Oil firm, Oando Plc, is on a survivalist battle as it faces severe financial problems, going technically insolvent or bankrupt.
For three years, the energy company operating in the upstream, midstream and downstream delayed its financial statements, raising concern about its financial status With the 2022 financial statement now released, a critical analysis shows that the company’s total liabilities outweighs its assets.
While Oando’s total assets by December 2022 stood at N1.252 billion, total liabilities were put at N1.449 billion. When liabilities exceed assets, the firm is said to be technically bankrupt or insolvent.
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With the company’s debt ratio at 1.2, its assets are financed more by debt than equity. In simple terms, Oando has relied more on borrowing than on equity from investors. It is not a good sign, say financial experts.
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, concluding that its survival could hinge on whether the company is able to take a few bold steps or not.
Basically, the company reported total comprehensive loss of N41.7 billion as against the total comprehensive loss of N28.1 billion in 2021. Its current liabilities exceeded current assets by N273.9 billion.
Oando as a group recorded total comprehensive loss of N56.8 billion as against N30.6 billion in 2021. The group’s current liabilities exceeded its current assets by N818.7 billion. What this means is that Oando has issues meeting its short-term obligations. Hence the Wake Tinubu-led company may not be properly using its assets to generate revenue. The group failed to pay the outstanding principal on the medium-term loan of N92.2 billion and the corporate facility of N97.4 billion.
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BDO auditors, therefore, 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 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.
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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.”
CEO bets on Agip
Oando 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.
CEO defends poor financial results
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.
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“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.”
