DETERMINANTS OF PROFITABILITY IN THE NIGERIAN OIL SECTOR

Abstract

Crude oil is a major source of income in Nigeria. There is no doubt that Nigeria has not yet been able to diversify significantly into other sectors. With the dwindling prices of petroleum products in Nigeria and of course all over the world, it has become imperative to identify the factors influencing performance in the oil sector. This study, therefore, accesses the factors that influence the performance of oil companies in Nigeria. Three major oil companies were studied, namely Chevron, Shell, and Total. These selected companies are among the ten largest oil companies in Nigeria. Size, Capital intensity, Liquidity, Sales, and inflation were tested against performance. The variables were tested for stationarity using unit root test; the data were detrended accordingly. The data were regressed and the outcome shows that only sales significantly and positively influenced performance. Company Size, Liquidity, Capital Intensity showed an insignificant relationship with performance. The oil companies should therefore increase sales to increase performance. Moreover, this is a pointer that Nigeria needs to diversify as soon as possible. This has become necessary with the new technological innovations. Also, inflation showed a negative influence on performance. This is bad for growth The Government should therefore set policies that would reduce inflation as much as possible. This work has not been published before and will be useful to the Nigerian Government and other stakeholders in the oil sector, with regards to coming up with new ideas and innovations that could move the oil sector forward.