EFFECTS OF ENVIRONMENTAL ACCOUNTING ON THE PERFORMANCE OF OIL AND GAS COMPANIES IN NIGERIA

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Product Category: Projects

Product Code: 00007496

No of Pages: 82

No of Chapters: 1-5

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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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