Can you explain how Oando Energy Resources fits into the wider Oando group?

Oando Energy Resources (OER) is a key part of the Oando group, which initially started as a downstream company through the acquisitions of Unipetrol and Agip. Oando quickly grew to become a leading oil and marketing retailer in West Africa, operating around 600 petrol stations and servicing a significant portion of vehicles on Nigerian roads. The company then expanded into the midstream sector, pioneering Nigeria’s natural gas distribution network by constructing over 240 km of gas pipelines across different regions. This development helped reduce industry reliance on liquid fuels and lower costs associated with powering large plants and factories.

Oando’s entry into the upstream sector began in 2005 through its energy services business, which possessed the largest swamp drilling fleet in Nigeria. Despite the challenges posed by the uncertain Niger Delta region, Oando participated in drilling projects for major companies like Chevron and Eni. Eventually, OER was established as the upstream subsidiary, acquiring interests in marginal fields and partnering with Eni on a deep-water asset. The transformative acquisition of ConocoPhillips Nigeria assets in 2014 propelled OER to become the leading indigenous player in the upstream sector, significantly increasing its daily oil production from approximately 4,500 barrels to 50,000 barrels.

Today, the Oando group comprises two main companies, one in the upstream sector (Oando Energy Resources) and the other in the downstream trading sector. OER operates six producing assets, three development assets, and five exploration assets, contributing to a daily oil production of approximately 45,000 barrels. The company holds over 470 million barrels in 2P (proven and probable) reserves and generates annual revenue of around US$500 million. With a direct workforce of 200 employees and over 1,500 personnel involved in joint venture operations, OER plays a significant role in the Oando group’s overall operations.

Why did Oando decide to divest its midstream and downstream businesses?

Oando made the strategic decision to divest its midstream and downstream businesses due to several factors. One primary consideration was the company’s need to reduce its debt levels, especially in light of the prolonged period of lower oil prices. Deleveraging became a pressing requirement to ensure the long-term sustainability of the company.

Moreover, Oando recognized the importance of adapting its business model to a rapidly changing and dynamic environment. As part of this new approach, the company aimed to focus on its higher-margin, dollar-earning businesses while divesting lower-margin, naira-earning ventures. This shift allowed Oando to optimize its portfolio and prioritize businesses with greater profitability potential.

During a challenging period when the Nigerian economy experienced a recession and foreign direct investment was low, Oando successfully sold its downstream business to a consortium consisting of Vitol, a leading independent energy product trader, and Helios Investment Partners, a prominent Africa-focused private investment firm. Additionally, the company divested its midstream marketing business to Vitol. These transactions brought over US$300 million of foreign investment into the country, demonstrating Oando’s ability to create value and attract international partners even during a downturn.

What were the main highlights for Oando in 2019, and what can we expect in 2020?

In 2019, Oando focused on increasing production across its assets, leveraging significant oil reserves that can sustain operations for approximately 30 years based on reserves-to-production ratios. To achieve this, the company substantially increased its capital expenditure budget and intensified drilling campaigns on its assets. The goal was to boost production, explore deeper plays, and add additional reserves to the portfolio.

Within the NAOC Joint Venture (JV), which includes Oando Energy Resources, Eni, and the Nigerian National Petroleum Corporation (NNPC), Oando planned to drill eight new wells. Five of these wells were successfully drilled and completed across three rig lines, with all of them already hooked up. Oando also made notable discoveries and successfully appraised deeper plays, with the most significant being the Obiafu-41 discovery in OML61, onshore Niger Delta. This well confirmed approximately 1 trillion cubic feet of gas and 60 million barrels of associated condensate, with peak production expected to exceed 100 million standard cubic feet per day of gas and over 3,000 barrels of condensate per day.

In terms of marginal fields, Oando achieved success by side tracking its 7ST well on the Ebendo field, increasing net production by approximately 1.5k barrels of oil per day.

Moving forward into 2020, Oando plans to drill at least two wells on its marginal assets. The company also aims to optimize production rates on its JVs to fulfill obligations to the domestic gas market and achieve organic production of at least 60,000 barrels of oil per day.

What role do Nigerian indigenous companies like Oando play in extending the life of fields divested by IOCs?

Nigerian indigenous companies, like Oando, have a crucial role in extending the life of fields divested by International Oil Companies (IOCs). In a developing economy like Nigeria, it is essential to retain a significant portion of the capital generated from oil production within the country. Indigenous producers, such as Oando, facilitate this by ensuring that every dollar earned stays within Nigeria.

Oando takes a long-term view and prioritizes safety and sustainability. Indigenous companies have a unique understanding of the local landscape and challenges, allowing them to implement sustainable approaches to drive economic value creation in the sector. By actively participating in the development of divested fields, indigenous companies contribute to the overall growth and development of the country.

How do you believe Nigeria is perceived by the international investment community?

Nigeria’s perception within the international investment community is a mix of opinions. However, one undeniable fact is that the country is teeming with opportunities.

While Africa has experienced significant foreign direct investment (FDI) flows in recent times, Nigeria has faced challenges in attracting similar levels of investment. The country has encountered difficulties due to the oil downturn, instability, and issues surrounding pipeline security that have persisted for an extended period. Nevertheless, Nigeria has shown significant improvements in various aspects. Insecurity and unrest-related losses or deferments have decreased, and production rates have increased significantly, reaching a high of 2.3 million barrels.

Furthermore, Nigeria has implemented reforms that have positively impacted its business environment. The country’s position in the World Bank’s annual ease of doing business report has improved, moving up to 131 out of 190 countries. This progress represents a rise of 39 spots since 2016 and 15 spots since 2018.

Historically, Nigeria has encouraged capital inflows into the industry, and as the operating climate steadily improves following the oil price crash, it is expected that the country will continue creating an environment that encourages investment. Over time, this will help change any negative perceptions that international investors may hold.

What final message would you like to share with our international readership?

It is crucial to understand the individual roles and responsibilities of governments, International Oil Companies (IOCs), and indigenous oil companies. Africa, known as the last energy frontier, possesses significant resource potential and offers tremendous opportunities for growth and development. However, this growth must be inclusive and prioritize key areas such as education, infrastructure, governance, reducing bureaucracy, and improving access to capital.

Governments need to actively create an enabling environment for economic and social development. NOCs, IOCs, and indigenous oil companies should prioritize the development agenda and support the continent through value-adding commercial endeavors while engaging with the public sector to drive favorable policies.

Moreover, the importance of local content cannot be underestimated. The transfer of skills, knowledge, and resources across the entire value chain is essential to build sustainable capacity and fulfill the continent’s resource ambitions.

As a proudly indigenous company, Oando has accumulated decades of knowledge and experience in navigating Africa’s unique challenges. With a track record of successes across the energy value chain, we remain a trusted partner for companies venturing into this final frontier. In closing, let us remain patient in our pursuit of prosperity while remaining impatient in driving development for the betterment of all.