Oando Plc last Friday finally released its long-awaited results for the full-year ending 2014, in which it declared a historic loss after tax of N183.9 billion compared to a profit after tax of N1.396 billion in 2013.
The company also released its half-year unaudited results for 2015, recording another loss after tax of N35.12 billion from a profit after tax of N8.980 billion in the corresponding period in 2014.
Oando, whose shares have taken a beating in the last year from investors who have not been comfortable with the company’s inability to release its results on time, over exposure to financial creditors resulting from its acquisition of ConocoPhillips’ upstream assets in 2014, coupled with declining oil prices, also recorded a loss before tax of N171.3 billion in 2014 and a loss before tax of N38.58 billion for the half-year ended June 30, 2015.
For the full year 2013, the company made a profit before tax of N713.2 million and a profit before tax of N8.57 billion as at June 30, 2014. For the full year 2014, Oando also recorded a decline in revenue from N449.8 billion to N424.67 billion while the company managed to increase revenue marginally from N55.67 billion in June 2014 to N60.32 billion in June 2015.
Commenting on its disappointing results, Oando, in a statement at the weekend, said the less than stellar numbers were indicative of the emergence of a new global oil order due to continuing crude price fluctuations – a near halving since June 2014 – that has changed the corporate landscape for oil companies, and has far-reaching implications for the economies of oil exporters.
Presenting a global overview of the challenges for operators in the oil and gas sector and the economic headwinds it has had to contend with, Oando said: “A review of the half-year results of eight of the 10 oil and gas firms listed on the NSE main board showed that the companies made a cumulative profit after tax of N18.490 billion as against the N42.797 billion recorded at the same time a year earlier.
“The world’s big energy groups have also shelved $200 billion of spending on new projects in an urgent round of cost-cutting as pricing volatility is sustained. “To curb the global oil downturn’s effect on the mono-resource driven Nigerian economy and to counter mounting currency pressure, the Central Bank of Nigeria (CBN) moved to shore up foreign exchange and prevent further depletion of the country’s reserves.
“The CBN has in effect devalued the naira by 22 per cent since November 2014, and the key interest rate has remained at an all-time high of 13 per cent with cash reserve requirements at 31 per cent. “With oil prices plummeting by nearly 60 per cent, the domino effect of the global slump has seen Nigeria’s oil export receipts decline dramatically, and indigenous firms have faced a scale-back in proposed joint ventures with IOCs, deeper cuts to capital spending, finding new markets to counter US reluctance to buy, investor wariness, and critically, higher lending local terms due to a weakened naira.
“As much-needed foreign investment stays away, another key implication of the CBN’s action, local banks have also significantly reduced transactions with indigenous oil firms to curtail non-performing loans in the sector and fiscal challenges in meeting vast funding demands.”
In an attempt to downplay its disappointing results, Oando said it scored significant operational highlights by increasing its 2P net reserves by 82 per cent from 230.6 millions barrels of oil equivalent (MMboe) to 420.3 MMboe and growing average production from 4,531 boe/day in H1 2014 to 55,399 boe/day in H1 2015. The company also successfully completed the first segment of its 125 km Greater Lagos Pipeline Ijora-Marina extension, and signed an agreement to sell a 60 per cent stake in its downstream business to Helios/Vitol JV for $461 million.
Providing further insight during a visit to the Nigerian Stock Exchange (NSE), Mr. Wale Tinubu, Group Chief Executive of Oando, said: “Our nation is experiencing change, as witnessed from the tone of redirection in the oil and gas industry, which will lead to improved accountability and operational efficacy in all governmental agencies in this sector.
“Our business is also experiencing this change with the sale of 60 per cent of our downstream business in line with our strategic goals, placing fundamental growth expectations on the upstream division, as already evidenced in the 11-fold increase in production and 82 per cent increase in 2P reserves.
“The cash proceeds of the divestment will be utilised towards further optimisation of our balance sheet.” He also explained that it recorded losses in 2014 due to impairments of N76.9 billion (41.8 per cent) in exploration and production, N16.9 billion (9.2 per cent) in under-lift and JV receivables loss, N37.1 billion (20.2 per cent) in its rig business impairment, and N7.3 billion (3.9 per cent) in foreign exchange losses. 75.1 percent of the impairments have been declared as non-cash related.
“Appropriate consolidation of Oando’s subsidiaries’ accounts and painstaking due diligence undertaken as a result of the magnitude of impairments have been cited as the primary reasons behind the delay of the year-end statements,” Tinubu stated.
He further noted that upstream players had been forced to record significant reductions in the fair value of their asset portfolios, adding that Oando was no exception to this trend, “which has led us to recognise about N76.9 billion of impairment charges in our exploration and production business”.
“This impairment is as a result of lower oil prices leading to a reduced valuation of certain exploration and appraisal assets. We prudently booked an additional N16.9 billion write down on under-lift receivables and Production Sharing Contract (PSC) receivables in our exploration and production business, and our energy services business realised impairments of N37.1 billion, as the current oil price environment has brought about reduced drilling activity and in turn reduced day rates accruable to our rig assets, as well as a weaker market outlook.
“In addition to the decline in oil prices, there was a 8.4 per cent devaluation of the naira which generated a significant foreign exchange loss in our downstream business.
“The nature of the business makes us extremely vulnerable to foreign exchange risks as we import in dollar denomination and recover our costs in naira. “The delay of payments of subsidies from the federal government has served to increase this vulnerability and led to a realisation of N7.3 billion in foreign exchange losses,” Tinubu stated. Agency report