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How Oando emerged as energy conglomerate

Initially incorporated in Nigeria in 1956 as Esso West Africa, a subsidiary of the Exxon Corporation, USA, it was again incorporated under Nigerian laws post-independence…

Initially incorporated in Nigeria in 1956 as Esso West Africa, a subsidiary of the Exxon Corporation, USA, it was again incorporated under Nigerian laws post-independence as Esso Standard Nigeria Limited in 1976. Following the indigenisation policy of the 1970’s, the Federal Government acquired a 100 per cent equity stake in the company and rebranded it Unipetrol Nigeria Limited. In 1991, 60 per cent equity was sold to the Nigerian public as the military junta of Babangida embarked on the first phase of its privatization. The company was later listed on the Nigerian Stock Exchange in 1992.

The privatisation of the company was completed in 2002, when the government divested the balance of 40 per cent, which it still controlled. While the Nigerian public took up 10 per cent of the balance, a new core investor emerged, Ocean and Oil Investments Limited, which took up the 30 per cent.

Later in the same year, the company acquired Agip Petroli’s 60 per cent stake of Agip Nigeria Plc, through an international bid. The company was subsequently rebranded Oando Plc in December 2003, a name which it holds till date.

The emergence of the new core investor into the company’s operations also brought with it a new management team, with a broader vision and targets for its proposed Group structure. The company which prior to 2002 had operated simply as a downstream player – retailing products was immersed in a new vision, principal amongst which were: organic and inorganic growth for its downstream business and diversification into other business offerings along the Energy Value Chain. With a strategy backed by the utilisation of debt, the new management embarked on expanding its downstream business, selling off non-core assets, improving internal processes and very importantly, diversifying its existent revenue streams by venturing into other business lines.

Six years down the line, a much bigger company has emerged with After Tax Profits recording a Compounded Annual Growth Rate of 128 per cent, as the Group’s diversification proposition seems to be taking shape. Already a leader in the downstream marketing segment, some acquisitions of its Exploration and Production Division have started to book high level profits while others are on course. Its gas subsidiary pioneered private sector distribution of gas to industrial companies in the Lagos area and is currently expanding its services to other regions of the country.

 From a network of about 562 retail outlets, the Group is strongly positioned in the downstream oil  sector of the Nigerian economy. Its distribution network accounted for about 17.87 per cent of petroleum products distributed in 2008. Despite the fact that diversification from this business has been the Group’s  key strategy to improving long-run profitability, the Petroleum Marketing Division still remains the largest contributor to current profits, with as much as N8.5 billion in Before Tax Profits (80 per cent of the Group’s total) in 2008 alone.

With expected deregulation of the downstream sector, it is however anticipated that long term investments in the sector would be propelled by the implementation of the deregulation policy. These include investments in refineries, storage depots and terminals, pipeline infrastructure, retail network expansion etc. These investments would be necessitated by the quests by players to keep their operational costs at its barest minimum, to enable them compete effectively with their peers. Similarly, investments in refineries, which had somewhat been constrained by the regulated pricing of products, as refiners can effectively charge prices reflective of their cost structures, without regard to government recommended product prices, albeit their prices must remain competitive.

The post-deregulation era would also witness a more active role for the NNPC in the retail segment of downstream oil sector. The company has remained in the sidelines of the distribution chain, since its interests in some retail oil concerns were privatised between 2000 and 2002. It currently accounts for about 5.13 per cent  (2008) of total products distributed which it achieves through its mega-filling stations around the country.

In line with its plans, the corporations acquired 178 retail outlets through which it intends to access the retail market, as part of its strategy to play actively in the downstream market post-deregulation.

