Reforms; resignations in Addax, divestment of shares in Forte Oil, MRS’s new management, indicate that oil firms are likely hedging against imminent market crisis in the sector, writes Yange Ikyaa
Nigerian oil and gas companies may be hedging against dangerous market crisis, as shown by Forte Oil, Addax Petroleum and MRS, three of the nation’s oil firms that have taken different measures in recent times, either to save cost or maximize their current market potentials.
Concerns about Forte Oil’s financials were made manifest by the first quarter 2018, Q1’18 result, which is the available result so far. Speaking on the issue, analysts at Cardinal Stone Partners, an investment house, stated: “We have reviewed our earnings projections and placed a target price of N47.10 on the counter (FO). This implies an upside potential of 21.5 percent to the last close price of N38.75. Thus, we recommend a BUY rating on the counter.” But the investors were not impressed and these may be some of the reasons: Forte Oil had announced that it would divest from its power and upstream businesses in Nigeria.
The firm also announced that it will sell its Ghana-based downstream business. Investors have seen these announcements in the negative or at least cautious wait-and-see position. But analysts believe the surprising move to divest from the power business was largely because of the liquidity constraint that has been biting the power sector since the privatization exercise in 2013. This situation is clearly reflected adversely in the FO’s financials (both full year 2017 and Q1’18) as receivables skyrocketed from N31.5 billion in 2013 financial year, FY’13, (the year FO acquired the Geregu power plant) to N68.1 billion (+116.0 percent) in FY’17.
Late December 2018, Otedola said he agreed to sell his 75 percent stake in Forte Oil because he would like to maximize the opportunities in refining. In a statement, the company said the transaction will be completed in the first quarter of 2019. “Forte Oil Plc hereby notifies the Nigerian Stock Exchange, Securities and Exchange Commission, shareholders and the investing community that its majority shareholder, Mr Femi Otedola, has reached an agreement with the Prudent Energy team, investing through Ignite Investments and Commodities Limited, to divest of his full 75 per cent direct and indirect shareholding in the company’s downstream business,” the notification signed by Akinleye Olagbende, Forte Oil’s general counsel, stated.
“Mr Otedola’s divestment from the downstream business is pursuant to his decision to explore and maximise business opportunities in refining and petrochemicals. “The transaction is expected to close in the first quarter (Ql) of 2019 subject to the satisfaction of various conditions and receipt of applicable regulatory approval.” Standard Chartered Bank, Corporate Finance & Advisory, Dubai, and Olaniwun Ajayi LP served as financial and legal advisors to Otedola, while PricewaterhouseCoopers and Stanbic IBTC Capital Limited served as joint financial advisors and Sefton Fross served as legal advisor to Ignite Investments and Commodities Limited. “There will be no sale of the ordinary shares or any other securities in any state or jurisdiction in which such an offer solicitation or sale is not permitted,” the notification added.
Formerly known as African Petroleum Plc, Forte Oil operates mostly in the downstream sector of the oil and gas industry. In 2000, the Federal Government, under the privatization programme, divested its 40 per cent to core investors and interested Nigerians. In May, 2007, the shareholding structure took another dimension as Incorporated Trustees of NNPC’s Pension Fund divested its stake to Zenon Petroleum and Gas Limited owned by Femi Otedola, making it the majority shareholder in the company. As a result, Zenon Petroleum and its affiliated entities became the core investor in the company. Under the new management, African Petroleum embarked on a rebranding and restructuring drive which led to a name change to Forte Oil PLC in December, 2010. Apart from Forte Oil, all six General Managers of Addax Petroleum Development Nigeria Limited “voluntarily” disengaged their services from the firm recently.
Valuechain learnt that the top officials of Addax Petroleum Nigeria were forced against their wish to take the decision, as a new organogram earlier introduced by the company’s board effectively phased out the position of general manager, thereby leaving the six general managers in the company redundant.
Under the new management structure approved by the company’s board, the highest managerial position one could hold is senior manager, which has effectively replaced the general manager position. This action was said to have taken the six general managers by surprise.
This move is likely fueled by the company’s desire to save cost in the face of market turbulence with respect to international oil prices and harsh economic realities in the local market.
Addax Petroleum Nigeria had reportedly announced a Voluntary Separation Programme (VSP) for all staff last November. The VSP is a programme usually implemented every three years by the management of the company to encourage all categories of staff to take advantage of an enhanced remuneration package as benefits to voluntarily disengage from the company. To benefit from the programme, staff are usually encouraged to apply to management to request approval to voluntarily exit from the company ahead of their retirement date.
In 2012 and 2015, the programme, referred to as “Voluntary Severance Package,” saw many staff of the company take advantage of the attractive offer to take early retirement. In November 2018, the source said following management’s rollout of the VSP, all interested staff were given one month to submit applications to voluntarily leave the service of Addax Petroleum.
At the end of the deadline for the submission of applications, the source said, although several applications were received from other staff, none of the six General Managers, who were forced to resign, submitted any request indicating interest to voluntarily bow out of the company.
Then, earlier in January, the Board and Management of MRS Oil Nigeria Plc approved the resignation of Andrew Gbodume as Managing Director/Chief Executive Officer of the Company with immediate effect.
Following this, the company’s Board of Directors reviewed and approved the appointment of Priscilla Thorpe-Apezteguia as Director and Acting Managing Director of the Company. It may therefore be likely that Nigeria’s top oil and gas companies may be taking proactive measures to mitigate being drowned but stay afloat in the waters of the international and local oil markets.