BusinessDay 21 Aug 2018

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34 BUSINESS DAY C002D5556 Tuesday 21 August 2018 NEWS Investors slam Buharinomics as markets... Continued from page 1 “The Nigerian economy has been very unconducive for business since 2015 which can explain why stocks have performed so poorly since President Buhari defeated Goodluck Jonathan in the election polls. Economic growth slowed, political uncertainty increased, Nigeria experienced a currency crisis and insecurity in the north and middle belt held back market performance for most of the past 3 years,” said Faith Ogedengbe, Research Analyst, GDL Asset Management. Following the current President’s swearing in on May 29 2015, it took six long months for the Presidency to name, screen and approve its cabinet members, a process that never exceeded 2 months since 1999. The political uncertainty during this period pulled the index down by around 14.87 percent before the ministers were finally appointed in November 2015. More trouble followed in 2016 as the problem moved from political to the economy. The continued decline in crude oil prices, followed by the first economic recession in 25 years weighed heavily on stock prices in 2016. Also in 2016, Nigeria suffered the biggest currency devaluation since 1999 in 2016 when Naira to US Dollar exchange rate moved from the official figure of 197 N/$ to 305 N/$. The inflation rate in the country doubled as a result of huge currency devaluation as inflation neared 20 percent at its L-R: Obinna Muogboh, faculty, Lagos Business School and Director of Programme, Management Development Institute; Oseyemwen Ndudi, participant at the programme; Bayo Aderiye, chairman, Health Service Commission, Lagos State; Rene Kiamba, senior manager, sub-Saharan Africa, Global Community Impact, Johnson & Johnson, and Nicole Zefran, communications and administrative officer, Global Business School Network, at the graduation ceremony for managers and leaders of healthcare organisations held at the Sojourner by Genesis Hotel, Lagos. Continued from page 1 of the year, when it was 1.95 percent, Nigeria’s statistician-general Yemi Kale said in an interview with Arise TV aired on Saturday. While the information is still being calculated, “it is looking quite flat,” Kale said. “I expected the numbers should be much better. I think the economy is still struggling.” The statistics office is scheduled to release its second- quarter growth report on Aug. 27 as compiled from the NBS data release calendar. peak in 2016. As a result of the economic headwinds, 2016 became the year of the great loss for companies on the local bourse. A total of 17 companies from the NSE 30 index reported significant losses on the books as the economy slumped to a full year negative growth of -1.6 percent. NSE bellwethers that saw their earnings per share decline by over 50 percent in 2016 include Nestle Nigeria, Ecobank, Seplat, Transcorp, Guinness and PZ Cussons. Lafarge Africa and Nigerian Breweries saw their EPS decline by more than 25 percent. The stock market fell by around 9.41 percent in the first five months of 2016 as the administration delayed 5 months to pass an economic stimulus budget to pull the economy out of recession. The stock market rallied 4.56 percent till year end after the budget signing which helped to offset some of the losses earlier in the year, bringing the total market loss in 2016 to 5.27 percent. In 2017 as the economy rebounded to a full year growth of 0.8 percent, the stock market rallied 42 percent as investors got excited by the economic recovery story which was largely supported by the strong rebound in crude oil price. The stock market this year has given up a significant amount of its gains from last year as the NSE index is down 9.36 percent year to date largely due to the political upheaval in the country as the general elections draw closer. Stanbic IBTC bank said in an investor presentation published Nigeria’s economy struggles as NBS sees... Nigeria’s economy slumped after a 2014 crash in oil prices. It returned to growth in the second quarter of 2017 after shrinking in the previous five periods. The economic recovery story of Africa’s largest economy has been a tale of fragile growth, eroded purchasing power of households and unfriendly borrowing rates which have inhibited economic expansion. The International Monetary Fund (IMF) however expects the economy of Africa’s most populous nation to expand by 2.1 percent for 2018, while the international organisation also projects the growth rate for Nigeria’s yesterday that it sees the political environment as a key risk to income in the second half of the year while International Monetary Fund (IMF) forecast economic growth in Nigeria this year will be 2.1 percent a far cry from the periods between 1999 and 2014. The average economic growth during President Olusegun Obasanjo’s regime was 8.5 percent between 1999 and 2007. Under the stewardship of President Goodluck Jonathan between 2011 and 2015, Nigeria’s economy expanded an average of 4.7 percent, almost half the growth achieved by