REVEALED: Tinubu-led Oando Plc incurs N156bn losses in two years, lacks assets to repay loans, other liabilities

MR Wale Tinubu-led Oando Plc has finally released the full-year financial report of 2023 after two months of publishing the 2022 statement. Economy Post found that the company incurred losses totalling N155.95 billion in both 2022 and 2023. For both years, the oil and gas company did not have sufficient assets to take care of its liabilities.

While the oil and gas company lost N81.231 billion in the full-year 2022, it incurred a loss of N74.723 billion in 2023.

Revenues received from contracts with customers rose from N1.557 trillion in 2022 to N1.786 trillion in 2023, which reflects positive receipts from customers over the period.

High costs hit Oando hard

High cost of sales let the oil and gas company down. While revenues from contracts jumped 71 percent from 2022 to 2023, cost of sales rose faster, increasing by 74 percent over the period. Cost of sales jumped from N1.915 trillion to N3.326 trillion over the one-year period, which is quite significant.

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Cost of sales refers to “direct costs of producing the goods sold by a company. This amount includes the cost of the materials and labor directly used to create the good,” says Investopedia. This means that the costs used by Oando to produce its oil and gas products rose faster than its revenue for the period under review.

There is something interesting about Oando Plc’s financials. Its finance income rose by only 5.48 percent to N16.637 billion in 2023 from N15.772 billion reported in the previous year. Finance income refers to “revenue generated by the temporary surplus cash invested in short-term investments and marketable securities,” according to a corporate finance platform named Vernimmen.com. This includes surplus cash from investments in treasury bills, government bonds, commercial papers, among others.

While Oando’s finance income rose by just 5.48 percent, its finance cost jumped by 30.48 percent, which is not healthy for an organisation of this status. Finance cost refers to the cost of securing funds such as loans. Interest rates on funds are calculated as finance costs over a period. For Oando Plc, the cost of getting funds for running its upstream, midstream and downstream operations was higher than the income it earned from investments.

In fact, Oando Plc’s net finance cost was estimated at N192.023 billion in 2022 and 2023. Net finance cost, also called “cost of carry” or “carry” is “the difference between the cost of financing the purchase of an asset and the asset’s cash yield.” In simple terms, it is the difference between what a company borrowed to finance a project and what it earned as yield from that project.

“Cost of operations and interruptions by militants have done more harm to Oando Plc than good. The company just needs to figure out how to deal with all of its problems in 2024,” said a finance analyst, Mr Jetunde Osborne.

Liabilities outstrip assets

Investopedia defines liabilities as “things that you owe or have borrowed.” On the other hand, assets are “things that you own or are owed.”

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In 2022, Oando’s total assets as a group stood at N1.252 trillion, with total liabilities estimated at N1.449 trillion. When liabilities exceed assets, the firm is said to be technically bankrupt or insolvent.

When a debt ratio is less than 1, the company is financed more by investors’ equity than borrowed funds (debt). However, the firm is funded more with debt than equity if the debt ratio is above 1, say financial experts.

Oando Plc’s debt ratio in 2022 stood at 1.2, meaning that its assets are financed more by debt than equity. In simple terms, Oando relied more on borrowing than on equity from investors in 2022. It is not a good sign, say financial experts.

In 2023, total liabilities stood at N3.379 trillion whereas total assets were put at N1.512 trillion, representing a ratio of 2.23, which is a damning representation of Oando Plc’s financial situation. This means in simple terms that Oando Plc owes its creditors more than double of its assets. Hence, Oando Plc needed more than twice its assets to repay obligations owed to several parties in both years.

Damning independent auditors’ report

If there is any reason to worry, Oando’s investors must look at the independent auditors’ report on the firm’s immediate future. The independent auditors, BDO Professional Services, highlighted some of the challenges facing the oil firm in the 2022 report, concluding that its survival could hinge on whether the company was able to take a few bold steps or not.

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BDO auditors said the group and the company have continued to incur losses and a reversal of this trend is dependent on successful outcomes of the planned actions to refinance its debts in order to manage the funding gap of N3 trillion and the attainment of revenue in the group’s forecast for the year ending 31 December 2024.

“As stated in the note, if the planned actions are successful, it will only address 32% of the Group’s projected funding gap. Management has additional plans to address the 68% funding gap shortfall but there are currently no written agreements in place for such funding plans and there can be no assurance that such will be available in the immediate future,” the auditors said.

Issues facing Oando

In 2017, two Oando Plc’s shareholders petitioned the Securities and Exchange Commission (SEC) of mismanagement and infractions, leading to the suspension of the oil firm’s annual general meeting (AGM) in 2019. The company moved to court to challenge the suspension.

In April 2021, SEC said that its action against Oando Plc was due to the company’s “severe breaches of capital market regulations,” noting that some of the breaches were criminal in nature.

Due to conflicting judgments in several courts, SEC said in April 2021 that “parties and relevant stakeholders are enjoined to maintain status quo, which includes the suspension of the Annual General Meeting, pending the determination of the cases and the appeals.” The situation crippled the company, hurting its capacity to operate smoothly. The company did not release its 2022 financial report until March 2024.

CEO bets on Agip

All hope is not lost. Oando Plc announced in September 2023 that it had entered into an agreement with ENI for the 100 percent acquisition of Nigerian Agip shares. This appears to be a potential lifeline for the oil firm.

“The transaction increases Oando’s current participating interests in OMLs 60, 61, 62, and 63 from 20% to 40%,” Oando’s statement signed by Chief Compliance Officer & Company Secretary, Mr Ayotola Jagun, said.

The deal also raised Oando’s ownership stake in all NEPL/NAOC/OOL joint venture assets and infrastructure, including 40 discovered oil and gas fields, of which 24 are currently producing; approximately 40 identified prospects and leads; 12 production stations; approximately 1,490 km of pipelines; three gas processing plants; the Brass River Oil Terminal; the Kwale-Okpai phases 1 & 2 power plants (with a total nameplate capacity of 960MW), and associated infrastructure, the company noted.

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While reacting to the release of its 2022 annual reports, Group Chief Executive, Oando Plc, Mr Wale Tinubu, said heightened militancy and pipeline vandalism within the Niger Delta region dealt a substantial blow to the firm’s upstream operations, resulting in a marked reduction in the crude production volumes due to the protracted shut-ins for repair following each incident.

“This was further compounded by a major gas plant fire incident which also necessitated a lengthy downtime,” he said.

“Furthermore, a rise in our net interest expense due to increased interest rates on several of our major facilities in line with global rates increases also contributed to our Loss after Tax position. In response, we have put in place definitive measures to bolster our production and cash inflows towards ensuring a speedy return to profitability by collaborating with our partners to institute a comprehensive security framework aimed at permanently curbing the persistent pipeline vandalism whilst concurrently exploring inorganic growth opportunities to increase our reserves and production capabilities. We have also implemented a strategic restructuring of our key facilities to ensure they align with our cash flow dynamics.”

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