Oando earnings hit by currency

Johannesburg - Integrated energy company Oando plc (OAO), which has a primary listing on the Nigerian Stock Exchange (NSE) and a secondary listing on the JSE, on Tuesday reported profit after tax (PAT) for the second quarter year ended 30 June 2009 of $26m.

This is compared to a $31.1m profit in the same quarter last year.

Headline earnings per share amounted to three cents versus four cents previously.

"Our exploration division consolidated its contribution to the performance of the company compared with the corresponding period of the prior year. The marketing section of the business also delivered strong results. However, the impact of the devaluation of the local currency against the dollar and the unclear stance of the (Nigerian) Federal Government on petroleum subsidy adversely affected the supply and trading part of the business," the company stated.

It added that the growth in earnings is a reflection of improved margin efficiency experienced on white products; seamless supply chain management processes; proactive cash management; efficient working capital re-alignment and strong organic growth especially within the company's upstream operation.

This improved performance was recorded against mixed macros economic factors represented by reduction in pump price of PMS, fluctuating exchange rate, increasing fear over the continuous availability of petroleum products and uncertainties surrounding the full deregulation of the downstream sector.

"In spite of reduction in the value of naira against dollar by about 25%, the group's turnover increased by about 7% over prior year. The increase was from revenue earned on the upstream assets.

"Profit after tax was however 16% below the level in prior year driven by increased operating costs, an increase in finance costs as a result of higher interest rates (up to 22% from about 16% in 2008) and the increase in depreciation charges arising from the newly introduced upstream assets, Oando added.

During the period, the company acquired two more rigs.

Aggressive selling

Looking ahead, Oando said the impact of its upstream assets has started to manifest in the performance of the company. It is expected that the company will explore strategic alliances formed with major producers to accelerate our block-to-production process for identified assets in the division.

"We are aggressively selling the additional natural gas distribution capacity created by the completion of the Greater Lagos Phase III Gas project. We expect a leap in contribution to the Group's performance from the gas and power division as more customers are connected to the supply grid.

"In addition, work has reached advanced stages in the construction of the East Horizon, 124km gas pipeline project and this is expected to become operational by the end of this year. The Akute power plant, a pioneering effort of the Gas and Power division is also expected to be commissioned for use before the end of the financial year.

"Although, government has not taken a definite position on petroleum sector deregulation, we do not expect any negative effect on the marketing division," the company said.

It added: "Our non-fuel revenue in the downstream sector will continue and be improved upon while cost curtailment drive will permeate all our business actions. We expect profitability for the rest of the year to improve on the back of envisaged improvement in turnaround time in PSF receivables settlement and bridging claims.

"The proposed divestment of part of Company's interest in Marketing's business, which was put on hold due to olatility in the capital market, shall be resuscitated during the second half of 2009. The proceeds of this divestment shall be deployed into higher margin segments of the energy value chain to enhance shareholders' value.

"Our energy service division has acquired two additional rigs and now control more than 50% market share of that part of the swamp business. We expect drilling operations and consequently revenue generation to commence by two of our rigs that have signed 2 major upstream drilling contracts with Agip Exploration," Oando concluded.

- I-Net Bridge