his predecessor. But under President Buhari, average economic growth fell to a paltry 0.61 percent between 2015 and 2017. If economic growth improves to 2.1 percent this year, average economic growth under Buhari will improve to 0.98 percent. In the last six months alone, the market is down 17.44 percent. With analysts expecting stock prices to decline further as political uncertainty ravages the stock market, it is not unlikely that come February at the day of election, the market performance under the current administration falls into negative territory. The NSE All Share Index dropped by around 602 points on Monday, representing a decline of 1.71 percent as the market closed at 34,663.48 points. Similarly, the Market Capitalization decreased by N220.07 billion, closing at N12.65 trillion. The market dipped significantly on the first trading day since Buhari announced during the weekend that he returned to the country to jail more looters. GDP in 2019 to be 2.3 percent. The 2018 and 2019 GDP prediction for Nigeria is far less than the figures IMF forecasted for the Africa continent. The Washington-based organisation said in its World Economic Outlook that it expects the SSA region GDP to increase 3.8 percent in 2019. On whether or not the political uncertainties surrounding the forth coming election has effect on the economic growth, the statistician- General, Kale said the political season in Nigeria and for most developing countries always affect the economy and it could be positive or negative. “Positive in the sense that if the atmosphere is not too toxic, then there Tinubu nursing presidential ambition in... Continued from page 1 This, he said, explains why Tinubu is supporting President Muhammadu Buhari’s re-election bid in 2019, with the hope that power will return to the South West in 2023. The latest revelations seemed to have cast a doubt on the promise by the Presidency that the Igbo would produce the President in 2023, should the region vote for Buhari in the next general election. The Senate President was reacting to a statement credited to Tinubu where he accused Saraki, Speaker of the House of Representatives, Yakubu Dogara and other defectors that left the APC to PDP on account of automatic tickets promised to them. In a statement personally signed by him on Monday, Saraki traced the sour relationship between him and Tinubu to his opposition to the Muslim-Muslim ticket when the ex- Lagos State governor wanted to be Buhari’s running mate in the build up to the 2015 general elections. Recalling the meetings he held with the APC stalwart to resolve the crisis in the party, Saraki said: “Tinubu himself will recall that during the various meetings he had with me at the time he was pursuing reconciliation within the party, I raised all the above issues. I can also vividly recall that he himself always expressed his displeasure with the style of the government and also mentioned that he had equally suffered disrespect from the same government which we all worked to put in office. I also made the point that whatever travails I have gone through in the last three years belong to the past and will definitely not shape my decisions now and in the future. will be increase in economic activities; people will be spending, politicians will be spending and there will be a bit more money in the hands of consumer and the economy tends to benefit from that,” Kale said. On the other hand, when the political season is toxic, “foreign investors will get scared, they will be taking their money, I think that is what is happening in the Nigeria stock Exchange (NSE), and for the local investors, they will apply the wait and see approach,” kale explained. Comparing Nigeria with the United States, Kale said Nigeria is unlike the U.S where investors know that despite the election uncertainties, “However, during those meetings, the point of disagreement between me and him is that while I expressed my worry that there is nothing on ground to assure me that the administrative style and attitude would change in the next four years in a manner that will enable us deliver the positive changes we promised to our people, he (Tinubu) expressed a strong opinion that he would rather ‘support a Buhari on the hospital stretcher’ to get a second term because in 2023, power will shift to the South-west. This Tinubu viewpoint was not only expressed to me but to several of my colleagues. So much for acting in national interest. “It is clear that while my own decision is based on protecting collective, national interest, Tinubu will rather live with the identified inadequacies in the government for the sake of fulfilling and preserving his presidential ambition in 2023. This new position of Tinubu has only demonstrated inconsistency, particularly when one reviews his antecedent over the years.” The Nation’s Number Three Citizen accused the Buhari administration of consistently treating the “legislature with contempt and acting as if the law making body should be an appendage of the Executive.” According to him, the government excluded many stakeholders who worked