- Oando Posts N1.7bn PAT, Raises Revenue By 116%
The storm appears over for one of Nigeria’s oil giants, Oando Plc, as it posted N1.7 billion profit after tax (PAT) in the first quarter of the year.
A statement by the company’s Chief Strategy and Corporate Services Officer, Mr. Ainojie Irune, on Monday said the profit came on the heels of its turnover growth by 116% to N138.4 billion and gross profit by 53% to N13.4 billion compared to the first quarter of 2016.
It attributed the good performance to proactive measures taken by management to enable the company cushion the effect of the economic headwinds in the country.
“We are pleased with our Q1 2017 results, which reflect a return to normalcy and growth in spite of continued security challenges, economic headwinds and a fluctuation in crude prices,” Mr. Wale Tinubu, Group Chief Executive of the company, said in the statement, explaining that this was made possible by the successful restructuring of the company in 2016.
The result showed that the company had continued to reduce its net debt, quelling any concerns of critics. As at March 2017 it stood at N225.9 billion a 29% reduction from N316.6 billion in March 2016.
According to Tinubu, “In the upstream, production in the first quarter of 2017 decreased to 38,125 bpd compared to 49,365 bpd in Q1 2016. However, due to decreased production expenses, Oando Energy Resources (OER) recorded a profit of N4.96 billion in the first quarter of 2017 compared with a profit of N815.5 million in the prior year comparative period.
“In the midstream, following the partial divestment of Oando Gas and Power (OGP) to Helios Investment Partners, we successfully concluded the sale of Alausa IPP for a transaction price of N4.6 billion.
“In the downstream, our trading business through Direct Sale & Direct Purchase (DSDP) and Offshore Processing Agreement (OPA) yielded N115.6 billion compared to N4.4 billion in 2016.”
The Nigerian oil and gas industry and the economy had been plagued by low oil prices, production disruptions, reduced oil exports and the attendant economic recession, forcing most oil and gas companies, particularly upstream players to struggle to navigate the difficult terrain that translated to lower revenues and operating cash flows.
But the company said its strategy of growth across its business operations; deleveraged through the divestment of non-performing assets; and profitability, by focusing on dollar denominated export earnings paid off as it recorded the Q1 N1.7billion profit.
It said through its upstream subsidiary, Oando Energy Resources (OER), the company adopted a hedge mechanism that ensured the business was protected from fluctuating oil prices, saying the subsidiary, however, recorded a production shortfall due to significant reductions in gas production and delivery caused by a ruptured Gas Transmission System (GTS-4) gas line at OMLs 60 to 63.
It regretted that the Trans Forcados pipeline continued to suffer downtime, resulting in reduced production from its Ebendo field.
Oando said despite these operational challenges, OER recorded a 608% increase in profits; N4.96 billion in the first quarter of 2017 against a profit of N815.5 million for same period in 2016.
It explained that its Downstream Oando Trading (OTD) witnessed a 150% growth in traded volumes and a significant increase of 1718% in turnover to N115.6 billion compared to N4.4 billion the comparative year, adding that it also increased its secured credit lines by N76.6 billion to a total of N214.4 billion, giving it added leverage to further grow the business.
“The first quarter earnings from OER and OTD underscore our proactive decision to focus on our dollar denominated export businesses,” Tinubu said, adding: “Our resilience is evident in our capacity to grow via a diversified model, and as we continue to chart our deliberate path in this challenging business environment, we look forward to better performance in the quarters to come.”
Oil Rises as Threat of Immediate Iran Supply Recedes
Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.
Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.
A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.
It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.
Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.
“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.
To meet rising demand, U.S. drillers are also increasing output.
U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.
Oil Prices Rise as Demand Improves, Supplies Tighten
Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.
Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.
U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.
“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.
“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”
Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.
The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.
“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.
The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.
IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.
The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.
On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.
U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.
It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.
FG Spends N197.74 Billion on Subsidy in Q1 2021
The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.
The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.
In the three months ended March, the Federal Government spent N197.74 billion on subsidy.
The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.
The difference in landing price and selling price of a single litre is the subsidy paid by the government.
On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.
The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.
However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.
Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”
“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”
Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.
He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.
“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”
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