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EXCHANGE RATE CHANGES AND FINANCIAL PERFORMANCE OF OIL AND GAS COMPANIES IN NIGERIA (1994 – 2023)

Kolawole, Olalekan Adebola (Ph.D)

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Abstract

This study examined the implication of exchange rate changes on the financial performance of oil and gas companies in Nigeria captured with return on asset and investment. The study adopted an expo facto research design and a positivist research approach. Correspondingly, the study adopted quantitative research approaches covering time series data spanning from 1994 to 2023. The sample size of the study covered 5 oil and gas firms using a random sampling method. Both descriptive and inferential statistical analyses covering auto-regression distribution lag (ARDL) and error correction estimation were conducted.  The analysis result showed that exchange rate Volatility hurts the performance of oil and gas firms in Nigeria captured with return on equity and return on investment with the coefficient values of -0.19373 and -3.1294 respectively. However, the negative effect was significant for return on investment with the probability value of 0.023<0.05 against the insignificant negative effect on return on equity with the p-value of 0.0644>0.05. This study, therefore, established that exchange rate changes have a statistically negative effect on the financial performance of oil and gas firms in Nigeria. Hence it is recommended that the management team in the oil and gas industry should minimize their dependence on foreign currency earnings. This could be achieved by diversifying their operations into sub-sectors with lesser implications during exchange rate changes.

Keywords: Exchange Rate, exchange rate Changes, Oil and Gas Sector, Return on Asset, and Return on Investments