OANDO’s Positive Impact in Moving the Economy Forward

In investment palance, Return on Investment (ROI) has always being the hallmark of every investors, with Nigerian shareholders not being an exception, much especially with the recent contraption in the domestic econonmy which was occasioned by the downward trend in global prices of oil.

The meltdown in oil internationally hard its adverse effect on every unit of the economy, especially as revenue from that end was its mainstay, even as companies also hard its share from the constraints.

However, with the upbeat in the economy owning to recent figure from the Nigerian Bureau of Statistics’ (NBS), that the domestic economy is rising out of the woods and that the recession period is over, shareholders of Oando may sooner than ever experience capital appreciation of their stocks and dividend payment.

So as shareholders of Oando Plc, a leading indigenous oil marketing giant listed on the floor of the Nigerian Stock Exchange and the Johannesburg Stock Exchange gathers to consider its financials on Monday 11th, 2017, at Uyo in Akwa Ibom State, its germane for investors to be kept abreast with some salient giant stride the company has attained coupled with some challenges is experiencing in the course of its years of operation.

To further diversify and bring more investors on board, management of the company has listed its shares on the Toronto Stock Exchange, this bringing the company as the first Nigerian company with three trans-border listings – the Nigerian Stock Exchange (NSE), the Johannesburg Stock Exchange (JSE) and the Toronto Stock Exchange (TSX).

Also as a drive to deepen its stake in both the onshore and offshore businesses the company owning to its founding priciples to lead in its area of operation acquired ConocoPhillips Nigeria, and again this made the company becoming the first indigenous company to purchase an IOC.

Alhough the purchase of ConnocoPhilips hard its challenges, owning to the fact that its not yielding the immediate desired result interms of adding to the company’s bottom line, inside sources had told nationalwire that investment in this regard was one of the best decision the company has ever made, as the company is not in a hurry to sell the barrel of oil from this end, due to the fact that the company might incure losses, noting that billions of naira is expected when prices are good to sell.

Its on record that the company takes care-off seven percent of the fuel requirement consumed locally, just as its partnerships with two international investors in 2016 brought in the largest inflow of foreign direct investment into the country by one company.

The company took the proactive approach of recapitalizing Oando Downstream via a strategic partnership with a consortium of Helios and Vitol aimed at revolutionizing the sector as well as grow its retail footprint.

The partnership leverages Oando’s sector longevity, considerable local knowledge and expertise, together with HVI’s vast international, financial, and technical capabilities and network OGP divested 75% of its interests to Helios Investment Partners, a premier Africa-focused private investment firm for $115.8 million.  This strategic partnership underlines Oando’s status as the indigenous partner of choice for international firms in the oil & gas industry, while also acknowledging the Group’s unwavering commitment to improving access to gas and power solutions for industries, consumers and commercial counterparties in the sub-region. The partnership will leverage OGP’s local knowledge and expertise, alongside Helios’s global network and financial capabilities to optimise our existing operations and expand our footprint.

Its is also record that the company pride itself as a proudly Nigerian company with core staff base which consisted of a 98% indigenous workforce, even as its engage directly or indirectly employ over 2,000 Nigerians.

Business Challenges & Impact: 2014 to 2017

Specifically, to achieved its dream of becoming the largest Nigerian independent Exploration & Production Company through the $1.5 billion acquisition of ConocoPhillips’s Nigerian assets in 2014, the company increased its production 10 fold from 5,000boepd to circa 51,000boepd and 2P reserves from 18.9mmboe to 430mmboe.

This acquisition which was financed by a combination of equity and debt – ratio 50/50

2014 commenced with crude oil prices as high as $110 per barrel and ended as low as $60 per barrel, the lowest price in a 5 year period. This meant that the company 10 fold increase in production was adversely countered by the slump in global crude oil prices.

The fall in crude prices forced the Oando to record significant reductions in the fair value of its asset portfolio leading to the recognition of about N9 billion of impairment charges in its exploration and production business.

With this challenges, the company was said to have booked an additional N9 billion write down on under-lift receivables and Production Sharing Contract receivables in its exploration and production business.

Further findings showed that the company energy services business realized impairments of N1 billion, as the new oil price environment brought about reduced drilling activity and in turn reduced day rates accruable to its rig assets.

The devaluation of the Naira was another major challenge that generated significant foreign exchange losses in the company’s downstream business where it import in dollars and recover costs in Naira, and this led to a N7.3 billion in foreign exchange losses.

The delay of payments of subsidies from the Federal Government also led to a realization of N3bn in foreign exchange losses and this communated to the Company announcing the largest loss in the history of the NSE – 9 billion.

For 2015 which was yet another turbullent year for companies in the oil and gas sector, with prices at the end of the year closing below $40 per barrel, the lowest level since early 2009, business model for the company was altered to enable survival in this new economic constraint, by focusing on cost optimisation, increasing operational efficiency and downscaling capital expenditure.

In 2016, the re-evaluation of its business resulted in the development and execution of strategic initiatives, which would return its business to profitability in the short-term in 2016, with Growth through its dollar earning upstream portfolio, Deleverage through recapitalization or asset divestments, and Profitability hinged on refocused dollar oil export trading business.

