Business
Oando abandons loss-making down-stream for upstream operations
– Hopes to raise production from 25,000 to 100,000 bpd in 5 years
Indigenous energy giant, Oando Plc, has found succour in the more stable upstream petroleum sector after its exit from the nation’s troubled downstream oil and gas sector, Business Hallmark can report.
The firm returned to profitability in the 2023 operating season after several years of declaring losses, thanks largely to the impressive performance of its offshore investments.
According to the 2023 financial results Oando Plc released on May 31, 2024, obtained by BH, the firm recorded a significant turnaround of fortune with a pre-tax profit of N104.1 billion, compared to a pre-tax loss of N61.8 billion in 2022.
Before this breakthrough, Oando had battled severe operational and financial challenges, a situation that forced its management and owners to embark on a survivalist battle aimed at stopping it from going bankrupt.
For three years, the energy company delayed the release of its financial statements, raising fear among industry stakeholders about its financial health.
When the company’s audited results for the twelve months period ended December 31, 2022 finally released in April 2024, well beyond the time limit stipulated by the Securities and Exchange Commission (SEC), data shows that its total liabilities outweighed its assets.
For instance, while Oando’s total assets in the period under review stood at N1.252 trillion, total liabilities were put at N1.449 trillion.
Financial experts, who spoke to BH in April, when the result was released, said Oando must have relied heavily on borrowings to sustain its operations.
According to Investopedia, when liabilities exceed assets, a firm is said to be technically bankrupt or insolvent. Investopedia further defined insolvency, as when an individual or company can no longer meet their financial obligations to lenders.
BH findings revealed that the tide started turning against Oando, a once profitable business empire, from early 2000 with the decline of Nigeria’s oil and gas industry.
Teething Problems
Due to teething problems in the oil-rich Niger Delta, including youth restiveness, vandalization of oil assets, massive crude theft, aging pipelines, shutdowns, reduced investments in the upstream oil and gas sector, and exodus of International Oil Companies (IOCs), Nigeria’s crude oil production crashed from its peak of 2.482million barrels per day in 2005, to below 1 million bpd in May 2023, before rising to its present level of 1.45million bpd.
The massive decline in oil production led to significant revenue losses for the government and operators.
Also, the persistent forex crisis, which prevented oil marketers with permits to import and supply petroleum products, as well as the government’s war against fuel subsidy thieves led to many petroleum marketers abandoning petrol import, leading to heavy losses for marketers.
As a result, the Nigerian National Petroleum Company Limited (NNPCL) became the sole importer of PMS in Nigeria in 2016, with the downstream petroleum sector becoming less profitable for marketers, including Oando Plc.
In the face of all these challenges, the management of Oando decided to change direction by adopting life saving moves.
New Direction
One of the survival plans, BH gathered, included the decision to exit the nation’s troubled downstream petroleum sector as soon as possible.
On June 30, 2016, Oando took a major step towards actualizing the plan, when it partially divested its majority interest in its downstream business, Oando Marketing Limited, by selling 60% its shares in the firm to a consortia consisting of International Trading Company, Vitol Group (Vitol) and Helios Investment Partners (Helios), an International Private Equity firm for $276 million.
The resulting entity was called OVH (Oando, Vitol and Helios) Energy BV, reflecting the names of the three partners. On the 5th of October, 2017, Oando further divested an additional 35% of its shareholding in OVH Energy to Vitol and Helios.
Oando completed its exit from the downstream and midstream business on November 29, 2019, when it sold its remaining 5% stake in OVH to the duo of Vitol and Helios.
It then refocused all its energy on its marginal upstream business by expanding its portfolio upstream assets in a Joint Venture (JV) with oil giant, Nigerian Agip Oil Company (NAOC), owned by Eni, and the NNPCL from 20% to 40%.
The agreement, which was signed in September 2023, involved buying Italy’s Eni 20% stake in oil rich fields, particularly, the Qua Iboe (OML 13) and Ebendo (OML 56) wells, and OMLs 60, 61, 62 and 63.
Before the deal, NOAC held 20 per cent operating stake, Oando 20 per cent and NNPCL 60 per cent. With the completion of the deal, Oando’s stake in the JV rose to 40 per cent.
In May, Oando’s Chief Operating Officer (COO), Alex Irune, disclosed that with the Eni deal, the company will double production from its current 25,000 bpd output to 50,000 bpd at the end of 2024 and 100,000 bpd by 2029.
“We’ll be drilling four to five wells on these two fields over the next 18 months. Both fields have easy access to export terminals, including the Escravos pipeline system in the case of OML 56″, Irune had said in May.
BH learned that Oando’s impressive 2023 financial results can be largely attributed to the impressive performance of its upstream petroleum arm, buoyed by improved oil production and a hike in crude oil prices in the international market.
The company confirmed the huge contribution of its oil exploration activities to its bottom line in its unaudited interim financial statements for the 12 months ending December 31, 2023, released in May, when it attributed its recovery to a substantial foreign exchange gain of N378 billion, which boosted operating profit to N214.5 billion.
Bounce Back
A breakdown of the figures showed that oil exploration and production had a significant impact on the company’s profitability, contributing 53% to operating profit and 41% to pre-tax profit.
“Despite persistent pipeline vandalism across the Niger Delta, which continues to dampen crude production, we achieved a profit after tax of N74.7 billion in 2023.
“This was largely driven by increased trading volumes from our strategic global partnerships and net foreign exchange gains on the group’s foreign currency-denominated assets, contrasting with losses on our foreign currency-denominated liabilities”, the Group Chief Executive of Oando PLC, Wale Tinubu, stated while commenting on the impressive results.
In his reaction to Oando’s successful acquisition of Eni’s stake in the JV, oil and gas expert, Dr. Femi Douglas, said the firm’s fortune will improve further, barring any major shock in the oil petroleum sector.
“The successful acquisition of Nigerian Agip Oil Company will no doubt, be transformative for Oando, potentially boosting its production capacity and shifting its revenue mix towards more stable and profitable sources.
“We expect that Oando will more than double its profits by December if it can realize its production target of 50,000 bpd by the end of the year.
“With the new acquisitions, Oando will become one of Nigeria’s biggest domestic producers”, Douglas noted.
At the time of sending this story in for editorial vetting, Oando’s spokesperson, Udochukwu Okoronkwo, has not responded to BH”s request for comment.
Established in 1956 as Esso Africa, a subsidiary of the Exxon Corporation of USA, the firm started as a downstream petroleum products marketer. It later expanded its businesses to the entire energy value chain comprising the downstream, midstream, and upstream petroleum sectors and the electricity market.
After the Federal Government acquired controlling shares in the company in 1976, it was renamed Unipetrol Nigeria.
In March 1991, Unipetrol Nigeria became a Public Limited company. The Federal Government sold 60% equity to the Nigerian public in an initial public offering the same year. In February 1992, Unipetrol was listed on the Nigerian Stock Exchange (NSE).
Meanwhile, Unipetrol acquired a 40% stake in Gaslink Nigeria Limited, a gas utility company, in 1999 and increased its stake in the company to 51 percent in 2001.
A private investment company led by Nigerian entrepreneurs, Wale Tinubu and Omamofe Boyo, acquired 30% controlling interest in Unipetrol Plc. It further increased its stake in Unipetrol to 42% in 2000.
In 2002, Unipetrol acquired a 60% stake in Agip Nigeria Plc, an Italian-based oil company. And in 2003, the merged company was named Oando PLC, making it the largest downstream petroleum marketing company in Nigeria.
Apart from operating in the nation’s upstream, midstream, and downstream petroleum sectors, Oando also has interests in the nation’s electricity power sector.
