ABSTRACT
The study focuses on effects of environmental accounting on the performance of oil and gas companies in Nigeria. Oil and gas flaring have caused severe environmental damages, loss of plants, animals and human lives, and loss of revenue of both the oil producing companies and the government petroleum exploration, exploitation, storage, distribution and transportation activities affect the environment I in a conspicuously negative manner. The method of data collection adopted by the researcher are the use of secondary data and the secondary data were derived from the Central Bank of Nigeria statistical bulletin, publication of environmental impact assessment agency. After collection of the data from the secondary sources, the data were tabulated and statistically analyzed using the ordinary least square analytical technique. It was discovered that there exist a significant relationship between environmental costs and earnings per share of oil and gas companies in Nigeria. The study also revealed that there exist a significant relationship between gas utilization and output of oil and gas production in Nigeria. In this study we have made our attempt to assess the impact of environmental costs on earnings per share of oil and gas companies in Nigeria. This study proffers a framework for environmental costs in the oil and gas industry in Nigeria. To this end, this contributes to studies on environmental costs at a global level using the perspective of Nigeria oil and gas industry. It is therefore concluded that oil spillage and gas flaring costs does not significantly affect the earnings per share of oil and gas companies in Nigeria. Fines and penalties tremendously affect earnings per share of oil and gas companies in Nigeria. Generally, there are no standards guiding environmental costs in the oil and gas industries in Nigeria. Oil and gas companies operating in Nigeria should take necessary measures to avoid the payment of fines and penalties. To ensure this, they should strictly comply with environmental regulations as specified by the regulatory Agency of the oil and gas industry.
TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
Abstract viii
CHAPTER
ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 3
1.3 Objectives of the Study 4
1.4 Research questions 4
1.5 Research Hypothesis 5
1.6 Significance of the Study 5
1.7 Limitations of the Study 6
1.8 Definition of Terms 6
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 8
2.1.1 Concept of Environmental Cost 8
2.1.2 Environmental Related Cost 10
2.1.3 Environmental Activities and Nigerian
Experience 11
2.1.4 Reasons for companies to Report their
Environmental Activities in Nigeria 14
2.1.5 Environmental Regulations in Nigeria 14
2.1.6 A Synopsis of Laws and Regulations on the
Environment in Nigeria 15
2.2 Theoretical Framework 19
2.2.1 Stakeholder Theory 20
2.2.2 Legitimacy Theory 20
2.2.3 Accountability Theory 22
2.3 Empirical Review 23
2.4 Summary of Literature Review 29
CHAPTER THREE: METHODOLOGY
3.1 Research Design 31
3.2 Area of Study 31
3.3 Populations of the Study 32
3.4 Sample Size and Sample Techniques 32
3.5 Sources of Data 33
3.6 Model Specifications 33
3.7 Method of Data Analysis 34
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS
AND DISCUSSION
OF FINDINGS
4.1 Data presentation AT of Ten (10) Sample
Oil and Gas Companies in Nigeria 35
4.2 Data Analysis 47
4.3 Test of Hypotheses 50
4.4 Discussion of Findings 53
CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of Findings 55
5.2 Conclusion 55
5.3 Recommendations 56
REFERENCES
APPENDIX
CHAPTER ONE
INTRODUCTION
1.1 Background
of the Study
The
state world’s environment and the impact of mankind on the ecology of the world
at large have led to increased public concern and scrutiny of the operations
and performances of companies. Companies are now expected be able to
demonstrate that they are aware an d
addressing the impact of their operations on the environment and society in general
(Agbiogwu, 2014). The rapid growth in oil exploration has brought the need for
oil and gas companies to disclose their environment cost in the annual report
and accounts under corporate social responsibility. In this regards, oil and
gas companies are expected to take into cognizance a wide array of social
interests and expenditure on environmental activities.
In
the light of increasing deleterious effects of environmental pollution, great
importance is attached not only to the financial aspects (profitability) of oil
and gas companies but also its environmental and social impact. The
understanding of the wide coverage made it emphasize on responsibility towards
company’s employees, local community, society, and future generation
(Agnieszka, 2013). All over the world, the paramount importance for
environmental cost management in the oil sector has become the concern and
focus of nations and most corporate management strategies. It has become one of
the foremost issues on the agenda of nations and business earlier in the 1990s
and the reasons for this were varied emanating from both within and outside of
the firm and particularly at the global level (Okoye, A. E and Ngwakwe, C. C.
