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.”