Oando share analysis

8 Nov 2012. Oando is a Nigerian oil & gas company operating in the upstream, midstream and downstream. It is not a stock for the faint-hearted with its profit depending inter alia on the oil price, the exchange rate, piracy and the luck that goes with drilling.

Operating Profit	Exploration & Production of oil & gas. Acquires rights in oil blocks on the Nigerian continental shelp & deep offshore. Interests in OML56, OML90, OML123, OML134, OPL236 & OPL278.	Terminals & Logistics. Refining, storage & logistics for distribution of petroleum products.	Marketing - retail & commercial sales of refined petroleum products, with 600 outlets in Nieria & West Africa.	Supply & Trading imports petroleum products for sale to marketing companies & other corporates.	Gas & Power. Distribution of natural gas through Gaslink, East Horizon, Akute Power (electricity), Central Horizon & Oando Gas. Supplies industrial clients.	Energy services, e.g. provision of drilling & comletion fluid, solid control waste management, oil-well cementing services to upstream companies.	Corporate
FY2011	78,448	(2,520)	37,971	19,021	29,534	27,016	(48,376)
FY2010	65,651	(18)	44,209	34,743	25,635	33,186	(10,831)
FY2009	58,428	-	40,069	37,714	4,456	7,666	(2,409)
Profit	Exploration & Production of oil & gas.	Refining & marketing, sale of petroleum products.			Gas & Power.	Energy services.	Corporate
FY2008	36,942	78,935			4,316	17,864	?
FY2007	(1,345)	58,925			5,340	1,209	?

Earnings

Oando first made the step-up to today's level of turnover & profitability in FY2008, after a number of acquisitions of minority interests in the 2007 financial year (Oando Supply & Trading, Oando Trading, Oando Production & Development, Oando Energy Services Limited, Oando Exploration & Production & Gaslink) in exchange for shares.

In FY2011 there were a number of writedowns equal to N9.6bn which reduced earnings."The decrease is driven principally by one-off write-offs which include impairments of assets, project expenses from capital raising exercises, acquisitions, and termination of technical and managerial charges (this amounts to some 9% of the profit after tax).

Following the preliminary review of the Group's Full Year accounts for the year ended 31st December, 2011, the Company expects to announce a reduction in is budgeted profit forecast for the year.
This notice is driven principally by one off write-offs against earnings, including impairments of assets, project expenses from capital raising exercises, acquisitions, and termination of technical and managerial charges as highlighted below:
Impairment of Assets N854 Million
Termination charges of TSA/MSA N5.25 Billion
Project Expenses N3.52 Billion
Management does not anticipate further similar exceptional items in FYE 2012 and following these actions, affirms that the Group's balance sheet and capital are in a robust position, providing a solid foundation for the Group's future growth path."

Administrative expenses

Administrative expenses include provisions and amortization recognised on intangible assets. Includes depreciation for the property, plant & equipment (including depreciation of software costs). Some expenses are in Naira, which means when the Naira depreciates, expenses look low in USD terms. Includes losses on oil hedges (profit, I think is included in other operating income).

Exchange rate movements

"As of December 2011, if the Naira had strengthened by 12% against the USD with all other variables held constant, consolidated pre tax profit for the year would have been USD3.4m lower mainly as a result of USD denominated bank balances (USD1.1m lower in December 2010)." (numbers contradicted later!)

Oil hedges

Petroleum Subsidy Fund

Petrol prices in Nigeria are subsidised by the government, and after Oando sells fuel imported under the PSF it relies on the government to pay it from the Petroleum Subsidy Fund. Late payment from the Petroleum Subsidy Fund has in the past resulted in Oando having to get bridging finance (FY2008 and FY2009) and suffer additional finance costs.

Marketing

100% owned subsidiary of Oando PLC, which is Nigeria's leading oil marketing retailer, selling & distributing oil products via over 500 retail service stations.

Supply & trading

Gas & power

Energy services

Exploration & production

Holds interests in 13 licenses for the exploration, development & production of oil & gas assets located onshore, swamp & offshore.

