Lagos, Nigeria – Oando PLC (referred to as “Oando” or the “Group”), Nigeria’s leading indigenous energy group listed on both the Nigerian and Johannesburg Stock Exchange, today announced audited results for the twelve months period ended 31 December, 2014, with the following highlights:
Financial Highlights:
- Turnover decreased by 7%, N425.7billion compared to N457 billion (2013)
- Gross Profit increased by 17%, N69.8billion compared to N59.4 billion (2013)
- Profit-Before-Tax decreased to (N176.2) billion compared to N7.7 billion (2013)
- Profit-After-Tax decreased to (N183.9) billion compared to N1.4 billion (2013)
Operational Highlights:
Upstream:
- Oando Energy Resources (OER): 500% increase in total production to 9.1 million boe in the 2014 as compared to 1.5 million boe 2013.
- OER realized $234 million by resetting its crude oil hedge floor price from an average $95.35 per barrel to $65.00 per barrel on 10,223 bbls/day of oil production until July 2016 and 1,553 bbls/day for a further 18 months until January 2019.
- OER completed its 45,000bbls/day throughput volume, 52km Umugini alternate evacuation pipeline for the Ebendo Field.
- Oando Energy Services achieves 4 years of continuous operations without a Lost Time Incident (LTI) on “OES Teamwork” swamp drilling rig.
Midstream:
- Oando Gas & Power commenced construction of the 9km expansion project of the Greater Lagos Pipeline Phase IV.
Downstream:
- Oando Downstream successfully completion of the construction of the Midstream Jetty in Apapa, Lagos
2014 was a year of extreme volatility in the oil and gas industry. The year commenced with crude oil prices as high as $110 per barrel with the year exiting as low as $60 per barrel registering the lowest price in a 5 year period as a result of a supply shift from the non-conventional oil types that the high oil price regime promotes. Turmoil in the industry for both oil companies and service companies, ensued as they had to adjust to the new reality of low oil prices, increased supply and competition. Projects which were once economically viable were reclassified and postponed till a higher oil price regime emerges. As such the industry and all companies are experiencing asset write-downs totalling billions of dollars and are reducing their subsequent investments.
Commenting, Mr. Wale Tinubu, Group Chief Executive, Oando PLC said: “the global industry clearly shaped our financial outcome as a company in 2014. We thrived in our operational achievements, with a 5 fold increase in total production over 2013, but this was adversely countered by the slump in global crude oil prices. In this new pricing reality we have provisioned for a number of write-downs as a result of reduced activity in the service sector as well as the value of reserves in our legacy portfolio. We see this period as a time for prudent consolidation and will be focusing our energies on creating value through optimization of resources, via efficiency in our operations, deleverage and risk management – as demonstrated with our hedging instruments that yielded $234 million in proceeds, whilst, seeking the right opportunity to substantially expand our reserve and production base”.
Although the weak oil price environment may minimize our operational achievements, it is still imperative we acknowledge that 2014 was a transformational year for the company. We evolved from a predominantly downstream company to a leading indigenous upstream company, consistent with our growth strategy. We are delighted with the development in our upstream business as evidenced by the increase of production from ~5,000 boepd in 2013 to ~51,000 boepd by the end of 2014 as well as an increase in our 2P reserves from 18.9 mmboe to 430 mmboe in the same period.
Nevertheless, the year turned out to be a challenging year for the industry as well as for the company as we witnessed a sharp decline in global crude oil prices of over 30%.
- Consequently, upstream players have been forced to record significant reductions in the fair value of their asset portfolios. Oando is no exception to this global trend, which has led us to recognize 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 receivables in our exploration and production business. The arbitration case was awarded in favour of Oando and NAE.
- Our energy services business realized 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% devaluation of our local currency (Naira) which has generated 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 realization of N7.3Bn in foreign exchange losses.
We have braced ourselves for this new world order of low prices, reduced investments and industry shrinkage by implementing effective cost cutting initiatives, disciplined capex investments towards maintaining production levels and growth through M&A deals that create immediate value.
Operational Update
In the Upstream, Oando Energy Resources increased production by over 500% from 2013, largely due to a full 5 month contribution from OMLs 60 – 63 which were acquired in July 2014. OER made significant progress in organic development during the course of the year with completed drilling campaigns for 3 wells in the Abo field, maintaining a production average of 3,303 bbl/d (OER share). Ebendo 7 well was drilled, completed and tested, growing the Ebendo field production capacity to 7,140boepd (3,052 boepd OER share). OER participated in the completion of the 51km Umugini evacuation pipeline (45,000bbls/d throughput capacity) which will provide an alternative route for crude transport from the Ebendo Field, through the Trans Forcados export pipeline. Following the completion of the evacuation pipeline, oil production capacity was increased within OML 56 to 7,140bbl/d (3,052 bbl/d OER Share). Export had been constrained at 3,093 bbbl/d (1,322 bbl/d OER share) via the Agip operated Kwale-Brass NAOC/JV infrastructure. The newly constructed pipeline will allow the company maximize the production and transportation of crude on OML 56. The Company successfully realized $234 million by resetting its crude oil hedge floor price from an average of $95.35 per barrel to $65.00 per barrel on 10,223 bbls/day of oil production till July 2016 and another 1,553 bbls/day for a further 18 months until January 2019. The proceeds, in addition to $4 million cash on hand, were used to prepay $238 million of certain loan facilities.
OES Teamwork rig celebrated 4 years without Lost Time to Injury (LTI). LTI measures injury sustained on the job that can directly obstruct a worker from performing or continuing with a task or resulting in downtime in operations. This signifies our commitment to world class operating standards, with the proactive use of our EHSSQ and operational processes.
In the midstream, Oando Gas and Power commenced execution of the 9km Greater Lagos pipeline expansion project, which will enable customers along Ijora and Marina axis have access to gas; this expansion will increase the pipeline’s overall capacity by 30mmscf/day. We also entered into an agreement with General Electric Nigeria to engage in various initiatives to develop power generation projects, Compressed Natural Gas facilities and mini Liquefied Natural Gas projects.
The downstream industry remains in need of immediate regulatory reform. Despite the challenges, Oando stays focused on increasing our footprint and diversifying our product mix. In line with increasing our presence and dominance across Africa, Oando Marketing completed the construction of the Island Jetty.
Ends.
