Oando rebounds to profitability, posts N3.5bn after tax profit

 
WITH the country’s economic recession, continued volatility in global oil prices, pipeline sabotage in the Niger Delta, reduced oil exports, suspension of projects and cuts to capital spending, companies in Nigeria especially those in the oil and gas industry are still grappling with being able to generate value to shareholders.
Amidst these challenges Oando Plc, Nigeria’s largest indigenous energy group has successfully manoeuvred the cyclical nature of the sector by adapting quickly to the new reality of low oil prices and a depressed macro environment. The company commenced 2016 with a reinvigorated strategy of growth, deleverage and profitability. The successful implementation of these initiatives is evident in the company’s financial year ended 2016 results with a N3.5 billion profit-after-tax, a 107 percent increase from the loss of financial year ended 2015. A review of the company’s results further show positive performance across all financial indices, turnover increased by 49 percent to N569 billion from N382 billion in financial year ended 2015, while EBITDA increased by 51 percent to N71.0 billion from N47.0 billion in financial year ended 2015, boosting investors and shareholders confidence in the brand and its management team.
Commenting, Mr. Wale Tinubu, Group Chief Executive, Oando Plc said: “2016 saw the country plunge into a recession, the first in over 2 decades, besieged with liquidity constraints, devaluation of the naira and a slump in oil earnings due to low oil prices intensified by the insurgency in the Niger Delta. We were proactive in the timely execution of our restructuring program of Growth in our upstream division; Deleverage, through divestments resulting in a net debt reduction of N125 billion; and Profitability by focusing on dollar denominated earnings.
In the first quarter of 2016 the company successfully restructured its existing obligations through a N108 billion Medium Term facility with a syndicate of 9 leading local banks. It also completed the full divestment of its Upstream Services business (Oando Energy Services) and the recapitalization of its downstream business to Helios Investment Partners, a premier Africa-focused private investment firm and the Vitol Group, the world’s largest independent trader of energy commodities to the tune of $210 million. The recapitalization of Oando’s downstream operations represents the largest inflow of foreign capital in a single transaction in the oil and gas sector in 2016. This strategic initiative is positioned to revolutionize Nigeria’s downstream sector and create one of Africa’s largest downstream operations. In furtherance of Oando being the partner of choice to foreign investors, the company concluded 2016 with the partial divestment of its midstream business, Oando Gas & Power Limited to Helios Investment Partners, a premier Africa-focused private investment firm for $115.8 million.
However, like many in the industry Oando’s numbers are still indicative of the economic headwinds, operational challenges and continued instability of global oil prices. An analysis of the full year 2016 results of oil and gas companies operating in Nigeria reveals a steady decline in earnings with ExxonMobil declaring $7.8 billionin revenue, compared to $16.2 billionin 2015. Royal Dutch Shell recorded its worst annual profit for more than a decade, the company posted fourth-quarter earnings of $1.0 billion, compared to $1.8 billion for the same quarter in 2015. The company further declared full year 2016 earnings of $3.5 billion compared to $3.8 billion in financial year ended 2015. Seplat recorded a decline of 55 percent in revenue of $254 million compared to $570 million in financial year ended 2015 attributed to force majeure at its Forcados terminal. Likewise, Oando recorded a 20 percent decrease in total production to 15.9MMboe (average 43,503 boe/day) in FYE 2016 from 19.9MMboe (average 54,520 boe/day) in the same period of 2015. The company cited unrest in the Niger Delta for a reduction in their production output specifically sabotage activities at OMLs 60 to 63 and a force majeure on the Qua Iboe terminal resulting in losses estimated at 11,600bbl/d.
“In the, Upstream we witnessed a decline in production but an increase in our 2P Reserves from 445mmboe in 2015 to 469mmboe. We are hopeful that the FGN will establish a long term resolution to the conflict in the Niger Delta which will positively impact the oil and gas industry, consequently ramping up our daily production. In the Midstream we concluded the partial divestment of Oando Gas and Power (OGP) to Helios Investment Partners to further expand our gas footprint, whilst in the Downstream our trading business continued to make in-roads in crude lifting” Tinubu said.
Today, Oando has significantly reduced its net debt from N355.4 billion in 2015 to N230.6 billion, signalling a further reduction in the company’s debt overhang, a situation critiques have often considered detrimental to the Group.
Amidst the terrain Oando recorded other operational milestones. In its upstream business, OandoEnergy Resources, hedged approximately 46 percent of crude production – as at December 31, 2016, 9,590 bbls/day was hedged at $65/bbl (average) with expiry dates ranging from July 2017 to January 2019, and further upside on the condition of certain price targets being met. The company increased its 2P Reserves by 5 percent from 445mmboe in 2015 to 469.3mmboe due to reservoir performance and committed to the sale of its interests in OMLs 125 and 134 to the Operators for cash proceeds of $5.5m and assumption of $88.5m in cash call liabilities due to the joint ventures.
In its Midstream business, Oando Gas and Power concluded the sale of Akute Independent Power Plant for a transactional value of N4.6bn and is in the completion phase of its 8.3km Greater Lagos 4 pipeline project culminating 3 rover crossings and the deployment of advanced technology extending OGP’s gas footprint from the Ijora area of Lagos State through to Marina Business District; enabling improved utilisation of its 100mmcf/d per day gas distribution capacity.
In Downstream, Oando Trading posted revenues of $1.4 billion from newly created revenue streams and a commendable 4 year high for the international trading business.
Speaking on outlook for 2017, Tinubu said: “As we enter a new phase in our business evolution we are optimistic about 2017 and look forward to even more successes having braved the challenges of 2016.”