OML 125/134 (15% non-operated interest in Abo oil field)

On 27 Mar 2013 OER reported that productions from the Abo asset remains at 20,467bopd, with 3,070 net accruing to OER .

OML 56 (42.75% non-operated interest in Ebendo/Obodeti Field)

From 1 Jan to 13 Feb 2013 production from Ebendo averaged 3600bopd (1540 net to OER), after which it was shut down for maintenance & repairs on the Kwale-Akri oil delivery pipeline which joins OER's Ebendo field to the Brass Export terminal (the pipeline is operated by Nigerian Agip Oil Company).

On 22 October 2012 the EB-4 well was completed & brought on production at 1800 bopd (770bopd to OER) for its short string, while long string production of 2339 bopd (1000 bopd to OER) remains shut due to the problems with the Kwale-Akri oil delivery pipeline.

On the 12th Oct 2012 the EB-5 well was pud, & it is intended to target the medium sands encountered during the EB-4 drilling program. A drill stem test indicates production of 1548bopd net to OER on choke 28/64" & 828 bopd net to OER on choke 24/64" from the XVIIIc & XVIIId sands. The EB-5 well is expected to be completed in the 2nd quarter of 2013 as a dual string producer.

EB-6 & EB-7 are expected to commence drilling in the 2nd quarter of 2013, to appraise intermediate sands found during the drilling of EB-4.

OML90 (40% non-operated interest in Akepo Field)

Plan to reenter the well & evacuate hydrocarbons via the wellhead jacket & 16km pipeline to NAOC's Beniboye Flowstation for processing & export. The wellhead jacket is being constructed.

Qua Ibo Field

The Qua Ibo Field, inside OML13, is onshore near the mouth of the Qua Ibo River. Three well have been drilled:

The C4.0 reservoir's resources are not classified as reserves, as there has not yet been a successful commercial test. This will require a successful solution to the sand which is believed to have plugged the Qua Ibo-4 well. The medium/heavy nature of the oil will require successful deployments of ESPs to lift the oil. Best estimate is 5924Mbbls for OML13 and 2370Mbbls for OQI prior to deduction of royalty and 2252Mbbls for OQI after deduction of royalty.

Rigs

In November 2012 Oando had 4 rigs in its fleet (I'm not sure which of the following it lost):

Rig Name	Rig Type	Pressure	Horse	Drilling	Application
Searex 6	Swamp barge	10,000psi	2000hp	25,000ft+	Drilling, work over wells
Searex 12	Swamp barge	10,000psi	2000hp	25,000ft+	Drilling, work over wells
Constitution	Swamp barge	15,000psi	3000hp	30,000ft+	Drilling, work over wells, High pressure High temperature wells
RIG 1	Barge	10,000psi	3000hp	25,000ft	Drilling, work over wells
RIG 2	Swamp	10,000psi	3000hp	30,000ft	Drilling, work over wells, Additional cantilever functionality

Scuttlebutt

History

27 Mar 2013. Oando agrees to sell the following assets to Oando Energy Resources:

Oando Reservoir & Production Services
Oando Qua Ibo Limited, a company set up to own 40% of the Qua Ibo Marginal field inside OML13 (onshore in Nigeria).

No shares are expected to be issued, and the purchase price will equal "all properly documented and reasonable expenses incurred by Oando relating to its acquisition up to the closing date of the Acquisition, plus an administrative fee of 1.75%) - at 28 Feb 2013 this was some US$3.3m.

21 Dec 2012. Oando signs agreements to purchase ConocoPhillips Nigerian Assets for $1.79bn.

22 Oct 2012. The Ebendo-4 well, in which Oando Energy Resources has a 42.75% share, is brought on production at 2,000 bopd (855 bopd net to OER). The Ebendo Field currently produces 4,000 bopd (gross) from the two producing wells, EB-1 and EB-4.