2013). A lot of government enactments, laws and regulations on environmental
protection has been made in several nations of the world. According to Nagle
(2012), the United States of America, Canada, Norway, the United Kingdom and
the Netherlands have led in the pursuit of degradation and pollution
prevention, control and the need for environmental safety. Besides, some of the
developing countries like Nigeria, Zimbabwe, Namibia, Philippines and Indonesia
have led in championing policies to address need for accounting and
accountability for environmental costs. Various laws and regulation are
awakening to strengthen environmental costs. Various laws and regulations are
awakening to strengthen environmental protection such as the Environmental
Impact Assessment Act, 1992 and the Department of Petroleum Resources (DPR),
environmental guidelines and standards for the petroleum industry in Nigeria
(EGASPIN, 2002). They require oil companies to consider the environmental
implications of all internal decisions of their operations. The need for oil
companies to develop environmental cost responsiveness and to disclose in
annual financial report, environmental information, has become imperative
(Frank, 2013). Therefore, all organizations monitored by environmental policy
agencies in Nigeria are expected to demonstrate much consideration in decision
making. Environmental costs have been expanded to account for product design
for sustainability, recycling and disassembly; process design to reduce
environmental impact of operations; worker training; research and development.
The various government regulations, social pressure groups and green consumer
pressure are some of the current trends and recent developments reawakening
corporate attention to the strategic and competitive role of a firm’s
environmental responsibility to financial performance. With the present
regulations on environmental management in Nigeria, oil and gas companies are
subjected to comply with environmental regulations. By so doing, they incur
costs, whether these costs improve or reduce financial performance is the central
question that will be explored by this study.
1.2 Statement of the Problem
The
increasing concern about environmental degradation and resources depletion
(especially in the Niger Delta area) is a source of worry. And also, many oil
and gas companies in Nigeria are usually faced with youth restiveness as a
result of unemployment, non-availability of social amenities. This has led to
series of vandalization of oil pipelines and other valuable companies’
properties.
Oil
and gas companies are recognizing the benefits to their long-term corporate
profitability of reducing their environmental impacts. Both the account and the
environmental areas are concerned on how to identify, measure, report and
manage environmental cost impact (Bailey, 2013).
For
emphasis, the Nigerian business environment is yet to recognize environmental
cost management for environmental information and issue of raw materials,
energy consumption and use of natural resources which have systematically
depleted the environment. This is expected to facilitate effective and
efficient costs management, measurement and reporting for corporate decision
making.
The
problem of environmental cost management solution worldwide on oil sector has
become strident. This problem also made it impossible for companies to
accurately ascertain the totality of their expenses on their environmental
activities. As a result, many are not conscious or aware of environmental cost
in their operations. In view of the above, the problem of this study,
therefore, put in a question form; to what extent has environmental cost
affected financial performance of oil and gas companies in Nigeria?
In
answer to the above problem, the researcher through the under listed objectives
and research questions, intends to investigate the effect of environmental cost
on the financial performance of oil and gas companies in Nigeria.
1.3 Objectives of the Study
The
general purpose of this research is to investigate the effect of environmental
cost on the financial performance of oil and gas companies in Nigeria. The
specific objectives of the study are as follows:
To
determine the significant effect of environmental cost on:
1. To
determine the effect of environmental cost (Community Development Cost, Waste
Management Cost and Employee Health Safety Cost) on Net Profit of the oil and
gas companies in Nigeria.
2. To
ascertain the effect of environmental cost (community Development cost, Waste
Management Cost and employee Health and Safety Cost) on Return on capital
employed (ROCE) of oil and gas companies in Nigeria.
3. To
determine the effect of environmental cost (community Development Cost, Waste
Management Cost and Employee Health and Safety Cost) on Earnings of shares
(EPS) of oil and gas companies in Nigeria.
1.4 Research questions
Based
on the objective, the following questions shall guide this study:
1) To
what extent does environmental cost (Community Development Cost, Waste and
Management Cost and Employee Health and Safety Cost) affect net profit of oil
and gas companies in Nigeria?
