Indigenous oil and gas producer, Oando plc, listed on both the Nigeria Stock Exchange (NSE) and Johannesburg Stock Exchange (JSE) recorded tremendous strategic success, as gains from its oil hedges facilitated the repayment of $238 million, out of its outstanding $900 million debt.
This is coming as most upstream exploration and production players are forced to battle with the new reality of lower oil prices translating to lower revenue and operating cash flows. The decline in prices has led to a substantial gain for Oando Energy Resources.
The company successfully realised $234million by resetting its crude oil hedge floor price from an average of $95.35 per barrel to $65.00 per barrel on 10,615 bbls per day for the next 18 months, according to Temilade Esho, an equity analyst with Investment firm Renaissance Capital, in a March 04 report.
The funds will be applied towards a $238 million loan pre-payment, thereby substantially reducing the company’s total debt from $900 million in August 2014 to $615 million today, after the company had previously armortised some of the debt . Effectively, the company has managed to reduce its debt by 30% in the space of seven months post the acquisition of ConocoPhilips (COPN), Oando said in a statement.
“We see this as positive. Oando Energy Resources (OER) has been seen as leveraged and this huge cash inflow will reduced OERs current debt outstanding from $900m to $662m. This also saves OER $65m in interest payment over the remaining term of the loan,” said Esho.
READ ALSO: Excite Enterprise debuts in Nigeria to support MSMEs
A statement from the company indicates that the proceeds from the hedge and additional funds will be used in prepayment of certain loan facilities.
“The decline in global crude oil prices led to a substantial gain for our company and we have 10,832 bbls/day average productions hedged for the balance of 2015 and 8,000 bbls/day for 2016,” said Pade Durotoye, CEO of Toronto listed OER.
The hedge adoption effectively ensures OER receives income approximately pegged to a pre-agreed price, and enables it to conveniently service its debt obligations, which are denominated in both naira and USD, regardless of oil prices and without foreign exchange exposure, said the company in a statement.
It will be recalled that Oando acquired Conoco Philips Nigeria, for a consideration of $1.5 billion, a strategic move that transformed the company into Nigeria’s largest indigenous oil and gas producer.
The acquisition is expected to increase the company’s daily oil production exponentially by 600 percent, equivalent to 45,000 boe/d, annual revenue of over $600 million, and annual free cash flows of $150 million, according to an email statement by the company.
The third quarter 2014 financial statement released by the company, showed its profit after tax surged by 75.69 percent, to N10.70 billion, from N6.09 billion in the same period of the corresponding year (Q3) 2013.
Additionally, direct costs attributable to the projects were efficient as gross profit spiked by 70.37 percent, to N79.60 billion as against N46.72 billion in the preceding year.
Last year, the Board of Oando recommended a 30K dividend for the 2013 financial year and an interim 70K dividend for the six months ended June 30, 2014, which amounted to N2.4 billion at N1 per share.
“With about 50 percent of its oil production hedged and 65 percent of its production being gas committed to stable long term priced contracts, we believe OER is well positioned with strong cash flows to meet its obligations,” said Esho.
BALA AUGIE
