Oando to exit Nigeria’s troubled downstream oil sector
Oando Plc, the largest integrated energy solutions group in Sub-Saharan Africa, is set to sell off a majority stake in its downstream business after sealing a $461.3 million deal with HV Investments (HVI), a joint venture owned by a fund advised by Helios Investment Partners (Helios) and The Vitol Group (Vitol). They joint venture entity will acquire 51 percent of the subsidiary’s voting rights and 60 percent of the economic rights.
Its downstream business consists of Oando Marketing, the group’s petroleum product distribution company; Oando Supply and Trading, a leading indigenous physical trader of petroleum products in the sub-Saharan region; Oando Trading limited, its crude trading company; Apapa SPM, its jetty and subsea pipeline system; and Ebony Oil and Gas, its Ghanaian supply and trading entity.
The total consideration of $461.3 million will be funded by a $276.8 million cash contribution from HVI and $184.5 million in preference shares issued to Oando Plc, subject to customary purchase price adjustments, including working capital and long-term debt. At closing, HVI will own 60 percent of the special purpose vehicle, while Oando Plc will hold a 40 percent stake.
A shift in focus?
On July 30, 2014, Oando announced the acquisition of the Nigerian assets of US-headquartered oil explorer, ConocoPhillips, for $1.5 billion (after months of delay in securing regulatory approval, which cost Oando $33 million in deferred consideration).
The acquisition offered Oando control of ConocoPhillips’ oil and gas business in Nigeria, which holds a 20 percent non-operating interest in Oil Mining Leases (OMLs) 60, 61, 62, and 63 as well as related infrastructure and facilities in the Nigerian Agip Oil Company Joint Venture (NAOC JV) Ltd. More importantly, it offered Oando a window to join the big league by venturing into the lucrative upstream segment of the Nigerian oil sector.
At the announcement of the acquisition last year, Wale Tinubu, the Group Chief Executive (GCE) of Oando, stated that the oil firm “…will continue to seek strategic opportunities that provide a platform for enhanced growth and value creation for our stakeholders.” Those opportunities, however, seemingly lie far away from Nigeria’s downstream sector.
Mr Tinubu told investors and journalists in a public statement this week that the divestment move will enable Oando focus on its upstream and midstream businesses, and the growing uncertainties facing the sector may have hastened the company’s decision.
Eliminating the uncertainties
Companies operating within the Nigerian downstream sector are facing an uncertain future. The past two months have seen petrol stations across Nigeria’s larger cities clogged with jerry-can carrying black-marketers (who re-sell at five times the going rate of fuel to those who lack the patience to join the long queues of cars). The recent month-long scarcity, which threatened to ground economic activities in May, has been linked to independent petroleum marketer who are refusing to import fuel until the government pays subsidy claims, running into millions of dollars. Oando is one of the many marketers—with over 400 retail outlets and strategically located terminals in Nigeria, and its West African neighbours—seeking a lasting resolution on the issue from the new government.
The tussle between the government and oil marketers is likely to linger as Austin Avuru, the CEO of Seplat, told Nigerians to brace up for acute fuel scarcity this month. This was after he confirmed that the government did not have enough money to pay for fuel subsidy, which has hit N2 billion per day. “In three weeks, we will be back to scarcity because we simply don’t have the money to pay for the subsidy.”
Queues waned over the month of June, but are poised to reappear as marketers insist on halting further importation until they are certain of the new government’s direction. Many have called on the new administration to end the subsidy regime, which has been too expensive for an economy that has seen its annual revenue trimmed by the current global oil crisis. But that will require a complete deregulation of the market—a move that will triple the current N87 per litre price and hike the cost of goods and services. For now, the government has remained silent on its plans for the industry, and Oando may now be keen to focus less on a market with an uncertain future.
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