strenuously to get the administration into office and treated them like second-class citizens. He pointed out that the National Assembly has not been constructively engaged or carried along in key policy decisions, particularly those that require legislative approval. EXPLAINER: Lagos embarks on Geographic... Continued from page 2 Poland and ongoing post-delivery training. Speaking at the signing of the MoU, Melchior said that, the project is currently the largest Geographic Information System (GIS) project in West Africa and a major export of technology from Europe to Nigeria. According to him, one of the key subjects discussed during the meeting was the pioneering nature of this project as the delivered UAVs constitute the most reliable, safest and cheapest way to accurately capture cadastral data less than 10cm accuracy on an ongoing basis. The Asseco CEO said that, “The platforms delivered have been internationally awarded in Poland, Australia and the United States. Their flights can be fully automated and they possess several emergency features, such as parachutes enabling repeated vertical landing. “The six operators of Lagos State Ministry of Science and Technology will constitute a competence hub in Lagos and Nigeria in this field. “The project is handled in full cooperation with the Nigerian Civil Aviation Authority and the Office of the National Security Adviser to ensure adherence to all applicable safety and control procedures,” Melchior said. Hakeem Fahm expressed appreciation to Asseco Software Nigeria for the professionalism and performance so far. “Beyond the strategic collaboration between Lagos State Ministry of Science and Technology and Asseco Software Nigeria, this project is a practical example of localisation of technology and knowledge transfer from Europe to Nigeria,” Fahm said. the economy is structured to work in a particular way and the system continues to work. “But in Nigeria we understand that the system and the virtual system are tied to whoever wins, so everybody is nervous; who is going to win? Will the person change the policy? And so when it gets toxic it has a way of squeezing the economy,” kale concluded. Nigeria’s rising political tensions leading to the 2019’s presidential elections and a broader emergingmarket sell off have taken a toll on its Stock Exchange. The local bourse has returned -7.59 percent year to date (YTD).
Tuesday 21 August 2018 Insight: How Oando, Seplat, Sahara, others... Continued from page 1 oco Phillip’s Nigerian business in 2014 moved us from a small E&P player to one of Africa’s largest indigenous hydrocarbon producers,” Oando told BusinessDay by mail. During the industry downturn, Oando was protected by a $95/bbl hedge on approximately 50 percent of its oil production; the hedge was later reset to $65/bbl resulting in an inflow to the company of $238 million which was used to significantly pay down its debt. Going forward, Oando said it will continue to explore ways to protect its income streams against future oil price shocks. Oando major producing assets includes: Abo Field (OML 125), Ebendo OMLs 60-63, OML 125, OML 56, Development Assets; OML 13, OML 90, OML 134, OML 131, OML 122, OML 145; Exploration Assets; Exclusive Economic Zone (EEZ) 5, EEZ 12, OPL 321, OPL 323, OPL 236, OPL 278, OPL 282. The company current production rate stands at 37,814 boepd (Oil 39 percent, Natural Gas 53percent, and Natural Gas Liquid (NGL) 8percent). “We will continue to explore ways to grow production on our existing assets whilst also looking to take advantage of opportunities to acquire more assets to grow exponentially,” Oando told BusinessDay. In an attempt to reduce exposure to debt and increase profitability, Oando has been restructuring its debt profile since 2014 which has led to a reduction in debt by 74 percent from $2.5 billion to $656 million which was made possible through consistent pay down of debt and restructuring of existing debt, the company told BusinessDay. Seplat Although production was up year on year for Seplat Petroleum Development Company Plc in 2015, the significantly lower oil price realisation and downtime of the third party operated TransForcados System adversely impacted revenue and more than offset the higher gas volumes and prices. “Having been the most active driller in Nigeria in 2014 when we drilled 23 wells, we reduced our rigbased activity to eight development wells in 2015 (four oil and four gas wells) and one work-over of an oil well, all of which were at OMLs 4, 38 and 41,” Stuart Connal, chief operating officer at Seplat said in 2016. In 2016, Seplat’s average total working interest production decreased year on year by 40 percent to 25,877 boepd. Prior to this, Seplat’s working interest production from mid-2015 to February 2016 averaged around 52,130 boepd. The year 2016 amounted to a revenue loss of 44 percent from N113 billion in 2015 to N63 billion in 2016 while it also recorded a post-tax loss up 449 percent in the sum N45 billion in 2016 from a N13 billion profit in 2015. In order to survive the turmoil, Seplat’s board embarked on portfolio expansion