Divestments by International Oil Companies (IOCs) operating in the Niger Delta have boosted indigenous firms which acquired such assets, leading to a spike in their valuations.
Oando plc, which yesterday concluded the takeover of Conono-Phillips’ (COP) Nigerian business unit for a record $1.5 billion, currently does not have financial statements released for the year 2013.
However, analyst reports on the firm’s Canadian subsidiary, which is owned 95 percent by Oando plc and is the acquirer of COP’s Nigerian assets, gives some insight into the valuation of Oando pre-acquisition (financial year 2012) and expected valuation post-acquisition (assuming financial year 2013).
Oando’s enterprise value (EV) shows the entire firm was valued at C$1.52 billion pre-acquisition, according to data from Conmark Securities Inc.
EV measures a company’s overall value and is a better measure than market capitalisation as it incorporates net debt, minority interest and preferred shares.
Using the Canadian – US Dollar (CAD-USD) exchange rate for December 31, 2012, BusinessDay calculates the expected EV for 2013, incorporating the acquisition of COP’s assets, to be $2.813 billion. This represents an 84 percent increase in EV derived from the acquisition of Conoco-Phillips’ assets alone.
Analytical metrics also show an improvement in Oando’s Net Asset Value (NAV) per share.
A look at Seplat plc, another indigenous firm that has grown through acquisitions, shows the firm’s EV is estimated to be $2.521 billion currently, which is at par with the valuation for Oando post-acquisition ($2.813 billion), showing how the acquisitions have influenced the worth of the firms.
“Many Nigerian companies have become proud owners of upstream assets,” said Ernest Nwapa, executive secretary, Nigerian Content Development and Monitoring Board (NCDMB).
“Nigerian companies are now handling lucrative pipeline construction projects. Things can only get better for them. The more patronage they get, the more they are able to improve their capacities. It is a virtuous cycle,” he said.
Analysts say the acquisitions in the industry are not expected to decline in the near future.
Seplat has indicated in a statement that its recent IPO listing was to raise funds partly to buy up more oil and gas assets in the country.
“Major IOCs divesting their participating interest has been the major driving force for M&A activity in the Nigerian upstream sector. There has been over $6 billion realised in value between 2010 and 2013 through asset sales and between $4 billion and $8 billion in potential sales yet to be completed,” said CBO Capital in a research note released last November.
BusinessDay’s energy sources say it is possible that local firms will begin to merge as bigger firms acquire smaller firms with strategic interests to improve economies of scale, capacity and efficiency.
Furthermore, IPOs could be expected as the Nigerian Stock Exchange (NSE), and investment banks have been courting local oil and gas firms through road shows, workshops and other events, to raise capital through the stock exchange.
“A handful of these companies will require funding to scale up production capacity and acquire more oil assets,” said Abiodun Keripe, head, research and strategy, at Elixir Investment.
However, with all the euphoria, many questions have been raised regarding the funding of these acquisitions and the technical capacity of the local firms.
“With the Oando acquisition, Agip continues to be the operator of the JV. With its long and varied international experience, Agip is a comparatively more desirable operator,” says Aminul Haque, analyst at Stonecap Securities Canada.
The local firms have also had better success dealing with their host communities than the IOCs they took over from.
According to Ildar Davletshin, analyst at Renaissance Capital, “Seplat has been successful in engaging local communities in direct dialogue and co-operation, which helped to reduce incidents of third-party interference to zero in 2013 (from six in 2011 and four in 2012).”
It is expected that Oando would record similar success as well in its relationship with its host community.
The past five years have seen a lot of merger and acquisitions (M&A) activity in the upstream sector of the Nigerian oil and gas industry as a result of asset divestments by international oil majors. The local oil and gas companies that have stepped up to snap up the assets getting divested by the IOCs include ND Western Ltd, which took over Shell Nigeria’s Oil Mining Lease (OML) 34; Elcrest E&P, which took over Shell Nigeria’s OML 40; and Shoreline Natural Resources Ltd, which took over Shell Nigeria’s OML 30.
Others are Lekoil, which took over Panaro Energy’s OML 113; and Seplat plc, which took over the Shell Nigeria-led consortium’s assets of OMLs 4, 38 and 41.
YINKA ABRAHAM
