Last month, Caverton Offshore Support Plc unveiled eleven newly acquired helicopters, and by so doing, increased its total fleet to seventeen. This move is indicative of the oil services company’s expansion drive. Recently, the company emerged winner (after a competitive tendering process) to become the sole air transportation services provider for the Chevron/NNPC joint venture in Escravos.
Therefore, in light of the foregoing, and also bearing in mind that the oil and gas sector has shown considerable improvement in recent times, it is safe to speculate that the company is in for good times. But there are some caveats.
An overview of Caverton
Caverton Offshore Support Plc is a marine and aviation logistics company which operates in Nigeria’s oil and gas sector. The company is estimated to have close to 80% market share. Caverton was incorporated in 2008 and positioned for the acquisition of Caverton Marine Limited and Caverton Helicopters Limited, two previously existing logistics companies that were incorporated in 1999 and 2002 respectively.
Caverton became a group following the acquisitions. Also, the company is currently quoted on the Nigerian Stock Exchange. It is on a mission to fully take advantage of the Nigerian Government’s ‘Local Content Policy’.
As an aviation and maritime logistics company operating in Nigeria’s oil and gas sector, Caverton is focussed on providing transportation and environmental support services to its many clients. In specific terms, the company provides emergency/medical evacuation services, maritime and coastal surveillance services, search and rescue operations, etc.
Since inception in 2008, Caverton Offshore Support Plc has ensured to operate by well-defined business objectives, one of which is to become a major player in the oil and gas sector, not only in Nigeria but also in most parts of Africa. From all indications, it can only be said that the company has considerably actualised much of this objective, mostly “by drawing from both global offshore experience acquired from its strategic partners and the service delivery competence of its member companies.”
In 2014, Caverton became Nigeria’s first offshore support company to be listed on the Nigerian Stock Exchange. At the Initial Public Offering (IPO) on May 20th, Caverton offered about 3.35 billion shares, raising about $197 million. Caverton’s success notwithstanding, it is important to note that there is a need for improvement.
Oil price effects on Caverton’s financial year results
In its financial year report for the year ended December 31st, 2017, Caverton recorded a 6% increase in total revenue. Revenue had risen from ₦19.3 billion in 2016 to ₦20.5 billion last year. In the same vein, profit before tax grew from ₦1.1 billion in 2016 to ₦3.9 billion in 2017. Also worthy of note is the fact that the company’s total asset for the year grew higher than its total liabilities, standing at ₦46.25 billion (as against ₦41.35 billion in 2016), and ₦30 billion (as against ₦28 billion in 2016) respectively. In total, the company’s profit grew from ₦612.2 million in 2016 to ₦2.6 billion in 2017.
Note that the noticeable improvement in Caverton’s 2017 financial result is due mainly to the gradual rise in global oil prices. The company’s profit had taken a hit back in 2016 due to poor oil prices which not only affected the oil companies but also, the Nigerian economy in general. Apparently, the decline in global oil prices led to lesser contracts for Caverton, as most of its clients struggled to survive the economic hardship necessitated by the ensuing recession.
Favourable global oil outlook in 2018
In 2018, global oil price has been on a steady rise, recently surpassing $75 and projected to reach $80 soon. The Organisation of Petroleum Exporting Countries (OPEC) had in 2017 put in place a mechanism that reduced oil output, and by so doing, reduced global crude supplies, a situation that ultimately resulted in a price spike.
Meanwhile, the trend is expected to continue thanks in part to the United States of America’s impending sanctions on Russia and Iran for their interference in the Syrian war. This sanction would see a ban placed on crude exportation of these two countries, a situation that has tightened the crude oil market and inevitably increased prices.
Why a spike in global oil prices is favourable to Caverton
The nature of Caverton’s business model is such that its services are most needed when its customers are making money. What this means, therefore, is that as global demand for crude oil rises, oil companies in Nigeria benefit from the subsequent rising prices, even as they require more logistics services which Caverton provides. Caverton, on the other hand, makes more money when its services are in demand.
Right now, global oil prices are at its peak since 2014, meaning that demand for crude is on the increase. Nigeria is one of the world’s biggest crude oil exporters, and most of the oil companies in Nigeria comprise of Caverton’s customer base. Consequently, as oil prices continue to rise, Nigerian oil companies will demand more of Caverton’s services. This will, in turn, lead to a projected profit increase for the company in 2018.
But there are some caveats…
It is apparent that Caverton is in for good times in 2018. Not only does the market look promising, the company has already signed a major contract and upgraded its fleet in readiness for expansion and profitability this year. But all these are chiefly dependent on whether the global oil prices will remain stable. And even in the circumstance that prices remain stable and favourable, Caverton must also be prepared to check its competition.
Currently, the company contends with Bristow Helicopters and OAS Helicopters for market share. Those two companies are understandably making their own expansion moves with hopes of taking more advantage of the market. More so, Caverton must also ensure to reduce its liabilities and operational costs down.
Also, Caverton must avoid any form of scandal and labour issues that could potentially harm its business operations. Earlier this year, such scandal had resulted in the grounding of its flights following protests by several labour unions, including the National Association of Aircraft Pilots and Engineers (NAAPE) and the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). The labour unions were protesting what they perceived as the company’s labour discrimination, whereby the juicy positions are given to expatriates, while the not so juicy ones are given to Nigerians. Caverton cannot afford such a scandal, not if it is focused on making profit this year and henceforth. This is because subsequent protests can happen anytime and ground its operations.
It is also important for Caverton to consider diversifying its operations away from the oil and gas sector. At the end of the day, the aim is to make profit and pay dividends to shareholders, something the company has not done in recent times.