Taking the bull by the horn the company restructured its existing debt through a N94.6bn loan facility with a 5-year Nibor + 200bps loan led by Access Bank in a syndicate with 8 other banks: Diamond, Eco, FCMB, Fidelity, Stanbic IBTC, UBA, Union, Zenith,

Specifically, the loan syndicate with 8 other banks, there was also the sale of Oando Energy Services 60% sale of its Downstream operations to Helios and Vitol for US$210m and 75%. Sale of its Gas & Power business to Helios. Both divestments is said to have been with strong partners and will facilitate the rapid expansion of both businesses with Oando still playing an integral role in their future.

In the course business in the year there was a renewed focus on the company’s dollar generating Upstream and Trading businesses, which actively reduced its debt profile from N473billion at the end of 2014 (FYE) to N290billion in H1 2016, a reduction of 39%.

Expanding its Business

As a further first in its operation, the company embarked on the construction of Apapa Jetty: To counter the infrastructure deficit at the ports and in line with its resolve to long-term economic growth in the country, Oando conceived the construction of a mid-stream jetty – West Africa’s first privately owned midstream jetty. The novel infrastructure will provide a more efficient platform for product receipt to all marketers currently using the MOMAN jetty.  It will ease the plight of oil marketers’ and save the country over $120million in demurrage annually.  The facility which has a half-kilometer subsea pipeline, and a 16” 3km onshore line is capable of delivering over 3 million tonnes a year.

It will also raise the standards of Nigerian auto care through the training of 5,000 autotechnicians and mechanics over a period of five years.

As a pioneer developer of Nigeria’s foremost natural gas distribution network: Oando Gas & Power is the largest private sector gas distributor of gas in the country delivering at peak, 70 million standard cubic feet per day (“mmscf/d”) to over 175 industrial and commercial customers via a vast network of gas infrastructure.

With over 260km gas pipeline grid developed across Nigeria, the company’s fore in the provision of Independent Power Plant in the country is yet unparallel.

Plan to forcefully take over the company

The Securities and Exchange Commission (SEC) decision to promptly give the nod for the company’s Annual General Meeting to hold Monday, was a right step in the right direction, as it would send a wrong signal to the international business community on the lopsided way regulations go on in the domestic economy.

A cursory perusal to what led to the planned alleged take-over of Oando through the back door, will help investors understand better, the stand or otherwise of both parties to the transaction.

Volpi as a company is closely associated with three offshore corporations – the Guernsey Trust Company, LetsGo, and Sima Holding, that collectively sent over $38 million to the United. According to a electronic document obtained by nationalwire, from 2000 to 2008, “Sima Holdings is a British Virgin Islands corporation that is beneficially owned by Volpi, his wife, and sons through a family trust.

Intels used its presence of more than three decades in the industry and huge financial muscle to crowd out other players in the nation’s oil and gas logistics business at the port who were too weak to resist its dominance in the face of the preferential treatment it enjoyed from key government officials and regulatory agencies.

The document showed that as the concessionaire of the Onne Free Trade Zone, Intels was exempted from the payment of all taxes, levies and rates. In April 2015, immediate past president, Goodluck Jonathan gave a directive that gave Intels the exclusive control over all oil and gas cargoes at his terminals in Onne, Warri and Calaba. A policy that other logistics companies such as Ladol and Julius Berger, were unhappy about Ladol, which felt the directive was against the concession agreement it entered with the government and therefore inimical to its interest, responded with a lawsuit against the government.

Vipol is currently alleged to be coming after Nigerian Ports Authority (NPA) for the decision to review his port management contract. The Government’s decision to break Intels’ monopoly in the handling of oil and gas shipment comes a few weeks after a disagreement between the logistics company and the NPA over the funding of a major project the company is handling on behalf of the agency.

Investigations is said to have showed that Intels may be behind the subversion of the 3 tier contracting process of the Nigeria National Petroleum Corporation, NNPC, and the subsequent selection of Samsung for the execution of a $3.8 billion Egina FPSO package.

Even though Samsung did not participate in the bids tender processes for execution of the Egina project, and despite Hyundai Heavy Industries, HHI, having participated and emerged preferred bidder, and subsequently recommended by NAPIMS, the investment arm of the NNPC, the management of the NNPC has selected Samsung to execute the project under circumstances that appear inexplicable.

Checks revealed that Samsung had entered into a partnership with Intels for execution of the Egina FPSO packages and that the Nigeria company, had deployed its immense political clout to pressure the NNPC management into breaking its own tendering processes, and rules of engagement

The Petitioners & Oando

Recent actions by both Volpi and one Alhaji Dahiru Mangal, who in 2006 the then chairman of the EFCC, Malam Nuhu Ribadu ordered his arrest following a series of complaints about the scale of his smuggling activities and its devastating effect on the country’s economy has since shown that they do not have the company’s best interests at heart. Volpi is looking for the next cash cow as a result of a declining income stream whilst Mangal is looking for quick financial wins.

Any individual can bring a petition against a company directly or via the relevant regulatory authorities. In this instance, the petition brought against Oando has been brought to the public domain causing brand damage and eroding shareholder value.

It will be recalled that the Securities and Exchange Commission (SEC) had investigated Oando Plc (“the company”) over alleged malpractices in its financial statements, where correspondences was exchanged as it examines if any regulations have been breached.

The investigation kicked-off following a series of petitions filed by the foreign investors in the company, in relation to changes in the shareholding structure following the acquisition of the Nigerian assets of ConocoPhillips. They had claimed ownership of 17percent of the company’s shareholding structure that was at variance with records in the company.