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Published On: Sun, Sep 17th, 2017

Cloud over Oando AGM; Auditors query accounts

By Okey Onyenweaku

 

Controversy has continued to trail Oando Nigeria’s 40th Annual General Meeting which was held last week at the Ibom Hall in Uyo, Akwa Ibom State. While the company’s resolutions which re-elected its directors were seemingly successful, shareholders were divided over the continued leadership of the management.

Shareholders have expressed mixed feelings over the performance of the company during the year as a number of them called for the resignation of the company’s Group Managing Director, Wale Tinubu.

A group of shareholders, under the aegis of Oando Shareholders Solidarity Group, which stormed the venue of the AGM with placards demanded for the resignation of the company’s Group CEO.

According to the leader of the group, Mr. Francis Michael said they were protesting  so as to change the management of  the company over gross mismanagement and abuse of   corporate governance.”

The other group of shareholders expressed confidence in the management following its ability to reduce its debt to a minimal level, amongst other positive results.

The National Coordinator of the Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, who spoke for his group, “we are aware of the petition written to the Securities and Exchange Commission (SEC) by the majority shareholders of the company. We request that they protect our interests, we believe in their leadership as we await good returns on our investment.’’

Okezie further said that, ‘’We demand that the management reconcile with the major investor and give them the three vacant position on the board. This will save this company from collapse.”

Also speaking, Mrs. Bisi Bakare, a shareholder of the company advised that other shareholders resolve their differences with the company in private to avoid unnecessary sensationalism which would in turn result in loss of money for the company and shareholders.’’

Shareholders voted unanimously to all resolutions at the Uyo meeting.

In his response Wale Tinubu stated that the protests were unnecessary for stressing that SEC had approved the AGM after examining the petition.

He called on shareholder to have faith in the company as the management was doing what it could to turn the company around.

Controversy had started when major shareholders Ansbury and Manga petitioned the SEC, the Securities and Exchange Commission, alleging gross abuse of corporate governance standards and financial reckless fiscal management. They had subsequently called for the removal of the management of the company and removal of all board members.

Mangu, BH investigation reveals owns about 17.9 per cent share of the company, had expressed discomfort over the managements handling of the ConocoPhillips transaction.

Ansbury, had accused the management of the company of lack of capacity, efficiency and effectiveness in the running of the firm, believing that Oando’s future was uncertain as a result.

“Strong uncertainty regarding the going concern of the group (Oando) had already arisen in 2015 and strengthened in 2016 as pointed out by the auditors in their report.” Anbusry had petitioned

“In the previous financial statement, the management had proceeded to liquidate part of the assets of the company and many are going to be liquidated, and in particular, under the notes to the account, management intends to sell its participation in OER (the last asset attributable to the company) in the name of restructuring or reestablishing the group’s going concern.” Ansbury added.

The auditor to Oando Plc, Ernest & Young had also faulted some aspect the 2016 financial statement of the company, even as shareholders expressed mixed feelings on the company’s performance.

According to the auditors, “We drowning attention to note 45 in the financial statements, which indicates that the company reported a comprehensive loss for the year of N33.9 billion ( 2015: loss N56.6 billion) and as at that date, it’s current assets exceeded current liabilities by N14.6 billion (2015: N32.8 billion net current liability). The group recorded a comprehensive income of N112.4 billion for the year ended December 31, 2016 (2015: loss N37.8 billion) and as at that date, it’s current liability exceeded current assets by N263.8 billion (2015: N260.4 billion). As stated in the notes, these conditions, along with other matters, indicate that a material uncertainty exist that may cast significant doubt on the company (and Group’s) ability to continue as a going concern.”

Meanwhile, Nigeria’s marquee indigenous oil company is slowly crawling back to its feet after two years of disastrous operational performance. Emerging from a loss of N26.9 billion the previous year, the company posted a strong 26% increase in turnover from N212.3billion in H1 2016 to N267.1 billion in H1 2017. With the development Oando has supported investor optimism.

