September 19, 2017

Oando reduces debt position by 24% despite low oil price

Oando reduces debt position by 24% despite low oil price


By UdemeAkpan

Despite the low crude oil price in the global market, Oando Plc disclosed that it has reduced its debt position by 24 per cent.

The company indicated in a brief obtained by Vanguard that the debt position which stood at N290 billion in the first half of 2016 was reduced to N218 billion in the first half of 2017.

‘’We actively reduced debt position from N290billion in H1 2016 to N218billion in H1 2017, a reduction of 24%.

‘’Restructuring the company through a completed 5-point strategic roadmap to return our business to profitability – growth, deleverage and profitability – now completed has drastically reduced the company’s debt through many actions.’’

The company which benchmarked its operations in excess of $100 per barrel indicated that the activities of the company were negatively affected following the crash of price to about $60 per barrel.

However, Oando stated that it achieved the dream of becoming the largest Nigerian independent Exploration & Production Company through the $1.5 billion acquisition of ConocoPhillips’s Nigerian assets in 2014, adding that it also increased production 10 fold from 5,000boepd to circa 51,000boepd and 2P reserves from 18.9mmboe to 430mmboe.

The company which stated that this acquisition was financed by a combination of equity and debt – ratio 50/50, added, ‘’2014 commenced with crude oil prices as high as $110 per barrel and ended as low as $60 per barrel, the lowest price in a 5 year period.

‘’This meant 10 fold increase in production was adversely countered by the slump in global crude oil prices. Fall in crude prices forced us to record significant reductions in the fair value of our asset portfolio leading to the recognition of about N76.9 billion of impairment charges in our exploration and production business.

‘’We prudently booked an additional N16.9 billion write down on under-lift receivables and Production Sharing Contract receivables in our exploration and production business. Our energy services business realized impairments of N37.1 billion, as the new oil price environment brought about reduced drilling activity and in turn reduced day rates accruable to our rig assets.

‘’The devaluation of the Naira generated significant foreign exchange losses in our downstream business where we import in dollars and recover our costs in Naira and led to a N7.3 billion in foreign exchange losses.

‘’The delay of payments of subsidies from the Federal Government led to a realization of N7.3Bn in foreign exchange losses. All of which led to the company announcing the largest loss in the history of the NSE – N183.9 billion

‘’2015 remained a turbulent year in the oil and gas sector with prices at the end of the year below $40 per barrel, the lowest level since early 2009. Our business model had to be altered to enable survival in this new reality, by focusing on cost optimisation, increasing operational efficiency and downscaling capital expenditure.

‘’This re-evaluation of our business resulted in the development and execution of strategic initiatives, which would return our business to profitability in the short-term in 2016, with Growth through our dollar earning upstream portfolio, Deleverage through recapitalization or asset divestments, and Profitability hinged on refocused dollar oil export trading business.

The situation, Oando stated compelled it to restructure its debt with some financial institutions.

‘’We restructured our existing debt through a N94.6bn loan facility  with a 5-year Nibor + 200bps loan led by Access Bank in a syndicate with 8 other banks. 60% sale of our downstream operations to Helios and Vitol for US$210m and 75% sale of our Gas & Power business to Helios.

‘’Both divestments have been with strong partners and will facilitate the rapid expansion of both businesses with Oando still playing an integral role in their future.’’