as investment were directed towards the gas business and in particular the Phase II expansion of processing capacity at the Oben gas plant. “I am particularly pleased to see the growth in our gas business which in 2016 exceeded the $100 million revenue milestone demonstrating its robustness and providing a solid base from which to grow,” Austin Avuru, CEO of Seplat said. Also, the board accelerated various initiatives to diversify risk by reducing its reliance on a single export route, both in the short and the long term. One such initiative is the barging solution that utilises its 100,000 bopd capacity pipeline to the Warri refinery from where crude is exported via barge. Barging commenced in May 2016 and by the end of the 2016 3 MMbbls (1.4 MMbbls working interest) of Seplat crude had been monetised via this route. Going forward, the target is to export a gross average of 30,000 bopd on a regular basis, according to the firm. “We have now established a longer-term alternative export route via the Warri refinery jetty and are nearing completion of upgrade works to the infrastructure enabling a doubling of barging volumes to a steady 30,000 bopd gross during Q2 2017,” Austin Avuru, CEO of Seplat said in 2016. Despite recording a 160 per cent growth in revenue from contracts with customers to N105 billion in half year 2018 from N40 billion in half year 2017; Seplat announced plans in July 2018 to further expand profitability and increase operations by drilling it first well in its OML 53 asset. Shoreline Natural Resources In order to survive the tough conditions of 2016 when oil prices were trading below $30 per barrel, Shoreline Natural Resources cut 35 percent of its nearly 2,000 workers while it also halted plans to issue $500 million Eurobonds. Ladi Bada CEO of Shoreline said during the difficult periods of 2015 and 2016 the company reinvested every profit generated back into other businesses within Nigeria. “We are more comfortable working with other local Nigerian firms to obtain services which has a huge multiplier effect on the economy,” Bada said. In a bid to develop the Oil Mining Lease 30 in the Niger Delta and access funds to refinance its existing debt, Shoreline natural resources in January 2018 made a $530 million agreement with Vitol Group in exchange for access to some of the oil it produces which provided the company with cash to refinance existing debt and further develop OML 30 in Nigeria’s oil rich delta region. Chairman of Shoreline Group, Kola Karim, was quoted as saying that the “transformational” deal would enable the company to step up gross production to as much as 100,000bpd over the next year. “Shoreline would seek to boost production to between 80,000 and 100,000bpd this year,” Karim was quoted by Bloomberg to have said. Sahara Energy The triumvirate of Tonye Cole, Tope Shonubi and Ade Odunsi at Sahara Energy are carving a new niche in the oil and gas sector through some shrewd investment, hires and acquisitions. The global slump in prices of crude oil resulted in a significant reduction in upstream investment and Asharami Energy (Sahara Energy’s upstream firm) was not immune to this. “In managing risks, we have had to look internally to ensure that through creativity and innovation, we ventured into new countries, commencing operations in Tanzania, Zambia and looking at more opportunities in other countries,” Sahara Energy said in 2016. In 2016, Asharami Energy total C002D5556 BUSINESS DAY 35 NEWS Late hour rush for Eid-e-Kabir ram at Diko Market, Suleja Local Government Area Council in Niger State. Pic by Tunde Adeniyi asset value at $257,392,000 was spent on the exploration, seismic acquisition and drilling of three commitment wells, as required by the production sharing agreement. Asharami Energy has 4 onshore assets and 2 deep offshore assets in Nigeria; a shallow offshore asset in Ghana and two deep offshore assets in Cote D’Ivoire. It operates all Nigerian assets except OML 18 where it is in partnership with Eroton while the company is also in partnership with Foxtrot on CI 500 asset and Petroci on CI 502 asset in its investments in Cote D’Ivoire. “One of our major goals is to commence the lifting of past production entitlement of 1.1 million barrels in 2017 on this asset which has proven reserves of 38.2 million barrels,” Asharami Energy said in 2016. Sahara Group which also has a downstream firm known as Asharami Synergy said in 2016 that the organization needs to improve the inherent inefficiencies within the value chain towards creating opportunities for continuous and lasting sustainability of its downstream business. “We leveraged on our capacities and capabilities gained through the operation of our independent affiliates to bridge the existing gap currently faced by the sector,” the CEO of Asharami Synergy Moroti Adedoyin-Adeyinka said in 2016. Reacting to how Asharami Synergy survived 2016, CEO of Asharami Synergy said the company increased its storage terminal located in Ibafon by an additional 19.5Million litre of tank storage for Premium Motor Spirit (PMS); Also, the company increased its