Oando sells off N14bn gas, power assets | Nairalaw

Nigeria’s indigenous oil company, Oando, has sold off its
remaining 25 per cent residual interest in Axxela Limited (formerly
known as Oando Gas and Power) for $41.5 million (N14 billion).

The company, in a statement on Thursday, announced the
completion of its full divestment from its midstream affiliate,
Axxela Limited to Helios Investment Partners, a leading private
equity firm with a focus on investments in Africa.

The net proceeds from the transaction, Oando said, would be used
to partially prepay its Medium Term Loan (MTL), which it took in
June 2016 following the global oil downturn.

The collapse of crude oil prices in the second half of 2014
caught many by surprise. The price of Brent crude fell more than
50% from USD$115 per barrel (bbl) in June 2014 to below USD$50/bbl
by early January, 2015. The most obvious impact of the oil price
collapse on company accounts was the impairment of assets. The
decline in oil prices meant that producers should expect
significantly lower revenues from their oil and gas assets.

Subsequently, this reduced the value of these oil and gas
assets, which resulted in write-offs. Oil and gas companies
operating locally and internationally were dealt a heavy blow by
the fall in oil prices. Noteworthy examples include Shell Petroleum
which recorded an impairment loss of USD$7.9bn; Sothern Energy
recorded an impairment loss of 4.4bn while BG Group recorded an
impairment loss of USD$8.9bn. Oando was no exception and in 2015,
the company recorded huge impairment losses as well.

The oil downturn also sparked a debt crisis with companies
barely breaking even and struggling to survive. Examples of
companies that caved in under the pressure are Seawolf Lonestar and
NRG Drilling to mention a few.

On a positive note, surviving players had to evolve their
business model, diversify their portfolios and imbibe more
financial prudence and discipline to ensure survival in a high or
low price era.

Oando’s divestment of its 25% residual interest from its
midstream affiliate, Axxela, to Helios is in line with strategic
initiatives, put in place to maintain the trajectory of aggressive
debt reduction, portfolio optimization and ensuring that the
business remain viable. In 2016 the company commenced the
implementation of a three-pronged restructuring plan of growth via
its upstream business; deleverage via disposal of USD$350 million
in assets value and a return to profitability. Through open
dialogue with ten leading financial institutions in Nigeria, the
company agreed to a medium term restructuring loan facility of
N94.6 billion (USD$311 million) as part of its strategic
initiatives.

Oando’s sale of its 25% residual interest in Axxela is the
completion of a divestment initiative that began in 2016. In
December 2016, the company completed the USD$115.8 million 75%
partial divestment of Oando Gas & Power (now Axxela) to Helios.
In that same year Oando successfully completed a USD$210 million
recapitalization of its downstream business, with a consortium of
Helios and the Vitol Group, the world’s largest independent trader
of energy commodities. The year 2016 was a time when investor
confidence in the country was at an all-time low, against this
backdrop Oando was able to attract investment to the tune of 30% of
the nation’s Foreign Direct Investment (FDI) via these two
transactions.

Speaking on this transaction, Oando PLC Group Chief Executive,
Wale Tinubu said: “The completion of this divestment signifies
another win for the Company. We pioneered the development of
Nigeria’s foremost natural gas distribution network which has
subsequently grown to become the largest private sector gas
distributor in Nigeria creating a lasting impact on both the sector
and the Nigerian economy. The divestment further reinforces Oando’s
ability to create value that can be monetized and the Company’s
status as the indigenous partner of choice for international
companies looking to invest in Nigeria.”

Oando’s exit from Axxela signifies the company’s ability to
optimise value from a non-core business activity and reinforces its
capability in building strong businesses that attract international
investors and create real value.

Speaking on debt reduction, Wale Tinubu said: “This transaction
favorably positions us to significantly reduce our debt profile and
remain focused on growth through our dollar denominated
businesses.”

He went on further to speak to the fact that the company’s exit
from Axxela was not a departure from the gas business, saying “We
will continue to maintain significant presence in the Midstream as
well as grow our gas aspirations via our Upstream gas assets in our
NAOC Joint Venture wherein we have four gas projects within the
NNPC’s Seven Critical Gas Development Projects (7CGDPs), which are
responsible for almost 50% of the 42 TCF that will be delivered by
the seven 7CGDPs by 2020.”

The NAOC Joint Venture which is made up of NNPC, the Nigerian
Agip Oil Company and Oando is the biggest Upstream contributor to
the domestic gas market via a current daily production of circa 1
billion scf of gas.

Speaking on the divestment, the Chief Executive Officer, Axxela
Limited, Bolaji Osunsanya said: “As we position to become the
preferred and fast-growing gas and power portfolio across
sub-Saharan Africa, we pay homage to our origins, legacy, and
storied history as an Oando portfolio company. We are immensely
proud of our impressive track record of building substantial gas
and power infrastructure across Nigeria, and implementing essential
Corporate Social Responsibility initiatives in our host
communities. As we commence a new journey, our audacious growth
initiatives across Nigeria and the sub-region will leverage our
industry expertise, experience, and longevity; while our
affiliation as a full-fledged Helios company will improve our
access to capital. The continued growth, robustness, and stability
of our business enterprise, enables Axxela provide required
efficient and environmentally-friendly energy solutions for
industrial and commercial clients, leading to positive
socio-economic impact in our markets of operation.”

Speaking on the future of the company, Wale Tinubu explained
that the African business environment is dynamic and the only way
to remain ahead of the curve is by breaking new terrain, being
innovative and ultimately looking for opportunities to leap frog.
He said: “At Oando, we try to emulate this, we believe we are
energy pioneers with an ambition to consistently tackle risks and
evolve opportunities to positive commercial outcome while
maintaining global standards. The good news is, there are still
many parts of the energy ecosystem especially Nigeria that have
been left unexplored and we will continue to set the tone in
transforming Nigeria and ultimately Africa’s energy future.”