In that direction, Oando has taken the bull by the horn by establishing two registered two refineries as subsidiaries – Oando Port-Harcourt Refinery Limited and Oando Lekki Refinery Limited. Oando Port Harcourt Refinery Limited was incorporated as part of efforts by the Oando Group to partake in the 2005 privatisation bid rounds of the Federal Government owned Port Harcourt Refinery. In line with its privatisation agenda, initiated in 2002, the Obasanjo-led administration had called for bids from prospective investors to buy a 51 per cent stake in the Port-Harcourt and Kaduna Refineries. While the Kaduna refinery had a nameplate capacity of 110,000 barrels per day, the two refineries which make up the Port Harcourt Refinery had capacities totaling 210,000 barrels per day. The Group’s bid for the Port-Harcourt Refinery was entered in conjunction with oil giant, Shell Petroleum Development Company (SPDC). However, its bid efforts were unsuccessful, as the refinery was sold to Bluestar Oil Services Consortium Limited for an estimated $561 million, though the sale agreement was later cancelled and monies returned to the bid winner.

Oando Lekki Refinery Limited though yet to receive a refining licence, the Oando Group plans to construct a greenfield refinery in the Lekki Free Trade Zone with an optimal capacity size of 360,000 barrels per day (81per cent of the current total nameplate capacity of the countries four refineries.

The company has purchased 450 hectares of land for the projects and has completed a bankable feasibility study undertaken by Wood Mackenzie and Foster Wheeler for the first phase of the refinery project. This phase of the project would involve the development of 240,000 barrels per day capacity refinery. The refinery which in itself is a long term project is expected to receive approval from the industry regulator – the Department of Petroleum Resources (DPR) as well as raise substantial financing before actual construction commences.

Also, as part of plans to construct the Lekki refinery, the company intends to develop a 210,000MT import reception terminal in the same location, which would serve as a product storage terminal when the refinery is eventually completed. The terminal will also include a Single Point Mooring (SPM) facility, to aid product discharge from very large carriers through a subsea pipeline. The facility would be located seven kilometres offshore would support the berthing of 80,000 deadweight tonnage (dwt) vessels. Its impact when concluded would be a significant reduction in demurrage costs incurred by product importers, as a result of berthing on the high sea for extended periods. The Front End Engineering Design (FEED) for the project is expected to be completed soon, while the company estimates that the entire project is expected to begin production by 2017.

Already, the NNPC has pledged its support for the establishment of the proposed greenfield refinery in Lekki, Lagos and also praised the efforts of other industry players like Oando Plc, for its commitment to establishing refineries in Nigeria to boost local refining capacity.

The project when completed would boost supply to the Lagos market and extensively the entire south west region with refined petroleum products. The region alone, according statistics, accounts for 38 per cent of refined products consumed within the country. When local demand is eventually met by the upcoming refineries within the country, access to the international export markets would also be enabled by the planned deep sea port in the LFTZ. The port would aid potential product off-takers to load products to their Very Large Crude Carriers (VLCC’s) from the facilities terminal.

Construction work on the 124 km East Horizon gas pipeline project at the eastern part of the country was also progressing steadily and this was expected to contribute to further improving the group’s gas revenue.

In order to finance its planned expansions, the Board of Directors at its Annual General Meeting in July secured the authorization of its shareholders to raise additional capital of up to N200 billion, by means of equity or debt offerings. At a subsequent Extra-ordinary General Meeting, the shareholders passed a resolution increasing the authorised Share Capital from N500 million to N1 billion, which translates to about 2 billion ordinary shares. Its first step in its Capital Raising efforts is a Rights Issue of 1 for every 3 existing shares.

Thus, 301,694,876 Ordinary Shares of 50 kobo each is now being issued at N70.00 per Share. seventy three per cent of the Net Issue Proceeds amounting to N20.44 billion is to be utilized in refinancing arrangements for its upstream assets, including OML 125/134. The offer is done on the basis of one share for every three ordinary shares, based on its current outstanding number of shares which stands at 905,084,628 units. It is anticipated that subsequent capital raisings would be utilized in funding expansion programs in some of the Group’s subsidiaries.

According to the company’s Management, the net proceeds which has been estimated at N20.44 billion would be utilized in of the proceeds from the Rights Issue as well as  utilize in refinancing the acquisition of its upstream assets, providing operational capital for its upstream business, and short and medium term investments in its Gas and Power Division.

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