• Monday, February 26, 2024
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BusinessDay

Oando’s expansion drive delivers maximum returns for equity holders

Nigeria’s leading indigenous oil and gas producer, Oando plc, listed on both the Nigeria Stock Exchange (NSE) and Johannesburg Stock Exchange (JSE) has released its H1 2014 results.

Also released yesterday, was the company’s end-of-year statement for 2013 which shows that it posted N1.4billion profit.

The half year result, currently at the NSE, shows the company posted an impressive N24bn operation profit and  N9bn profit after tax, a 145 percent and 110 percent increase from H1 2013 respectively.

The company is also paying a dividend of N1 per share, based on a 2013 dividend of 30 kobo and 2014 proposed interim dividend of 70 kobo.

These impressive results indicate the company is beginning to reap the rewards of its landmark $1.5bn acquisition of ConocoPhillips entire Nigerian business, which has transformed its status into Nigeria’s largest indigenous oil and gas producer.

Analysts said yesterday that Oando plc remains on the trajectory of growth, given its full year end 2013 financials with a profit of N1.39 billion, as it continues to pursue aggressive expansion through acquisitions.

They also noted that given the generally accepted finance principles that a firm seeking growth or expansion through acquisition usually has interest expense in its capital structure, they are of the belief that by the time the expansion drive materialises, the value of the equity owners will be maximised.

With the acquisition now complete and immediately cash generative, the company’s upstream subsidiary, Oando Energy Resources has a total hydrocarbon production capacity of approximately 45,000 bop/d, 2P Reserves of 230.6MMboe and 2C Resources of 547 million barrels of oil equivalent (MMboe), and expects annual revenue of over $600m, and annual free cash flows of $150m.

Commenting on the results, Wale Tinubu, group chief executive, Oando plc said, “Our strategic refocus on the higher margin upstream foresees immense value addition for our stakeholders in the near term. We have succeeded in repositioning ourselves within the sector, and through future acquisitions and innovative efficacy we will seek to up our market share in sub-Sahara’s upstream sector within the next five years to 100,000 barrels of oil equivalent per day (boe/d) in net production.”

Oando has also made significant progress in extracting value from its legacy assets. OML 125 production, which increased by 17 percent to 651,000 bbls, while OML 56 production increased by 30 percent to 171,000bbls compared to last year, significantly impacting revenue and profit streams.

The company’s full year performance was greatly attributed to the acquisition cost and interest on debt facilities in Oando’s prolonged acquisition of ConocoPhillips Nigeria business assets.

Oando  is no exception to the aforementioned growth principles as the audited financial statement for the year ended December 2013 showed  finance costs increased by 57.12 percent to  N21.63 billion from N13.69 billion the same period of the corresponding year (FY) 2012.

Amid the tough operating environment such as limited power supply which culminates in spiraling energy costs, volatility in exchange rates, unpredictability in government policy and bad roads that causes huge distribution costs, Oando still came out cost leader.

In the first half of 2014, the group has already seen positive indications from its active strategic initiatives; upstream investments, midstream expansion and downstream optimisation. Based on its Q2 2014 performance, it is likely to exit the year with a N24billion profit.

The 2013 audited financial statement showed the Nigeria oil giant taking a hit at the bottom line level as a results of expenditure incurred in the acquisition of assets aimed at increasing its share of the market.

“The excess money received by the company over the par value of its share has impacted positively on reserves as the share premium account for the year ended December 2013 rose by 8.64 percent to N33.93 billion from N37.14 billion the corresponding year (FY) 2012”, an analyst told BusinessDay.

Furthermore, shareholders fund also increased by 55.55 percent to N158.99 billion in FY 2013 as against N102.21 billion the preceding year.

Iheanyi Nwachukwu &  Bala Augie