The article below was culled from BusinessDay and is useful for those looking at investing in Oando. For me, I’m not totally convinced as per the viability of the deal at least in the short term. But then that’s just my opinion. See below;
Oando a Nigerian integrated oil and gas company listed on the Nigerian Stock Exchange (NSE) recently bid for and won the rights to purchase ConocoPhillips’ (COP) local unit for $1.79 billion.
The deal is a potentially transformational transaction for Oando.
Oando is seeking to become one of Nigeria’s top oil explorers and producers, and currently pumps about 4,800 barrels of oil a day from its Abo and Ebendo fields.
The COP assets give it about 43,000 barrels per day (bpd) from onshore fields, 213 million barrels of oil-equivalent in proved and probable reserves, and a 17 percent equity stake in the proposed Brass liquefied natural gas project.
The company has already paid a cash deposit of $435 million, while the outside date for completion of the ConocoPhillips acquisition has been extended from November 30, 2013 to January 31, 2014.
- Oando announced recently that it had raised a total of $442m through the sale of the East Horizon Gas Company for $250m and a special placement of 2.05bn shares for US$192m, which makes it more likely for the COP deal to close.
- The deal should increase Oando’s production capacity by 941 percent to about 50,000 bpd of oil/oil equivalents.
- Â This compares with other oil companies with African operations such as Afren with a daily oil production of 47,000 bpd, Heritage oil and gas with 35,000 bpd and Tullow oil at 79,200 bpd.
- Oando had revenues of N386.25 billion in the nine month period to September 2013. The COP assets should boost revenues by up to $1.46 billion (N233 billion) in 2014/2015 (40,000 bpd at an average of $100 per barrel).
- Oando had a market capitalization of $1.12 billion as at Friday December 10, compared with Afren ($2.9 billion), Heritage Oil and gas ($717 million), and Tullow oil ($12.8 billion), suggesting some upside in valuation for Oando.
- Oando is a highly levered company however. The company lined up $800 million of debt from a mix of Nigerian and international banks, including Stanbic IBTC and Standard Chartered to help finance the COP transaction.
- Oando had a debt-equity ratio of 162 percent as at the third quarter of 2013.The liquidity ratio stood at 0.58 as at Q3 2013 which is lower than the 2.1 industry average.
The debt is the bad news.