Published On: Mon, Oct 16th, 2017

Shareholders call for sack of Oando Management as crisis worsens

OKEY ONYENWEAKU

These are tough times for local oil and gas giant, Oando Nigeria Plc and not many of its shareholders are smiling. The company

Wale Tinubu, MD, Oando Plc.

has been embroiled in a series of crisis over the last three years and each predicament appears to have been worse than the previous one. The company’s shareholders have shown fiery sentiments at the way the company’s management has run the oil company’s business in the last thirty six months and they have drawn a bold line in the sand as they warn the Nigerian Securities & Exchange Commission (SEC), to carefully review the petition they sent to the authorities. They urged SEC to investigate their claims of poor corporate management at Oando with a view to saving the company from distress and possible bankruptcy. They also asked SEC protect minority shareholders from what they have termed the, ‘ugly tyranny of the majority’.

Recently, the shareholders group petitioned the House of Representatives Committee on Capital Market to prevail on SEC to act fast on the matter and show diligence and fairness.

The House of Representatives Committee on Capital Market and other Institutions ordered the Securities and Exchange Commission, SEC and Oando Plc to resolve all issues regarding the alleged N799 billion stakeholders’ liabilities with the oil firm within two weeks, shareholders have expressed bitter anger over the repeated losses the company has posted. They stated that the company’s share value losses currently stood at N159 billion. In addition, minority stakeholders in the company are angry that leadership of Oando has not deemed it fit to pay them a kobo in dividend since 2013, having run the company into an operating hole.

Mr. Olufemi Timothy, President, Rennaisance Stakeholders Association of Nigeria Incorporated, who had taken a petition against the company to the National Assembly said the external auditors had also expressed concern over its financial status.

He noted that the, “external auditor’s report reflected an unambiguous view of a ‘strongly doubtful going concern’ status of the Group given its operating figures and annual financial statement.”

“the Group has negative working capital of over N263 billion consequence of current liabilities being above current assets, meaning that the management was unable to meet its short term financial obligations in a sustainable way’’, he noted in his petition.

“Claims of creditors are much higher than, the equity of shareholders; meaning that the Group could be easily liquidated by creditors if urgent action was not taken to address its poor books.

“With accumulated losses of over N159 billion, shareholders could not get a dime as cash dividend. No hope of redeeming these reserved losses.

“Court cases as projected by management may take claims of over N608 billion which is far greater than the assets of the entire group, meaning that the group is at very high risk of liquidation if the court cases against the company succeed.

“Cost of litigation is very high. Litigation has a damaging consequence on our company’s reputational risk under the current management. Management was increasing entitlements, remunerations despite lack of working capital.

“Both current liabilities and long-term liabilities stood at over N799 billion. Management was selling assets of the company, especially money-spinning assets such as downstream (Marketing) business without meaningful improvement in debts situation. It was planning to sell its share in OER which unfortunately is the last asset belonging to the company’’, he also said.

Recall that some 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.

The group of shareholders, under the aegis of Oando Shareholders Solidarity Group, had stormed the venue of the AGM with placards demanding 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 crisis in Oando 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, Business Hallmark inquiry reveals, owns about 17.9 per cent share of the company, and had earlier 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 business, 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.” Anbsury had noted

“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 re-establishing 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 are drawing 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.

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.

On the crisis,Head, Corporate Communications OANDO Plc, Alero Balogun, told Business Hallmark on a telephone interview that the issue has been on and that SEC and other bodies are investigating the allegations. But Balogun added that of priority to the company was an active effort to reposition and ensure that shareholders get their due at all times.

Balogun explained that Oando had significantly reduced its debt and losses.

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.

Corporate analysts believe that the company’s half year profits would only moderate the huge leveraging problem of the business. ‘’The company indebted heavily; 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.

Despite the on-going crisis, Oando ‘s shares have gained 34% or 153kobo year to date.

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