The Dangote Petroleum Refinery has assured prospective investors that a decline in crude oil prices will not directly reduce its profitability, saying its earnings are driven by refining margins rather than the absolute price of crude.
Devakumar Edwin, Group Vice President, Oil and Gas and Fertiliser at Dangote Industries Limited, gave the assurance on Friday during a media tour and briefing at the refinery in Lagos.
His comments came amid concerns that a possible decline in crude prices after the US-Iran conflict could affect the profitability of the refinery and returns for shareholders participating in its ongoing initial public offering.
Edwin said changes in crude prices would generally be reflected in refined-product prices, meaning the refinery could maintain its margins even when crude prices move in either direction.
“The crude price will not directly have an impact on profitability,” he said.
He compared the refinery’s business model to that of a trader who adds a target margin to the cost of goods, explaining that changes in the underlying purchase price do not necessarily eliminate the intended margin.
Edwin, however, said the current geopolitical disruption could temporarily provide additional profitability because of shortages of refined petroleum products.
He said some refineries in the Middle East were unable to operate normally because of crude-supply disruptions, while products that would ordinarily enter international markets were also being affected.
“But, during the war, there could be a little bit of extra profitability now. It is not because of crude, but because product movement is affected,” Edwin said.
He stressed that such additional gains would eventually decline.
“The extra profitability will go down. But when we made the investment of $20bn, we made our own calculation. How much is going to be our profit? How much will our returns be? So, we are on target as far as that is concerned,” he said.
The assurance comes as Dangote Refinery seeks investors through its ongoing IPO.
The public offer involves 4.1 billion shares at ₦525 each, with a minimum subscription of 10 shares worth ₦5,250. The offer opened on September 14 and is scheduled to close on October 13.
Edwin also said Aliko Dangote had declared that dividends from the refinery would be paid in foreign exchange, arguing that the company’s export earnings would generate the dollars needed to support such payments.
He said about half of the refinery’s current production was already being exported, while the planned expansion would further increase export volumes.
The company is targeting at least 10 million shareholders, with the minimum subscription deliberately kept low to encourage wider participation.
The IPO is expected to raise about ₦2.15tn if fully subscribed, with proceeds supporting the refinery’s expansion from its current 700,000-barrel-per-day capacity towards 1.4 million barrels per day.
Edwin said the expansion was targeted for completion within three years but could be delivered sooner.
He said the cost would be lower than that of the original refinery project because major infrastructure, including the port, granite quarry and welding-gases plant, was already available.
The expansion will also include petrochemical facilities, including a linear alkyl benzene plant and a propane dehydrogenation facility.
On fuel blending, Edwin said the refinery would take advantage of spare processing capacity when commercially viable, but would prefer processing crude directly where that produced better margins.
He also urged prospective investors to conduct their own evaluation before committing funds to the IPO.
The Dangote Refinery IPO remains open to eligible investors, with the offer terms stating that investment returns and dividends are not guaranteed.
