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Oando, Seplat count losses as oil slump bites

By on April 1, 2016

The steep fall in global crude oil prices has left two of the country’s indigenous independent oil and gas firms, Oando Energy Resources Inc and Seplat Petroleum Development Corporation Plc, with a rising debt profile following a decline in revenues and operating cash flows.

The full-year 2015 financial results released by the firms also showed a significant reduction in capital expenditure last year.

OER, a subsidiary of Oando Plc focusing on oil and gas exploration and production in Nigeria, on Wednesday, announced its financial and operating results for the three and 12 months ended December 31, 2015.

As of December 31, 2015, the company had a working capital deficiency of $835.8m (December 31, 2014 – $567.2m) and an accumulated deficit of $621.2m (December 31, 2014 – $638.1m).

OER said in addition to its ongoing working capital requirements, it must secure sufficient funding to fund ongoing operations and commitments and repay at least $149.9m in loan principal, as set out by loan repayment schedules.

“An additional $356.7m of borrowings was reclassified to current borrowings as a result of debt defaults; the defaults give the lenders associated with the senior secured facility and corporate facility the ability to accelerate the maturity of the loans on demand.”

The company said it had incurred significant levels of debt financing to finance ongoing operations and acquisitions.

“Furthermore, the decline in global oil prices has reduced cash flows from operations. Global oil prices could remain at current low levels for 2016 and possibly longer, further impacting revenues and operating cash flows and the ability of the corporation to repay amounts due and its various debt facilities.

“These circumstances lend significant doubt as to the ability of the corporation to meet its obligations as they come due and, accordingly, the appropriateness of the use of accounting principles applicable to a going concern.”

OER said during 2015, it spent $87.8m on capital expenditures related to the development of oil and gas assets and exploration and evaluation activities, compared to $161m in 2014.

It said, “The $74.2m decrease was the result of the significant reduction in crude oil and natural gas prices, which was partially offset by additional revenue from Qua Ibo coming on-stream in the first quarter of 2015.”

The Chief Executive Officer, OER, Mr. Pade Durotoye, was quoted to have said the company, this year, would be focused on maintaining its production levels through low cost rigless activities and intensifying our efforts on cash and cost management.

The company said, “Financially, 2016 is expected to be a challenging year for the corporation and the oil and gas industry as a whole. Low crude oil prices have taken a toll on the corporation’s finances.

“Therefore, in response to the low prices, the corporation has cooperated with its JV partners to cut operating costs and has taken steps to decrease its monthly general and administrative expenses through employee reductions and the intended delisting of the corporation from the Toronto Stock Exchange upon completion of the OER share buyout.”

The 2016 capital budget has been significantly reduced as a result of the decline in operating cash flows and difficulties in raising equity in the oil and gas industry, it said.

Seplat, in its 2015 financial results, said although production was up year-on-year, the significantly lower oil price realisation and downtime of the third party operated Trans Forcados System adversely impacted revenue and more than offset the higher gas volumes and prices.

The company, while noting that it had adjusted its work programme to reflect the low oil price environment, said, “Having been the most active driller in Nigeria in 2014 when we drilled 23 wells, we reduced our rig-based activity to eight development wells in 2015 (four oil and four gas wells) and one work-over of an oil well, all of which were at OMLs 4, 38 and 41.”

It said its revenue for 2015 was down by 26 per cent from 2014 at $570m, adding that 2016 capital investments were expected to be around $130m.

The company’s net debt at the year-end was $573m, up from $303m at December 2014, while net cash inflows from financing activities dropped to $82m from $671m in 2014.

These principally reflect the refinancing of the business during the year through the debt markets, the company said.

“In January 2015, the Group successfully refinanced its pre-existing debt facilities with a new $700m seven-year secured term facility and $300m three-year secured revolving credit facility. The seven year facility also includes an option for the group to upsize the facility by up to an additional $700m for qualifying acquisition opportunities.

 

[Punch]