aviation storage terminal located at Omagwa International airport in Port Harcourt Rivers State by replacing the temporary 100,000-liter mini tank storage with a two million litres tank storage towards increasing operations following the opening of the airport after a significant period of closure. “These expansions created additional opportunities to better serve our customers and deliver increased value to them,” Adedoyin-Adeyinka said. In 2015, Sahara Energy commenced the process of realigning its assets, operations, and relationships towards building partnerships that would create more synergy for its operations and for improved service delivery which continued through to 2016 after oil prices crashed, with the organization focusing on Governance and Compliance Management, Strategic Risk Management, Supply Chain Management Efficiency, Personal and Corporate Social Responsibility and its Future Investments. Sahara Group is a leading African Energy (power, oil, and gas) and Infrastructure Conglomerate with operating entities in over 10 countries across four continents - Africa, Europe, Asia and the Middle East. Forte Oil According to Julius Owotuga, Group Executive Director, Finance and Risk Management at Forte Oil the company managed its foreign exchange and subsidy exposure by reducing the importation of petroleum products for the year 2015 which resulted to a 31 percent drop in the sales of fuel. He added further that “Other income increased by 190% due to income from investment in securities held to maturity, freight income from the 100 trucks acquired the previous financial year and sale of investment property”. The firm also exited its dollar denominated loans and converted same to Naira at prevailing exchange rates. The firm recorded a 50 percent decrease in 2016 profit after tax (PAT) to N2.9 billion from N5.8 billion in 2015 despite growth in its revenue by 19 percent which rose to N148.6 billion in 2016 from 2015 in N124.6 billion. Aieto Group In March 2015, Aiteo Eastern E & P, a subsidiary of Aiteo Group, acquired SPDC’s interest in OML 29 as Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited – the other joint venture partners – also assigned their 10 percent and 5 percent interests respectively to Aiteo, giving the company a 45 percent interest in OML 29. OML29 stretches over an area of 983 square kilometres, and includes the Nembe, Santa Barbara and Okoroba Oil Fields, including related facilities such as the 97-kilometre Nembe Creek Trunk Line (NCTL). It also has a 100 kilometres long pipeline with a capacity of 600 thousand barrels per day. In a little over a year, Aiteo Group, a leading energy company in Nigeria, under the leadership of Benedict Peters has ramped up crude production to 90,000 bpd from an average production of the 23,000 bpd after acquiring OML 29 for $2.8 billion from Shell at a time when local oil companies struggled to manage divested assets. Conclusion The collapse of the oil price from mid-2014 created serious economic crisis for oil-reliant countries, including Nigeria. It also revealed woeful weaknesses in many indigenous oil and gas firms as many of the businesses turned out to be little more than briefcase companies. The oil and gas space is however still systemically important to Nigeria’s financial services sector. Data from Nigeria Bureau of Statistics (NBS) revealed in Q1 2018, the oil and gas sector received the highest credit allocation by banks of 21.9 percent compared with 13.1 percent for manufacturing sector, or 9 percent to governmental institutions. Further analysis showed credits allocation to oil and gas firm as always gained dominance ahead of other segments of the economy with an average of 16.6 percent worth of credit in 2015 which grew to 20.9 percent in 2016 while 2017 allocation stood at 21.9 percent. BusinessDay analysis revealed loans from Access bank to oil and gas companies of N533 billion accounted for 26 percent of its total loan of N2 trillion in 2017. Access banks loans to oil and gas sector in 2017 increased by 7 percent when compared with N498billion of 2016 which had a 45 percent increase compared to N345 billion in 2015. First Bank loans to oil and gas firms in 2017 stood at N739 billion in 2017, which is 6 percent higher to N699billion of 2016 while Zenith bank loans to the oil and gas sector in 2017 stood at N660 billion which was 1 percent shy of N654 billion in 2016 while 2015 loans to oil and gas sector stood at N362 billion. United Bank of Africa (UBA) loan to the oil and gas sector in 2017 stood at N361 billion compared to N363 billion in 2016 while 2015 stood at N202 billion. Although the prices currently average within $70 to $73 per barrel, the apprehension about its continued sustainability is still substantial. Cees Uijlenhoed, financial director in First E&P in a recent interview with the Financial Times expects that by about 2020, based on a proven record of project development, there will be a handful of, maybe eight, strong Nigerian oil companies able to produce 100,000 barrels of oil a day.
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