15 Aug 2012. The 4th well drilled into OM56 encountered 8 new hydrocarbon bearing sands.

25 Jul 2012. Oando announces the closing of the reverse takeover of Oando Energy Resources (previously Exile Resources). Oando sold interests in OML (Oil Minding Leases) & OPLs (Oil Prospecting Licenses) to Exile Resources which is listed on the TSX, in exchange for 100m shares in Exile (on completion Oando owns 94% of Exile). Exile changes its name to Oando Energy Resources. Exile & Oando are JV partners on Exile's Akep oil field.

The listing is anticipated to provide a platform for raising funds to drive E&P growth through acquisitions & asset development.

Feb 2012. OQI signs a farm-in agreement to purchase 40% of the Qua Ibo Field from NEPN (Network Exploration & Production Nigeria).

27 Jul 2009. Acquires 2 rigs from the Shell Petroleum Development Company of Nigeria, for $US44m.

"The understanding that there must be increased drilling activity across all stages of oil exploitation, from exploration to development, for the government`s targets to be realised forms the basis of our continued investments in swamp drilling rigs. The cantilever capability of Rig 2 (formerly Parker rig 75) is unique in Nigeria. This feature enables Rig 2 to drill multiple well slots while remaining at the same client location, thus optimising reservoir drainage while reducing the overall cost of well construction. We intend to combine this uniqueness with our superior community relations expertise to deliver not only significant cost savings but other operational efficiencies to our customers."

"An added feature of Rig 1 is its 3,000 horsepower rating which gives Oando the flexibility to upgrade it to a High Pressure, High Temperature (HPHT) rig. This conversion will increase to two the number of such rigs in the country for exploiting reservoirs with such peculiarity."

"Rig 2 was acquired together with an existing contract whilst Rig 1 (formerly Parker 73) is scheduled to go to shipyard where it will undergo life enhancement and upgrade prior to its deployment in 2010."

"This latest acquisition boosts our investment to approximately $250 million out of the $500 million five- year development plan announced prior. With a further resolve to increase our rig fleet in the near future, we are positioning Oando as the partner of choice for world-class land and swamp oil field services. By the purchase of an asset already in contract, we expedite value extraction for our shareholders, whilst guaranteeing significant and steady long term revenue for the group."

13 Feb 2009. Oando takes delivery of an additional rig (named "Constitution"), purchased at a cost of $US54m.

"With the capacity to drill to depths in excess of 30,000 ft, a pressure output of over 15,000 psi and the ability to handle high temperatures, the Constitution is currently the first of its kind in Nigeria. The deployment of this rig will ensure that previously inaccessible reservoirs can now be explored for their oil and gas content, thereby increasing Nigeria`s production and reserves." Wale Tinubu, CEO of Oando

"A key part of our diversification strategy from the downstream to a truly integrated company, includes a 5-year, $500 million investment in our energy services business. This latest acquisition makes our investment to date in excess of $150 million with a further commitment to increase our rig fleet in this financial year. The diversified model assures of steady earnings in a period of oil price volatility and maximises our shareholder value."

14 Jan 2009 Oando pays for a 15% interest in the Production Sharing Contracts in respect of offshore Nigeria Oil Mining Licence 125 and 134, from Nigerian AGIP Exploration Limited. Oando pays cash of US$188m.

The Transaction brings approximately 3,000 barrels per day of crude oil production, 25 million barrels of 2P and risked contingent reserves and turns Oando into Nigeria`s leading indigenous exploration and Production Company.

Oando, through the Transaction, will benefit from partnering with Agip, a world class operator with significant experience in Nigeria.

June 2007. The minority shareholders of Gaslink transfer their equity holdings in Gaslink to Oando in exchange for shares in Oando. OOIN transfers its interests in Oando Supply & Trading, Oando Trading (Bermuda), Oando Production & Development, Oando

Services and Oando Exploration & Production to Oando in exchange for ordinary shares in Oando.

1 January 2006. Oando obtains an overdraft facility of N500m at 15% from Oceanic Bank to "augment working capital".

14 November 2005. The Board of Oando announce that the JSE has approved the application for a listing of all the issued ordinary shares of Oando in the "Resources - Oil and Gas" sector of the JSE list under the abbreviated name "Oando", with effect from the commencement of trade on the JSE on Friday, 25 November 2005.

