Already among Africa’s leading energy providers and enjoying a newfound status as one of the region’s premier oil and gas producers, Nigeria’s Oando now has even loftier ambitions, beginning with a recent $1.5bn acquisition of ConocoPhillips’ hydrocarbons assets. At a time when many in Western markets are wary of what exposure to emerging markets could mean for their margins, local players are doing what they can to claw back a much-needed share of the domestic market.
The landmark acquisition has transformed Oando into Nigeria’s leading indigenous exploration and production company, with a total hydrocarbon production capacity of approximately 45,000 boe/d (barrels of oil equivalents), 2P reserves of 230.64 MMboe (millions of barrels of oil equivalents) and 2C resources of 547 MMboe. What’s more, the transaction is immediately cash generative, with expected annual revenues of over $600m and 50 percent earnings before interest, taxes, with depreciation and amortisation margin to boot.
The ConocoPhillips deal serves to illustrate just how far the Nigerian oil and gas sector has come in terms of growth and development
Challenging the odds
Having a pre-acquisition production rate at approximately 5,000 bpd, the deal has upped Oando’s capacity eight-fold, and quickly cemented its stature as a leading name in the West African oil and gas business. Although the country’s overall production rate is far short of what it once was – owing principally to theft and sabotage – the company expects the production rate to climb by another 600,000 bpd over the next five years, on top of two million barrels produced daily already.
Made up of six entities, Oando is listed on the Nigerian, Johannesburg, and Toronto stock exchanges, and has headed operating in exploration and production, energy services, gas and power, and downstream activities, and has steered a number of path breaking advances in the Nigerian energy sector.
With an ambition to produce 100,000 bpd before 2019, Oando’s position in the African energy market looks only to increase in strength and stature.
The ConocoPhillips deal, if nothing else, serves to illustrate just how far the Nigerian oil and gas sector has come in terms of growth and development, and the increasing measures taken by home-grown companies to put their stamp on the domestic market. “We believe in the significant potential that the Nigerian oil and gas industry holds and are privileged to play a pivotal role in its consolidation, growth and development,” said Wale Tinubu, Group Chief Executive of Oando. “We will continue to seek strategic opportunities that provide a platform for enhanced growth and value creation for our stakeholders,” he added.
After offloading its Algerian oil business last year for $1.75bn, ConocoPhillips – America’s third-largest integrated energy company – has again opted to reduce its emerging market operations and hone in on home-grown shale riches, principally in North Dakota and Texas. The development has, however, afforded local players a greater say in the domestic energy market, not least in the case of Oando, which has recently emerged as a key constituent of the region’s ever-evolving hydrocarbons sector and an attractive investment partner.
Originally signing on to a sales and purchase agreement (SPA) with ConocoPhillips in December of 2012, the transaction was concluded in July 2014, and is heralded as a landmark oil and gas acquisition on a regional and global basis. “This transaction represents a transformational leap forward for our company and is in keeping with our overall strategy to grow our portfolio of Nigerian-based assets, by focusing on those opportunities that deliver high quality growth in reserves and production,” said Upstream Head, Pade Durotoye, CEO, Oando Energy Resources, shortly after the deal was closed.
“Our management team is familiar with these assets and possess the managerial experience and technical expertise necessary to unlock their value for our shareholders.”
The net cash consideration for the transaction was approximately $1.5bn, after customary and working capital adjustments, plus a deferred consideration of $33m. A deposit of $550m was paid to ConocoPhillips to underpin the closing commitment from the date of signing the sale and purchase agreement in December 2012, to closing in July 2014.
Deciphering the financials
The financial structure of the acquisition was funded with a 50/50 debt/equity mix, made up of proceeds from a $450m senior secured facility, $350m for a corporate loan facility, $100m from a subordinated loan facility, $50m from a private placement offering of Oando shares, and balance proceeds from a $1.2bn shareholder loan facility agreement with Oando PLC – converted to equity.
Oando’s key financial partners included BNP Paribas, Standard Chartered Bank, Standard Bank, African Export-Import Bank, FBN Capital and FCMB Capital, all of which contributed vital funds and expertise in ensuring the deal ran smoothly.
Having now seen the acquisition through to completion, Oando believes the deal represents an opportunity for the company to expand upon its presence in the global energy market and, in turn, create value for its shareholders. For one, the total reserves and resources tied to the transaction amount to probable reserves of 211.6 MMboe, best estimate contingent resources of 509.1 MMboe and unrisked best prospective resources of 669.7 MMboe, representing a sizeable increase on reserves prior to the acquisition.
The deal will also see the company acquire a 20 percent working interest in Nigerian Agip Oil Company’s (NAOC) operations, who currently oversees forty discovered oil and gas fields, 24 of which are well into the production phase. The joint venture, comprising Nigerian National Petroleum Corporation, Eni, and now Oando via OER, also boasts an impressive portfolio of 40 identified prospects and leads, 12 production stations, three gas processing plants, and close to 1500km of pipelines.
Prior to the transaction, Nigeria’s production stemming from its ConocoPhillip onshore assets averaged at 36,494 boe/d through 2013, and in the first half of 2014 came to 39,266 boe/d. In addition to the company’s production capacity, OER onshore assets include a further 211.6 MMboe of proved and probable reserves, 217 MMboe of best estimate contingent resources and 333.6 MMboe of unrisked best prospective resources. The company’s offshore assets, meanwhile, are drawn from shares in six fields and eight prospects, which together contain a total of 292.1 MMboe of best estimate contingent resources and 336.1 MMboe of unrisked best prospective resources.
However, Oando’s end of 2013 proved plus probable reserves of 230.6 MMboe, best estimate contingent resources of 547.3 MMboe, unrisked best prospective resources of 2,064.6 MMboe and a half year, 2014 production of 44,512 boe/d. With half of the deferred consideration of $33m due six months after closing the deal and the remainder due by 12 months, OER looks set to increase its cash flow in the immediate term.
The increasing arrival of international financiers on Nigeria’s shores should give those in the industry cause to feel optimistic about what lies ahead for the domestic energy market, as local and global names alike look to take significant advantage of existing opportunities in the hydrocarbons sector.
With Oando at the helm, like-minded market players will be looking to see what M&A opportunities present themselves as foreign parties withdraw and local ones grow in stature.