2) To
what extent does environmental cost (Community Development Cost, Waste
Management Cost and Employee Health and Safety Cost) affect the return on
capital employed of oil and gas companies in Nigeria?
3) To
what extent does environmental cost (Community Development Cost, Waste
Management Cost and Employee Health and Safety Cost) affect the earnings per
share of oil and gas companies Nigeria?
1.5 Research Hypothesis
As
an aid to answering the question raised, the following hypothesis are
formulated.
H01:
there is no effect of environmental cost (CDC, WMC, and EHSC) on the Net profit
Margin (NP) of oil and gas companies in Nigeria.
H02:
Environmental cost (CDC, EMC, and EHSC) has no effect on the Return on capital
Employed of oil and gas companies in Nigeria.
H03:
There is no effect of environmental cost (CDC, WMC and EHSC) on Earnings per
share (EPS) of oil and gas companies in Nigeria.
1.6 Significance of the Study
The
finding of this study are expected to be of benefit to investors and
stakeholders of oil and gas companies in Nigeria, government environmental
policy makers, future researchers and librarians.
It
is also expected to be an eye opener for the stakeholders in oil and gas
companies in Nigeria. To government and policy makers, it is hoped that the
finding of the study will expose the need for proper monitoring and
implementations of their environmental policies. To the researchers in related
fields, it will serve as a reference tool for further research in these areas.
This means the findings will expose them to more areas that are yet to be
covered. To the field of Librarianship and information managers, this study is
hoped to add to the existing literature on the effect of environmental cost on
the financial performance of oil and gas companies in Nigeria. It is hoped that
at the completion of this study, the importance of complying with the
environment regulations and accounting for environmental cost would be better
understood by the stakeholders. In addition, the study will help future
students to read and know much about the effect of environmental cost on the
financial performance of oil and gas companies in Nigeria. It will also serve
as a reference material for future researchers.
1.7 Limitations of the Study
The
study contributes to existing literature by examining the relationship between
environmental costs and financial performance of oil and gas companies. In
Nigeria, hence, addressing the Niger Delta state specific dimension to the
region’s youth restiveness and sustainable business practices. The study is a
peculiar deviation from previous studies in scope (covering only the
environmental expenditure influence on the financial performance of oil and gas
companies in Nigeria). In addition, the effects of different measures of
financial performances of a company will be examined, thereby providing a
comprehensive empirical investigation of the environmental costs and corporate
financial performances of oil and gas companies in Nigeria.
The
study also made a conscious efforts to address the endogeneity of environmental
issue and provide a framework for examining the possibility of the impact of
environmental costs on financial performance of oil and gas companies in
Nigeria. Finally, the scope of this study is restricted to the selected oil and
gas companies in Nigeria.
1.8 Definition of Terms
Environmental Costs:
Are costs concerned with the actual or potential deterioration of natural
assets due to economic activities.
Oil Exploration:
The act or process of exploring an area on land or sea for oil.
Profit after Tax
(PAT): Is the net profit earned by the company after deducting all expenses
like interest, depreciation and tax.
Return on Capital Employed
(ROCE): is the ratio of earning after interest
and tax to shareholder’s equity plus long-term liabilities (debt), expressed as
a percentage.
Earnings per Share (EPS):
is the portion of a company’s profit allocated to each outstanding share of
common stock. It serves as an indicator of a company’s profitability.
Corporate Responsibility:
Corporations have a responsibility to those groups and individuals that they
can affect, i.e. its stakeholders and to society at large.
Stakeholders:
are usually defined as customers, appliers, employees, communities and
shareholders or other financiers.
Pollution:
Is the introduction of contaminants into the natural environment that cause
adverse change.
Financial Performance:
Is a subjective measure of how well a firm can use assets from its primary mode
of business and generate revenue.
Pollution prevention:
Is any practice that reduces, eliminates, or prevents pollution at its sources.
Onshore Drilling:
Refers to the mainland. In exploration and production, “onshore” refers to the
development of oil fields, gas deposits and geothermal energy on land
Offshore Drilling:
Is a mechanical process where a wellbore is drilled below the seabed. It is
typically carried out in order to explore for and subsequently extract petroleum
which lies in rock formation beneath the seabed.
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