AN EMPIRICAL ANALYSIS OF FIRM-LEVEL EFFECTS OF FUEL SUBSIDY REMOVAL ON PROFITABILITY OF LISTED OIL AND GAS SECTOR IN NIGERIA

Abstract

This study empirically examines the firm-level effects of fuel subsidy removal on the profitability of Nigeria’s listed oil and gas sector, following the 2023 policy reforms under the Renewed Hope administration. The research is motivated by the need to understand how macroeconomic reforms, particularly the elimination of fuel subsidies, impact the microeconomic performance of key industry players. Utilizing a census-based panel dataset of all seven oil and gas firms listed on the Nigerian Exchange Group from 2014 to 2024, the study employs fixed effects panel regression to analyze the relationship between subsidy removal, firm age, and net profit margin. The findings reveal that subsidy removal is associated with a statistically significant decline in net profit margin, with an average reduction of 1.6 percentage points post-reform. Contrary to expectations, older firms experienced a greater decline in profitability, suggesting that legacy firms may face structural challenges in adapting to abrupt policy changes. The results highlight the dual challenge faced by downstream oil and gas firms: managing increased input costs and navigating a price-sensitive market amid inflationary pressures. The study underscores the importance of firm-level analysis in evaluating the broader consequences of macroeconomic reforms and calls for targeted transitional support to mitigate adverse effects on firm performance. Policy implications include the need for phased implementation, efficiency grants, and tailored support for both older and newer firms. The research contributes to the literature by providing robust empirical evidence on the microeconomic impacts of subsidy reforms and offers actionable insights for policymakers, investors, and stakeholders in Nigeria’s petroleum sector.