Oando bounces back as second quarter results are released

by Tunji Andrews

Oando Plc has just released its full year trading result to the floor of the Nigerian Stock Exchange. The company, which has 905,084,628 units of shares outstanding, declared a Turnover of N336.859 billion and a Profit After Tax of N10.096 billion for the period.

In May of this year, the Toronto-listed Oando Energy Resources Inc. (OER), the upstream business of Oando plc, said its average oil production for the quarter ended March 31, 2014, was 4,531 barrels per day (bpd), representing a 22 percent increase over the same period last year.

The results show that revenue dropped to 194.55 billion naira compared with 280.32 billion in the same period last year, the firm said in a filing with the Nigerian Stock Exchange.

On July 30, 2014, the Corporation completed the acquisition of ConocoPhillips Nigerian business unit, with an effective date of January 1, 2012. The final purchase consideration for the Acquisition transferred on July 30, 2014, net of working capital adjustments, transaction costs, purchase price adjustments was $1.5 Billion. The total reserves and resources associated with this transaction are; Proved plus Probable Reserves of 211.6 million barrels oil equivalent (“MMboe”); Best Estimate Contingent Resources of 498.6 MMboe; Unrisked Best Prospective Resources of 656.9 MMboe.

The share price on Tuesday, traded up 5% on the back of dividend announcement, that showed a N8.9 Billion profit for the first half of 2014; while projecting to make N24 billion by year end; largest in organization’s history. The H1 2014 profit sees a %110 surge compared to 2013, while operating profit has increased by 45%.

The company is proposing a dividend payout to shareholders at N1. 30k for 2013 and 70k for the first half of 2014. The date of closure of register of members, the notice of Annual general Meeting and other relevant dates are still awaited.

Operational Update

In the Upstream, OER has made significant progress in organic development during the course of the year with completed drilling campaigns for wells 9, 4 ST and 8 in the Abo field, and wells 5 and 6 in the Ebendo field (OML 56). Production from the Abo field within OML 125 averaged 3,321 bbl/d light oil (net Working Interest) in 2013 as we drilled 3 wells to maintain production levels; whilst production at the Ebendo Field averaged at 679 bbl/d, representing a 54% increase in production over 2012 due to additional well capacity and the optimisation of crude storage and injection.

Significant progress was made in the construction of an alternative 45,000bbls/d, 51km evacuation pipeline which will provide an alternative route for crude transport from the Ebendo Field, through the Trans Forcados export pipeline; completion is expected in Q4, 2014. With the two additional wells drilled on the Ebendo field, we grew our oil production capacity within OML 56 to 7,140bbl/d (3,213 bbl/d OER Share). Export is currently constrained at 3,093 bbbl/d (1,391.85 bbl/d OER share) via the Agip operated Kwale-Brass NAOC/JV infrastructure; however, this does not pose a threat as the construction of our alternative Umugini pipeline will resolve the constraint.

OES took delivery of its’ fourth swamp drilling rig, Respect, in Q4 2013, which is expected to commence a $100,000 day rate contract with an IOC. The Integrity rig celebrated 4 years without Lost Time to Injury (LTI), signifying our commitment to world class operating standards, with the proactive use of our EHSSQ and operational processes.

In the midstream, OER commissioned the Alausa Independent Power Plant in Q4 2013, thus growing our power generation capacity by an additional 10.4MW. OER also commissioned a 5 mmscf/day Compressed Natural Gas facility in Lagos which enables it to reach commercial and industrial customers outside our existing pipeline network. Similarly, OER commenced execution of it’s Greater Lagos pipeline
expansion project, which will enable customers along the Ijora and Marina axis have access to pipeline gas. This pipeline expansion will increase the pipeline’s overall capacity by 30mmscf/day. The company also successfully divested our 128Km EHGC pipeline in line with our strategy to maximize value from our assets, with proceeds from the sale re-invested into the business for growth in other identified value-creating areas.

As downstream players continue to battle delayed subsidy payments from the Federal Government, OER seems to be proactive in creating value as it explores efficient channels to increase it’s margins and add value to the sector, with the completion of it’s single point mooring jetty in the Apapa port, a first of its kind in Africa. This will contribute to cost-savings as a result of a deeper berth to accommodate larger vessels, increased throughput capacity, which will increase efficiency as well as toll charges from external parties. OER has also increased it’s product diversity and expanse across geographies, with operations and supplies into new markets, countries, and continents.

Financial Highlights:

*Turnover decreased by 30%, N85.3 billion compared to N121.1 billion (Q1 2013)
*Gross Profit increased by 11%, N14.5 billion compared to N13.0 billion (Q1 2013)
*Profit-Before-Tax decreased by 101%, (N59.0 million) compared to N4.3 billion (Q1 2013)
*Profit-After-Tax decreased by 125%, (N2.7 billion) compared to N2.4 billion (Q1 2013)

Commenting on the 2013 full year results, Wale Tinubu, Group Chief Executive, Oando PLC said: “The first quarter of 2014 proved to be an eventful but difficult one for our Company, having paid a substantial $500 million deposit for the acquisition of upstream assets, and continuously incurring the significant cost of interest bearing liabilities without the benefits of the cash flows of the target company, whilst awaiting regulatory approval. The acquisition was subsequently completed post this reporting period, and the first stage in our upstream growth strategy is finally complete. We can now look forward to reaping the rewards of this ground breaking transaction, which is already being witnessed through a significant growth in both our asset base and income streams”.

The legacy assets acquired by OER have also made tremendous progress during the course of the year so far. In the Ebendo marginal field, substantial progress has been made in the construction of a 45,000bbls/d, 51km evacuation pipeline which will provide an alternative route for crude transport from the Ebendo Field, through the Trans Forcados export pipeline. The company successfully completed the fibre optic cable laying and pipeline construction milestones associated with the pipeline and delivery of the project remains on track for December 2014. In the Abo field, production grew by 17% compared to prior year largely due to improved well optimisation. We also made significant capital expenditures in Abo 8 and Abo 12 drilling activities, as well as Abo 3 flow line remedial works. Oil production from the Qua Ibo field’s D5 reservoir is expected to commence in the fourth quarter of 2014 after the commissioning of a crude processing facility which is currently under construction and should be finalized in the third quarter of 2014

According to the company’s releases, it showed that Oando Energy Services achieved four years of continuous operations without a Lost Time Incident (LTI) on its “OES Teamwork” rig, showing the company’s devotion to ensuring safety in the services sector of the upstream business.

In the midstream also, OER is extending it’s natural gas distribution network by 8km from Ijora to the Marina business district in Lagos state, ideally positioning us to benefit from the growing demand for gas and power infrastructure in the country. The pipeline extension guarantees us growth of capacity within Lagos from 85mmscf/day to 115mmscf/day.

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