Oando receives N50b payout, settles loan for ConocoPhillips’ acquisition
OANDO Energy Resources Inc. has effected a prepayment of $238 million as part of its loan facilities utilized for the acquisition of the $1.5 billion ConocoPhillips assets in Nigeria.
The company, in a statement yesterday, said it successfully realized $234 million by resetting its crude oil hedge floor price from an average of $95.35 per barrel to $65.00 per barrel on 10,615 barrels per day (bpd) for the next 18 months and another 1,553 bpd for a further 18 months until January 2019.
The payment was to settle some portion of the $753 million it borrowed to part finance the acquisition of ConocoPhillips’ last year, which helped the company to transition from a marketer of refined petroleum products into one of the top players in the upstream sector of the oil industry.
The company has realised a cash windfall in the sum of $234 million due to the proactive fiscal measures put in place prior to the slump in oil prices. Hedge positions are investment decisions often taken by companies with the intention of offsetting potential losses/gains that may be incurred, especially during a global downturn.
Chief Executive Officer, Oando Energy Resources, Pade Durotoye, said: “The decline in global crude oil prices led to a substantial gain for our company and we have 10,832 bpd average production hedged for the balance of 2015 and 8,000 bpd for 2016.
“Cashing out some value from this hedge will enable us reduce our outstanding loans and leverage by $238 Million, saving the company $65 million in interest payments over the remaining term of the loan facilities, whilst preserving a floor of $65 per barrel. With 50 per cent of our oil production hedged and 65 per cent of our production being gas committed to stable long term priced contracts, we are well positioned with strong cash flow to meet our obligations and aspirations through this current oil price down cycle.”
According to the company, the proceeds from the hedge unwind/reset (in addition to $4 million from cash in hand) were applied to prepay certain loan facilities which includes $188 million applied to the $415 million in the reserves base lending facility, resulting in a balance of $227 million.
Besides, it noted that $51 million was applied to the $338 million in the corporate facility, resulting in a balance of $287 million.
As at the ConocoPhillips acquisition date of July 30, 2014, Oando had a total debt of approximately $900 million (inclusive of a $100 million structured facility provided by Afrexim). After taking account of previous amortizations and the hedge-related prepayment, the total debt of Oando currently stands at $615 million.
The hedge adoption effectively ensures Oando received income approximately pegged to a pre-agreed price, and enables it to conveniently service its debt obligations, which are denominated in both naira and dollars, regardless of oil prices and without foreign exchange exposure.
Despite the global trends and domestic challenges facing indigenous oil and gas companies, Oando has steadily navigated the ups and downs of the cyclical market by adapting quickly and being fiscally innovative to enable its business operations run as normal.
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