Like most companies in the downstream sector, Forte Oil had its own share of the ups and downs in the industry.
Forte Oil Plc was incorporated on 11 December 1964 as British Petroleum. It became African Petroleum through the nationalization policy of the Federal Government of Nigeria in 1979.
In May 2007 the shareholding structure changed as Incorporated Trustees of NNPC’s Pension Fund divested its stake to Zenon Petroleum and Gas Limited owned by Femi Otediola thus making him the majority shareholder in the company. To reflect the new ownership, it changed its name to Forte Oil Plc in December 2010.
In a notice sent to the Nigerian Stock Exchange dated 24th December 2018, the majority shareholder, bllionaire businessman, Femi Otedola, announced that he had reached an agreement with Prudent Energy investing through Ignite Investment Commodities Limited to divest his full 75% in the company’s downstream business the deal was closed last week.
This announcement came to many as a surprise. With the deal closed, Femi Otedola said he will focus on his flagship power asset, Geregu Power Plant, while Forte Oil will focus only on downstream and upstream under new ownership. The billionaire businessman believes Power should be his next focus after operating in the downstream sector for over 20 years.
The task of regaining the company’s momentum now falls on the new leadership of Forte Oil headed Olumide Adeosun, following the resignation of the erstwhile CEO, Akin Akinfemiwa. Prior to his appointment, Adeosun has led the Energy & Power (West Africa) Practice at Price Waterhouse Cooper. Adeosun also held various leadership roles including, Head of Strategy Consulting for West Africa and Head of Capital Projects and Infrastructure where he was a lead adviser on a number of multi-billion-dollar projects. The company also announced the appointment of Moshood Olajide as the company’s chief financial officer.
Navigating through challenges
Last year the energy firm announced the decision to sell its upstream services and power business in Nigeria and also divest from debt-ridden Ghana operations and focus on its core fuel distribution operation in the country.
The sale of its Ghana operations did not come to many as a surprise. The Ghanaian operations have been insignificant at both the top and bottom lines. AP Oil and Gas Ghana accounted for just 0.9% of the Group’s revenues of N148.6 billion in 2016 and 3.6% of Group revenues of N129.4 billion in 2017.
The Ghanaian segment made a loss before tax of N59 million in 2016, and a profit before tax of just N29 million in 2017. Forte made an equity investment of N670 million in AP Oil and Gas Ghana, in addition to cumulative preference shares worth N424.9 million. Interestingly, before the decision to put the Ghanaian subsidiary on sale, the company had taken several impairments on its investment. Impairments of N547 million were taken in 2016 and N410 million in 2017 respectively.
Conversely, its decision to offload its stake in Geregu Power Plc came to many as a huge surprise for an energy company that had in the past pride itself as a leading integrated energy company. Also, gross profit margin from Geregu has been quite impressive at between 35% and 40%.
It would be recalled that Forte Oil owns a 57% of Amperion Power Distribution Limited, BSG Resources Limited owns 38%, while Shangai Municipal Electric Power Company (SMEPC) has a 5% stake. Amperion Power Distribution Limited, in turn, owns 51% of Geregu Power Plc.
In effect, Forte owns about 29% of Geregu Power Plc. Amperion completed the acquisition of a majority stake in the Geregu Power plant for $132 million in August 2013. The company has since invested funds into rehabilitation of the plant. As at 9 months ended 30th September 2018, the Group has a long-term loan of N11.4 billion for its acquisition of the Geregu Plant through Amperion.
Financial performance mirrors industry challenge
Over the last 5 years, Forte Oil plc has seen its profit margin shrink to about 0.3percent, its lowest level over the periods. Analysis of the company’s profit and revenue trend has revealed a faster decline in firm’s net income compared to its revenue.
While Forte oil recorded an annual average decline of 6percent in its revenue during in the last 5 years, net income plunged 47percent during the same period. This was no thanks to 72percent shrinkage in its profit after tax from continued operations to N361.47 million in FY 2018 against N1.31 billion in FY 2019.
This is however despite revenue generated in 2018 stood at N134.7 billion, up 56percent from 2017 numbers. This we can term a rebound from a heavy revenue plummet in 2017 to N86.16 billion from N148.69 billion in 2016.
This trend is however not typical to forte oil in isolation as oil companies in Nigeria downstream sector have all suffered the same faith as Forte oil.
The Nigerian downstream sector broadly categorized into the refining and marketing segments of petroleum products have continued to underperform, recording shrinking margins despite opportunities for growth.
Nigeria’s inability to refine adequate petroleum products domestically in order to meet local demand has continued to render the downstream sector vulnerable to foreign exchange volatility particularly for petroleum independent marketers.
Recent efforts to revive the local refineries have failed as they have struggled to refine up to 30 percent of their installed capacities despite the huge amount ($1.6billion) reportedly spent on repairs and maintenance over the past 19 years.
Forte Oil has also struggled to revive its profits from operating activities to 2014 – 2016 levels which averaged N8.8 billion. The last 2 years have seen operating profits down to an average of N2.6 billion mirroring challenges faced with the industry.
While in 2016, tough business operating landscape in the marketing segment however slightly improved as petroleum importers enjoyed relative higher margins due to the special exchange rate of N285/$1 (parallel market rate stood at N305/$1) provided by the government, lower oil prices (average of $49.00) meant lower associated cost of importation and higher pump for petrol (from N87 to N185).
This was however short-lived as oil prices began to rally in Q4 2016 which implied higher landing costs for petroleum marketers. In addition, the unending delay in subsidy payments which limited access to credit facilities from banks while interests accrued on loans that were obtained worsened the financial capability of petroleum marketers to import.
Investors’ low appetite takes toll on Forte Oil stocks
Same trend has also been witnessed in the industry as investors in the nation’s capital market have continued to demonstrate low appetite towards shares of companies in Nigeria’s oil and gas downstream sector.
Before now, the sector was the darling of all either to government, investors or general public however recent analysis revealed status quo seems not to be the same again for listed firms such as Oando Plc, Forte Oil Plc, Total Nigeria Plc, MRS Oil Nigeria Plc, Conoil Plc and 11 Plc (formerly Mobil Oil Nigeria Plc) under the umbrella of Major Oil Marketing Association of Nigeria (MOMAN).
The last five years have seen significant erosion in the value of Forte’s oil shares. Stock price of forte oil has plunged 83.9 percent in 5 years.
Analysis have shown that investors in the shares of Forte oil have lost about N181.9 billion in market value in the last five years, as firm’s stock price stood at N27.00 as at Friday from a height of N180 during the period.