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In the course of business, gross profit rose 76 per cent from N19 billion in 2016 to N33.4billion in 2017.

Indeed, the game changer for Nigeria’s leading indigenous energy group came from its thumping profit after tax which leaped 117 per cent from a loss of N26.9billion in 2016 to a profit of N4.6billion in 2017.

Looking critically at its operational activities, the company explained that production in the Upstream section in the first half of 2017 decreased by 20% to 7.2 MMboe (average 39,950 boe/day) compared to 8.2 MMboe (average 44,892 boe/day) in the first half of 2016.

The firm however realized N3.2 billion from the optimization of the crude oil hedge program which will be used to reduce corporate facility debt obligations.

In the Downstream section, the company recorded a 72% rise in revenue, from N126.6 billion in H1 2016 to N217.4 billion in H1 2017. Happily, the company exported over 7Mb of Crude Oil, and imported 600,000 MT of refined petroleum products in the first half of the year.  This represented a 20% rise in exports and a 96% rise in imports.

Oando said that the first half of 2017 has witnessed the country’s oil production levels steadily returning to normalcy. This, according to its results has largely been the result of the containment of Niger Delta unrest, and the more recent resumption of activity at the Trans Forcados Pipeline. It further stated that there was optimism around the approval of the Petroleum Industry Governance and Institutional Framework Bill (PIGB), which could result in a more efficiently regulated sector and a better business environment for industry players.

“With security concerns in the Niger Delta receding, Nigeria’s economic recovery has been buoyed by a boost in oil output, while the legislative approval of certain segments of the Petroleum Industry Bill (PIB) provides greater long – term policy certainty for the sector. Our returns underline our continued successful foray into the Upstream. Within the prevalent crude pricing regime, we remain committed to optimizing our overall production base, seeking unique profit – driven opportunities to further partner with IOCs, while firming up our balance sheet to provide greater shareholder value”, Mr. Wale Tinubu, Group Chief Executive of Oando PLC said.

The company had posted a loss of N35.0 billion in the half year (H1) 2015.In its 2016 annual results, the company recorded a Turnover increase of 49%, from N382.0 billion in 2015 to N569.0 billion.

Profit-After-Tax rose by 107% N3.5 billion compared to a worrying loss of -N47.6 billion in 2015. Net debt fell by 35% to N230.6 billion from N355.4 billion (FYE 2015). Cost of sales however, jumped by 157 per cent from 166.7billion in 2015 to N426billion in 2017.

Upstream:

 

Oando Energy Resources (OER) during the year ended December 31, 2016 recorded a 20% decrease in total production to 15.9MMboe (average 43,503 boe/day) from 19.9MMboe (average 54,520 boe/day) in comparative period of 2015.

Approximately 46% 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.

2P Reserves increased by 5% from 445mmboe in 2015 to 469.3mmboe due to reservoir performance

Oando concluded 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.

 

Midstream:

Oando completed the partial divestment of 49% of the voting rights in the company’s midstream business subsidiary, Oando Gas and Power Limited (“OGP”), to Glover Gas & Power B.V., a special purpose vehicle owned by Helios Investment Partners LLP (“Helios”), a premier Africa-focused private investment firm for $115.8 million.

Oando Gas and Power (OGP) concluded the sale of Akute Independent Power Plant for a transactional value of N4.6bn.

Downstream:

Oando successfully concluded the recapitalization of its downstream business for $210 million by HV Investments II B.V., (“HVI”), a joint venture owned by Helios Investment Partners (“Helios”), a premier Africa-focused private investment firm and the Vitol Group (“Vitol”), the world’s largest independent trader of energy commodities.

Oando Trading witnessed continued growth resulting in a 106% increase in traded volumes of Crude Oil and Refined Petroleum Products, accomplished through a number of structured and well executed initiatives.

Physical volumes of 13 million barrels of crude oil and 3 million MT of refined petroleum products were transacted.

