Oando Posts N141bn Loss as Finance Costs Spike

Nigeria’s leading indigenous energy group, Oando Plc, has posted a N141 billion loss after tax in its 2020 financial statement, according to its regulatory filing on the Nigerian Exchange.

The company that is listed on both the Nigerian and Johannesburg Stock Exchange relate the loss sustained to increased net finance costs and impairment charge against its income statement. In 2019, the energy group reported a more than N200 billion loss after tax while its stock market performance tumbled.

Its upstream play saw a 5% production increase, 44,550boe/day compared to 42,492boe/day in 2019. Oil production of 15,912bbls/day was achieved versus 17,969bbls/day in the comparable year,

It delivered Natural Gas production of 26,881boe/day, which is an increase when compared with 22,047boe/day in the previous year, NGL production of 1,757bbls/day, below 2,476bbls/day in 2019.

Oando Plc hinted that its revenue for the period was directly impacted by volatile product prices due to the global economic impact of the pandemic.

In 2020, realized average crude oil price declined by 45% to $34.21 per barrel compared to $62.59 per barrel in 2019, and natural gas dropped by 23% to $1.19/mcf compared to $1.54/mcf in 2019. Also, NGL dropped by 20% to $5.48/boe when compared to $6.84/boe in 2019.

These contributed to an overall decline in revenue of 17% in 2020. The company revenue printed at N477 billion compared to N577 billion in the same period in 2019 despite a 5% increase in production.

In the period, production surged to 44,550 boepd from 42,492 boepd in 2019. As well, there was a 13% increase in traded crude oil volumes which settled at 16,081,633 bbls from 14,173,691 bbls in 2019.

In addition, Oando reported a 53% increase in traded refined products, surging to 694,653 MT from 452,919 MT in 2019. The headwinds faced in 2020 resulted in an operating loss of N74 billion in 2020, driven primarily by asset impairments totalling N66 billion – on non-financial assets and financial assets.

As per impairment of non-financial assets, the company stated that the futures market forward curve for Brent carried lower forecasted prices due to the impact of the COVID-19 pandemic on global oil demand and subsequently crude prices.

As such, Oando’s Exploration & Evaluation assets had to be impaired as their fair value had fewer costs of disposal and the discounted estimated cash flows for producing assets became lower than their carrying value.

Management said this assessment of exploration and evaluation impairment losses resulted in a total impairment of N3 billion.

For impairment of financial assets, Oando said this largely relates to an impairment of receivables utilized towards the financing of the settlement of a disruptive and value-destructive long-standing shareholder dispute which culminated in the forced settlement of the indirect shareholder.

In accordance with IFRS guidelines, an impairment test was carried out on the financing of the agreed settlement, resulting in an impairment on financial assets of N63 billion, according to detail in its regulatory filing.

The company’s loss after tax of N141 billion was driven primarily by the above asset impairments of N66 billion, as well as a 48% increase in Net Finance Costs to N60 billion compared to N41 billion in 2019.

This came as total borrowings increased by 16% to N420 billion from N362 billion in 2019 due to the financing of the settlement of the protracted shareholder dispute as stated above.

Commenting on the results, Wale Tinubu, Group Chief Executive, Oando PLC said: “The conclusion of our Full Year 2020 audit confirms our earlier published 2020 unaudited financial statements in which we announced negative earnings driven by asset impairments resulting from a combination of the impact of COVID-19 pandemic, and the regrettable, unfair, and coerced settlement of a long-standing shareholder issue.

“The global pandemic had a profound impact on the entire oil and gas industry, leading to a sharp decline in energy demand and consequently, lower oil prices.

“As a result, we had to reassess the carrying value of our assets and investments, resulting in non-financial impairments. Furthermore, the second tranche funding of the settlement of a protracted and disruptive shareholder issue resulted in us taking a further impairment on a category of our financial assets”.

Tinubu said, “Despite these challenges, we are optimistic about the future as our upstream production optimization initiatives are focused on securing our current production, increasing production efficiency, and reducing costs, while we strive for expansion by actively seeking out inorganic growth opportunities”.

“Furthermore, our foray into clean energy will provide a hedge against the volatility of the oil and gas market, and position us for the energy transition, as well as long-term growth. We are excited about the opportunities and potential for growth that these initiatives will bring and look forward to updating our shareholders on our progress”, he added.

During the twelve months that ended December 31, 2020, production was 44,550 boe/day, compared to 42,492 boe/day in 2019. In 2020, production consisted of 15,912 bbls/day of crude oil, 1,757 boe/day of NGLs and 161,288 mcf/day (26,881 boe/day) of natural gas.

The increase in production was a result of increased natural gas production at OML 60-63 (22%) offset by a 29% decrease in NGL production and 5% and 16% crude production decreases at OML 56 and OML 13 respectively.

Production decreases were a result of shut-ins for repairs, maintenance and sabotage incidences at the facilities. During the twelve months to December 31, 2020, Oando spent $82.8 million on capital expenditures related to the development of oil and gas assets and exploration and evaluation activities, compared to $79 million in the twelve months to December 31, 2019.

Capital Expenditures in 2020 consisted of $80 million at OMLs 60 to 63 incurred on oil and gas properties, $2 million at OML 56 and $1 million capital expenditure recorded on other assets.

In the financial year end of 2020, Oando Trading traded approximately 16 million barrels of crude oil under various contracts with the Nigerian National Petroleum Corporation (NNPC) and delivered 694,653 MT of refined products. # Oando Posts N141bn Loss as Finance Costs Spike.