As Oando Turns the Corner

After a dismal two years, Oando Plc turned the corner with a 4.1% rise in net profit in the first quarter of 2016, writes Goddy Egene

Shareholders, directors and other stakeholders of Oando Plc will not forget 2014 financial year in a hurry. That was the year the company recorded a loss of about N184 billion. Although most peers of Oando Plc had a challenging year, the company’s situation was particularly affected by oil price and exchange rate volatility and high interest payments.

However, the directors assured the shareholders, who did not get any dividend as a result of the loss that they were working hard to improve the fortunes of the company. Given the 2015 full year and 2016 first quarter results released last week, hopes that shareholders would soon begin to receive dividends, have risen.

Financial results
In line with promise to improve its performance going forward, Oando recorded lower loss of N49.7 billion for the year ended December 31, 2015, compared with N145.6 billion in 2014. An analysis of the results showed that the company ended the year with a revenue of N161 billion in 2015, up from N92.9 billion. Administrative expenses was reduced from N161 billion to N74 billion. Net finance cost rose from N36.5 billion to N47.5 billion. Consequently, Oando Plc ended the year with a loss of N49.7 billion.

However, the company returned to profitability in Q1 of 2016. According to the Q1 unaudited results, also released last week, Oando Plc recorded a revenue of N27.7 billion, down from N30.6 billion in the corresponding period of 2015. Cost of sales remained high at N22.7 billion, compared to N16.8 billion in 2915. But administrative expenses fell from N16.5 billion to N15.6 billion. Net finance cost stood at N12.6 billion in 2016 as against N12 billion in 2015. Oando had a tax credit of N4.7 billion, compared with a tax payment of N1.0 billion in 2015. The integrated energy firm ended the quarter with a net profit of N4.1 billion in 2016, compared with a loss of N20.9 billion.

CEO explains performance
Explaining the 2015 performance, Group Chief Executive of Oando, Mr. Wale Tinubu said: “2015 remained a turbulent year for the global oil and gas industry as traditional energy business operations had to be altered to enable industry players survive this new reality, utilising cost optimisation systems, increased operational efficiency as well as downscaled capex budgets. This re-evaluation of our business has resulted in the execution of strategic initiatives, which we are confident will return our business to profitability in the short-term in 2016. As the global economy returns to normalcy we remain committed in our drive to building platforms for long term sustained value creating businesses.”
According to him, in spite of the numerous challenges, Oando made significant achievements across the value chain in 2015.

“Oando Energy Resource (OER) increased its total production to 20 million barrels of oil equivalent (mmboe) in the period compared with 9.1 mmboe in 2014. The increase between the annual periods was primarily from the acquisition of OMLs 60 – 63 in H2 2014, as well as the commencement of production from the Qua-Iboe field in Q1 2015,” he said.

Tinubu disclosed that OER also successfully realised a cash inflow of $234 million by resetting its crude oil hedge from the previously hedged average of $95.35 per barrel to a new price of $65.00 per barrel on 10,615bbls/day till July 2017 and an additional 1,553 bbls/day until January 2019.

The proceeds of the hedge reset along with cash in hand, he said, were used to pay down substantial portion of the company’s debt.
Also by December 2015, Oando Gas & Power (OGP) had completed 87 per cent of the Greater Lagos Phase 4 pipeline project which runs from Ijora to Bonny Camp in Lagos state.

“The Midstream subsidiary also commenced an 8.5km pipeline expansion project for the Central Horizon Gas Company, to increase CHGC’s capacity to 70mmscf/day. Oando Downstream successfully concluded tie-ins to third party terminals via a 2km Horizontal Directional Drilled pipeline.

The jetty will alleviate delays associated with product delivery into the Apapa, reduce long term cost of operations, as well as provide possible revenue streams from excess capacity. In 2015, the marketing arm completed upgrading of its LPG plants, the Apapa LPG plant capacity was upgraded from 15mt/day to 30mt/day, representing a 100 per cent increment, while the Benin plant was upgraded to include best in industry safety standards,” Tinubu said.

Progress in Q1
The Oando boss said that in the company commenced 2016 on a restoration path by examining its business model and introducing a 6-step corporate initiative strategy to restore its business to profitability by deleveraging the business and optimising balance sheet through the restructuring of net debt, asset disposal and/or injection of $350 million of capital.

“This first quarter of 2016 demonstrates our dedication to return our business to profitability by the end of the 2016. We are succeeding in our corporate initiatives which are today’s driving forces for our business in this new global reality of economic restraint and lower oil prices in our industry. As a group we have placed our focus on growing our dollar earning upstream higher margin and export trading businesses. We continue to count on the consistency of our retail and midstream interest and look forward to a rewarding year, where we solidify our aspirations and return to profitability,” he said.

Operations update
Tinubu said Oando Plc successfully restructured its debt through a N94.6 billion Medium Term Note with lower capital costs of 15 per cent and a renewed five-year tenor.
OER completed its 2015 year-end summary of reserves recording a six per cent growth in 2P net reserves from 420.3 mmboe to 445.3 mmboe, largely due to the recognition of reserves related with producible oil and gas volumes from the operator provided work programme up to the economic limit of the producing fields. 2C Resources likewise increased by 70 per cent from 122mmboe to 208mmboe.

Tinubu said that in response to the current challenging environment the company took steps to ensure it is financially efficient and as such it announced plans to delist OER from the Toronto Stock Exchange (TSX).

According to him, the company has not realised any aggregate returns or fresh capital from the cost of listing the business and running its operations in Canada.

“This along with other financially prudent steps has helped us improve our general and administrative costs from $3.70/boe in Q1 2015 to $3.19/boe in Q1 2016. OGP successfully closes the divestment of the Akute IPP, a 12.15MW power station servicing the Lagos State Water Corporation, this is a testament of our legacy of building successful pipeline businesses, generating returns and transferring on operatorship, likewise we have also signed a term sheet with a reputable player for the divestment of the Alausa IPP which services the Lagos State Secretariat. Both transactions attest to and is an apparent success of our gas development capacity in Lagos State,” he said.

According to him, in the first quarter, OGP signed a development agreement with TVER/ Micro LNG to develop a 20 mmscf/d Mini LNG plant in Ajaokuta, Kogi State, which will service a 1,000km radius in the Northern region of Nigeria.

“We continue to pursue our goal of revolutionising gas supply in the country and remain committed to powering up Nigeria, the facility is expected to commence operations in Q2 2017. Oando Downstream agreed on the terms for the sale of a 60 per cent share of the Oando downstream business to Vitol, the world’s largest commodities trader and Helios Investments Partners, a premier West African focused private equity firm. This alliance serves as a testament of Oando’s legacy of building a successful downstream giant and the partnership will rejuvenate the Nigerian downstream sector through operational efficiencies and economies of scale, thereby serving the Nigerian market even better,” he said.