The main purposes of the listing on the JSE are to:

enhance SA investors' awareness of Oando
provide Oando with an additional source from which capital to facilitate growth can be obtained
facilitate direct investment in Oando by SA residents

28 October 2005. On the Nigerian Stock Exchange Oando has a market capitalisation of Naira 60,693 million based on a closing price of Naira 106.05 per Oando ordinary share. At an exchange rate of N130.6/US$ and ZAR 6.6817/US$ this translates to a market capitalisation of US$464.72m or ZAR3105m

1 November 2005. Oando is registered as an external company in South Africa.

1 August 2002. Ocean & Oil Holdings (OOH) agrees to provide Oando with technical know how, marketing & consultancy services for a fee of 4% of Oando's net profit before tax if NPBT is less than N2bn and 5% if NPBT is over N2bn.

OOH also agrees to provide general organisational, management expertise, strategic planning & consultancy services to Oando for a fee of 3% of Oando's NPBT if NPBT is less than N2bn and 4% if NPBT is over N2bn.

In 2011, "Ocean and Oil Holdings Limited and Oando Plc agreed to terminate the Technical Service Agreements and Management Services Agreement during the year under review. The negotiated termination fee of N5billion inclusive of value added tax (VAT) at the rate of 5% less payment of N1.5billion has been recognised in the balance sheet.
The Company agreed to settle the liability through convertible notes instruments and cash. The Company had issued twenty five convertible notes worth N2.5billion at the balance sheet date."

Dec 2003. Unipetrol Nigeria Plc changes its name to Oando PLC.

Dec 2002. The remaining 40% of Agip Nigeria is acquired by Unipetrol by way of a share swap under a scheme of merger.

Aug 2002. Unipetrol purchases 60% of Agip Nigeria Plc from Agip Petroli International.

2001. Unipetrol increases its stake in Gaslink to 51%.

2001. The Federal Government of Nigerial sells its remaining 10% interest in Unipetrol to the Nigerian public.

2000. The Federal Government of Nigeria sells 30% of Unipetrol to Ocean and Oil Investments, the core investor.

1999. Unipetrol acquires a 40% stake in Gaslink Nigeria Limited.

February 1992. Unitpetrol Nigeria's shares are listed on the Nigerian Stock Exchange, quoted as Unipetrol Nigeria PLC.

1991. The Federal Government sells 60% of its shares in Unipetrol Nigeria to the public.

1976. The Federal Government of Nigeria acquires Exxon Corporation's shareholding in Esso Africa Incorporated (principal shareholder of Esso Standard Nigeria Limited) and rebrands it as Unipetrol Nigeria Limited.

1969. ESSO West Africa is incorporated under Nigerian Law as Esso Standard Nigeria Limited.

1956. ESSO West Africa Inc., a petroleum marketing company commences operations as a subsidiary of Exxon Corporation.

Drilling Process

(2) When you are ready to check what lies in the field you go to the government & get an Oil Prospecting License (OPL).

(3) Employ a seismic company to determine from seismic waves tests where they think there is oil.

(4) Approach government for permission to develop the well, and they give you an OML.

(6) If you hit oil what is the pressure, temperature, flow rate, viscosity, sand?

(7) Completion team pours concrete around the walls to prevent cave-in and allow for production.

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	OQI's working interest share prior to deduction of royalties	OQI's working interest share after deduction of royalties
Proved Developed & producing	0	0
Proved Developed Non-producing	0	0
Proved Undeveloped	738	701
Probable	303	288
Possible	363	344

$000s	Discounted at 10%	Discounted at 15%
Proved Developed & producing	0	0
Proved Developed Non-producing	0	0
Proved Undeveloped	24	21
Probable	14	12
Possible	19	16

$000s	Discounted at 10%	Discounted at 15%
Proved Developed & producing	0	0
Proved Developed Non-producing	0	0
Proved Undeveloped	12	10
Probable	6	5
Possible	8	7