 

Trading revenues hit a four-year high at $1.4 billion.

Unfortunately the company still has niggling operating concerns despite rising profitability. Its debt overhang has been a source of worry for corporate analysts. As at half year 2017, the company was deeply in debt with a staggering debt hole of over N300billion. A cursory look at its borrowings show that Oando’s current assets at N140billion is far lower than its current liabilities at N404 billion in 2016, signifying negative working capital and poor liquidity. As a result, analysts do not see the company coming out of its challenges in the short term. Some believe the company may have to borrow more money in order to support operations.

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Corporate analysts believe that the company’s half year profits would only moderate the huge leveraging problem of the business. ‘’The company is owing hugely. However, it appears to be working towards coming out of the woods. It is a giant with strength in gas and it is reducing its liabilities slowly’’, says Managing Director, Crane Securities limited, Mr. Mike Ezeh.

Before making its strategic acquisitions of ConocoPhillips and Medal Oil within one year and raising hopes of investors. Oando had in 2007 acquired two oil drilling rigs and emerged Nigeria’s first indigenous oil company with interest in producing deep water assets through acquisition of equity in two oil blocks and 5 swamp rigs. The company also launched its first independent power plant for the Lagos water corporation.

’In 2011, Oando Gas and Power commissioned 128 km EHGC Pipeline, the pipeline was built under a joint venture arrangement with the Nigerian Gas Company (NGC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC)]. The gas infrastructure has the capacity to deliver up to 100million standard cubic feet per day (mmscf/d) of natural gas and will deliver an initial 22mmscf/d of gas to its maiden customer, United Cement Company (UNICEM), to fuel its new 2.5million metric tonnes per annum cement plant, located in Mfamosing, Akampka Local Government Area of Cross River State’’, said WIKIPEDIA.

Oando, however did not start showing signs of weakness today, the company had posted profit after tax of N14.3billion, it dropped by 81 per cent to N2.6billion in 2011 and rose by 153 per cent to N6.6billion in 2012. Its profit also dropped by 80 per cent to N1.3b in 2013 from where it slipped into the red at N145billion in 2014 and levelled up at a loss of 49.6billion in 2015 and profit after tax of N3.4billion in 2016.

Prior to the fall in crude oil prices, Oil Marketing majors were having a field day in the economy which saw them dominating the Nigeria Stock Exchange and were able to sustain their profitability in the last five or more years. The Oil marketing majors that are making waves in Nigeria are Total Nigeria Plc, Mobil Oil Plc, Forte Oil Plc, Oando and MRS. These companies were making consistent returns to their numerous shareholders in terms of capital gains and mouth-watering dividend pay-outs in the past three years.

But after performing significantly well in 2010, the Oil & Gas subsector of the capital market have been struggling. Investigations by BH last week revealed that since the price of crude fell from $114 pbd on June 2014, the oil and Gas industry have suffered huge setback.

Investors are not comfortable with the situation of things in the oil and Gas sector which are being weighed down with huge debt.

Although the local currency, the naira, is presently appreciating, its earlier weakness against other foreign currencies has constituted a major challenge to the oil sector.

However, Mr Abiye Membere, former Executive Director (Exploration and Production) Nigerian National Petroleum Corporation (NNPC), has noted that the focus of stakeholders’ should be on the company’s mode of operation.

 

“The oil and gas industry didn’t start well; basically, what we have been doing in the last decade is to correct the anomalies.

 

“We started the oil and gas industry in Nigeria by only looking for oil as if the gas business was not important.’’

 

“What has been happening in the last 50 years is that there is a major oil infrastructure in place but the gas infrastructure is still lagging behind,’’ he said.

 

He noted that the sector has also been adversely affected by inadequate finance, poor policy implementation, and a sizeable knowledge gap.

 

Oando’s shares have gained 36 per cent year-to-date, signifying that it has been trading in a bearish channel for the better part of the first two quarters of the year.

 

 

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