Nigerian Energy Company, Oando, looks more likely than ever to consummate the ongoing purchase of the Nigerian assets of ConocoPhillips, the American independent.
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The deadline for payment was March 31, 2013, for delivering on the $1.79 billion purchase agreement for ConocoPhillips’ 20% stakes in four Nigerian onshore producing acreage, a 17% stake in a Greenfield LNG project and 95% and 20% stakes in each of two deepwater acreages, but informed sources say that ConocoPhillips at this stage cannot return to re-opening the sale and that “the matter has become largely a discussion between Oando and ConocoPhillips”.
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The company has lined up $800MM of debt from a mix of Nigerian and international banks, including Stanbic and Standard Chartered Bank and has raised about $402Million equity from the just concluded rights issue on the Nigerian and the Johannesburg Stock Exchanges. Notably, in the course of the rights issue, Ocean and Oil, the core company, increased holdings from 10.63% to 40%.
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Oando has not been able to sell its four rigs, which could have brought in about $150Million, perhaps because the property is debt laden and the rigs are not brand new anyway. The company was also mulling a disposal of half its downstream assets. (Petroleum products supply and crude oil trading brought in $3.353Billion, in 2011, the last full year for which figures are available).
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With about $1.2Billion in hand, Oando should be struggling to raise about Six Hundred Million($600MM) Dollars of equity to pay, but sources say things may be easier for the Nigerian company than it seems. ”First, the $1.79Billion bill is a moving target largely because part of the income that’s been accruing to Conoco Phillips since the two companies agreed on asset purchase, in late 2012, is a net income to Oando, that will be removed from the total that Oando would eventually pay. With about 20,000Barrels of Oil per day Net to ConocoPhillips and 112Million standard cubic feet of gas(112MMscf/d), most of it sold to the Nigerian Liquefied Natural Gas(NLNG) Company, the daily sale of hydrocarbon fluids from the assets comes to roughly 43,000 Barrels Of Oil Equivalent Per Day(BOEPD), although much of that has been reduced by operator Agip having to shut in a crucial export line, due to vandalism, in three out of the last seven months.
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For its successful raising of cash in excess of $400MM from the rights issue, Oando also stands now in good stead and is likely to find it easier to raise more money. But whatever is left to raise, even if its $350Million, is still a lot of money” , says Jerry Tolkein, a Cairo based energy consultant focused on Africa. “Besides, $800Million debt is a lot of money to pay back for an asset that is doing 43,000BOEPD, with not a lot of upside”.
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Everyone agrees that the transaction is expensive. The purchase of ConocoPhillips’ Nigerian assets is the result of a very competitive exercise, involving over 10 companies and consortia, the last of which were Seplat Petroleum Production Company, Lekoil, Midwestern/Transcorp consortium and Oando. The winner is getting the prize because it has agreed to pay over $400Million more than most of the other finalists were willing to part with.
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If and when Oando finalizes this, it would have to figure a way out of the debt overhang. If the success of this deal boosts the share price of Oando Energy Resources, the Canada based subsidiary that is the beneficiary of this purchase, then the company may just want to raise equity on the Toronto Stock Exchange(TSX) on which OER is listed. That should help ease the debt burden.