment as downstream deregulation reshapes industry economics. Focus will likely remain on:
- Working capital tightening & cost efficiency
- Optimizing supply logistics & inventory management
- Strengthening margins via premium product mix (e.g., lubricants, aviation fuel)
Risks: FX volatility, supply chain constraints, rising interest rates, and aggressive pricing competition.
Analyst View
“Conoil's 9M 2025 results reflect significant pressure on core operations driven by falling revenue, margin erosion, and rising finance costs. While the balance sheet remains stable, working capital financing strain and lower profitability highlight the need for tighter cost discipline and enhanced receivable recovery efforts. Strategic investments may support medium-term performance as the market stabilizes.”
Conclusion
Conoil delivered a weak operating performance in 9M 2025, reflecting sector-wide challenges and company-specific financing pressures. While asset growth and liquidity coverage offer short-term resilience, profitability recovery will depend on improved cost control, working-capital discipline, and more favorable market conditions.
Have other thoughts on Conoil?
Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.
Create NarrativeHow well do narratives help inform your perspective?
Disclaimer
The user Wane_Investment_House holds no position in NGSE:CONOIL. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.