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Forte Oil Plc which announced plans to sell its power and upstream business in Nigeria and divest from Ghana to focus on its core fuel distribution operation in Nigeria, could raise about N15bn ($42 million) from the sale of the power assets, BusinessDay calculations show but investors may not be beating a path to its door soon.
According to figures from its audited accounts for 2017, the company earned N129.4billion from all its operations in Nigeria and Ghana with its fuels division reporting N78.8billion or 57 percent of revenue.
The company’s power business brought in 28.2 percent or N36.6billion while its upstream operations recorded revenue of N1.9billon, or 1.4 percent of its revenue. Its lubricants and greases division pulled in N12.1billion or 9.3 percent.
The power assets it is putting up for sale has a book value of about N15bn, according to BusinessDay calculations.
The Bureau of Public Enterprises owns 49 percent of the power generation assets (Geregu Power Plc), while the balance of 51 percent is owned by Forte oil (57 percent), BSG Resources Limited (38 percent) and Shanghai Municipal Electricity Power Company (5 percent) respectively as at 31 December, 2017.
Forte oils ownership of the plant then comes to about 29 percent.
Forte oil estimates that power generation has current and noncurrent assets worth N92.3 billion, while liabilities (current and noncurrent) is put at N41 billion. Net assets come to N51.3 billion.
This gives a book value for Forte oil ownership of power assets at about N14.9 billion or 29 percent of net assets.
This is not the first time, Forte Oil has proposed sale of its assets which was not concluded.
In 2015, it said Mercuria Energy Group Holdings SA had acquired 17 per cent of its equity, valued at $200m.
“The investment, which has been approved by the Nigerian Stock Exchange and the Securities and Exchange Commission, is geared towards improving the group’s working capital and will be used for the expansion of the downstream and power generation business in Nigeria as well as positioning itself for future opportunities in the Nigerian oil and gas sector,” the company had said in a statement but not much was heard afterwards.
This is why experts are sceptical. “This is not the first time we are hearing about the company divesting. I don’t know how easy it will be for the company to sell its power assets at this time with the current state of the sector,” says Jubril Kareem, energy analyst at EcoBank.
“There will be a lot of regulatory approvals required since they own a majority stake and I don’t know how easily they can secure these,” Kareem said.
Nigeria’s power sector has been bogged by debts.
Generation companies have not been paid since October 2017 and collections from DisCos are still at abysmal levels.
Nigerian Electricity Regulatory Commission has foreclosed tariff review this year and shortfalls in the sector continues to pile up. This is clearly not the environment that has investors giddy with delight.
“I think it could signal increasing confidence in the power sector, if the company successfully sells the assets, which may not be easy, but we could see new investors coming in, if it scales through,” says Chuks Nwani, energy lawyer, said sounding optimistic.
Forte Oil says the assets it is putting up for sale has generated interest cost of N2.2 billion naira as at December 2017.
It also recorded impairment loss of N410 million on its investment in AP Oil and Gas Ghana Limited.
The carrying amount of this investment in the separate financial statements was greater than the recoverable value to the tune of the impairment charge.
Net cash generated from operating activities in Ghana stood at N196 million, while Nigeria’s stood at N3.9 billion.
This is why it plans to seek shareholder approval for the sale on May 23 and appoint advisers in a notice to investors.
Amperion Power Distribution Company Limited (Amperion Power), the power generation division of Forte Oil Plc completed the acquisition of a majority stake (51%) in the 435MW Geregu Power plant located in Kogi State, under the government-led privatization programme in the power sector. The company is looking now to offload the assets and shift focus to its downstream operations.
Oil marketers in Nigeria have been clamoring for a better deal with the Nigerian National Petroleum Corporation (NNPC) who is currently importing the bulk of fuels used in the country. Forte Oil’s move may be part of plans to position itself for a better deal when marketers negotiate a favourable outcome.
The company plans to channel the proceeds of the sale into expanding its downstream operations by constructing storage infrastructure.
Forte Oil currently has two storage depots, five aviation fuel depots, and a lubricant blending plant. It also has 100 trucks for distribution of products across its more than 500 retail outlets which would require a lot of capital to expand.
The company will also leverage on the anticipated full deregulation of the petroleum industry which had operated under a tightly regulated fixed margin.
ISAAC ANYAOGU & DIPO OLADEHINDE
