ENVIRONMENTAL DEGRADATION COST AND FINANCIAL PERFORMANCE OF OIL AND GAS COMPANIES IN NIGERIA

Abstract

The study investigated the relationship between the cost of environmental degradation and the financial performance of oil and gas companies in Nigeria. Specific objectives of the study included the impact of EPRC on ROE, ROA, and the impact of ECC on ROE and ROA. The research design used was the Ex-post Facto design.  Data used, were drawn from the Nigerian Stock Exchange website and the Petroleum Resources Department (DPR) from 2009-2018. The sample size used by the five (5) listed oil and gas producing companies on the NSE from 2009 -2018. The Cost of Environmental Impact Improvement (EPRC) and Cost of Environmental Conservation (ECC) were the defining proxies for independent variables, while restorations in Equity (ROE) and asset returns (ROA) were the proven varied proxies. SPSS Version Twenty-two (22) Social Sciences Software Statistics Package using regression analysis using standard square back data analysis. Descriptive variables have been subjected to diagnostic tests (Durbin Watson) for data validity and regression compared to financial performance fluctuations. The findings revealed that the data were valid and a small standard deviation of square reversal was fairly accurate in defining all dependent variables. The findings indicated that EPRC is negatively related to ROE and has a negative insignificant relationship with ROA. Although, conservation costs have a positive non-significant relationship with ROE and ROA. The study concluded that EPRC has a negative relationship with ROE but has a negative non-essential relationship with ROA. This may be due to disregard for environmental laws, thus, stopping allocating sufficient resources to maintain environmental standards. This may be due to the inability of the state environmental team to enforce a policy on redress by oil and gas companies following environmental laws that specify the environmental standards required to be maintained to avoid health risks in Nigeria. The Environmental Conservation Cost (ECC) has a positive non-critical relationship with ROE and ROA. This may be due to the small share of conservation. The study recommended, among other things, that the government should announce effective policy frameworks that will effectively and efficiently monitor the performance of companies in the oil and gas sector to ensure that the environmental costs of protecting or conserving the environment are taken seriously, thus maintaining environmental quality. The Nigerian oil industry also protects citizens from deadly diseases and boosted investors' confidence in oil and gas operations, in particular, in the Niger Delta.