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Otedola’s planned exit from Forte Oil raises concern on downstream sustainability

By Stanley Opara and Helen Oji
02 January 2019   |   4:25 am
With the Chairman of Forte Oil Plc, Femi Otedola, set to sell his entire 75 per cent majority equity stake in the company in a deal estimated...

With the Chairman of Forte Oil Plc, Femi Otedola, set to sell his entire 75 per cent majority equity stake in the company in a deal estimated at about N25 billion, a renewed retrospect of the downstream subsector of Nigeria’s petroleum industry has become very germane.
Otedola is to sell his “full 75 per cent direct and indirect shareholding in the company’s downstream business”. The downstream business accounts for more than three-quarters of the Forte Oil Group, although the power generation business has consistently delivered higher margins.

This is coming after the country’s petroleum downstream segment had, in recent time, seen some significant developments, especially among some members of the Major Oil Marketers Association of Nigeria (MOMAN), which Forte Oil  is part of.

Sequel to the successful completion of the acquisition process of the 60 per cent equity stake of ExxonMobil in Mobil Oil Nigeria Plc  (a major oil marketer) by Nipco Plc, the new management announced a change of name for the company, Double One (11) Plc. The change of name of Mobil Oil Nigeria to 11 Plc was in furtherance of Nipco agreement with ExxonMobil while the company still retains its brand.

In a related development, Oando Marketing Limited, a leading oil and marketing retailer, also announced a change of the company’s brand name to OVH Energy Marketing Limited to reflect the recent recapitalisation and corporate restructuring aimed at admitting new shareholders.
So, the news about Otedola’s Forte Oil, to some, is not surprising given the aforementioned precedence.

In a regulatory filing signed by Forte Oil counsel Mr. Akinleye Olagbende, Otedola is divesting his majority equity stake to Prudent Energy team, which will be investing through Ignite Investments and Commodities Limited.

According to the company, Otedola’s divestment from the downstream business is pursuant to his decision to explore and maximize business opportunities in refining and petrochemicals.

But to some industry stalwarts, the ‘inconveniences’ in Nigeria’s petroleum downstream subsector remain the major reason for the developments seen thus far. And many are of the opinion that there would be more cases of Oando, Mobil and Forte Oil if the business status quo remains.

For the Forte Oil case, the divestment is expected to be concluded in the first quarter of 2019 subject to receipt of applicable regulatory approvals and material conditions, and it is a major twist for Otedola who had earlier in May 2018 secured shareholders’ approval to divest the group’s upstream services and power generating businesses as well as its downstream business in Ghana in a restructuring aimed at streamlining Forte Oil’s operations to focus on its Nigerian downstream marketing business.

Otedola’s Zenon Petroleum and Gas Company Limited and Thames Investment Incorporated are the major shareholders in Forte Oil, a legacy company that was privatised by the Federal Government. Forte Oil was incorporated in December 1964 as British Petroleum and became African Petroleum under the nationalisation policy of the Federal Government in 1979.

Forte Oil Group includes the downstream parent company and three subsidiaries-Forte Upstream Services Limited, AP Oil and Gas Ghana Limited, two wholly owned subsidiaries; and Amperion Power Distribution Company Limited, where Forte Oil holds 57 per cent majority equity stake. Amperion Power Distribution Company Limited holds the majority equity stake in the lucrative Geregu Power Plc.

In May 2018, Forte Oil had said its decision to divest from upstream services and power generating businesses will boost its distributable earnings for the benefit of shareholders.

It said following the significant changes in the oil and gas industry in recent years, only downstream operators with huge investments in both storage and distribution infrastructures can remain competitive and operationally efficient in the long run.

In June 2018, Forte Oil said it is planning to sell shares worth N20 billion to institutional and high net worth investors, and had applied for regulatory approval for the transaction.

The energy firm said the capital raising would be done as a public offer for shares through a book-building process to help price discovery, adding that it had applied to the Securities and Exchange Commission and Nigerian Stock Exchange for approval.

It said its core investor, Zenon Petroleum and Gas Limited, owned by Otedola, with a total stake of 62.97 per cent in the company, would not participate in the offer.

In 2016, Forte Oil posted a 24 per cent fall in pre-tax profit, which knocked it shares down by 74.4 per cent.The firm had once admitted that fuel distribution and power business accounted for 95 per cent of its operating profit.

Forte Oil Plc. has emerged the worst performing stock in 2016 in percentage terms having dropped by 74.42 per cent.

Statistics obtained from the Nigerian Stock Exchange (NSE) for the period showed the stock which in 2016 was worth N330 depreciated by 74.42 per cent to close trading at N84.43 per share.

For the second year running, Forte Oil maintained its leadership as the worst performing stock on the NSE in 2017 in percentage terms. Its stock, which opened trading in 2017 at N84.43, dropped by 48.50 per cent to close the year at N43.48 per share.

In July 2018, Forte Oil share price hit a five-year low as the stock closed N26 down 10 per cent from its opening share price. Forte Oil also topped the losers chart on the day.

Downstream stakeholders decry industry’s plight
The Depot and Petroleum Products Marketing Association,(DAPPMA) recently raised the alarm over what it described as a huge decay in the downstream sub-sector of the petroleum industry.

The Executive Secretary, DAPPMA, Mr. Olufemi Adewole, said oil marketers had disengaged employees due to their inability to pay salaries following the current challenge in the industry.

DAPPMA registered its commitment to ending financial hemorrhaging of its members, especially with respect to the over three years subsidy-induced debt owed marketers by the Federal Government.

Maintaining the status quo, Adewole feared, was capable of exposing the industry to collapse, adding that government institutions involved in resolving the lingering problem should appreciate the dire situation marketers were being faced with  and the urgent need to address lingering debts.

The Major Oil Marketers Association of Nigeria (MOMAN) recently said one of the major challenges the Nigerian downstream petroleum sector is still facing is the non-payment of the long outstanding fuel subsidy to oil marketers.

Speaking on the development, the Chairman, MOMAN, Andrew Gbodume, said: “We appreciate the efforts of the National Assembly, but the non-payment creates a significantly negative impact on the operational efficiency of the downstream sector of the oil industry, thereby placing a severe strain on its efforts to continually invest in infrastructure and raise industry standards.  We hope that the debts will be paid in full to the oil marketers as soon as possible.

“We can’t pay salaries and staff reviews in terms of emoluments cannot be done because of this sum owed us.”

He said the current business model in the downstream sector was unworkable and unsustainable, adding that the future system of product supply needed to be looked at; of which there is a need for technical debate amongst stakeholders on the way forward.”

Commending the current management of product supply in the country, the MOMAN boss said: “We cannot but acknowledge and appreciate the efforts of the Petroleum Products Marketing Company (PPMC) over the last few months in ensuring consistent supply of petroleum products within the country.

“PPMC has demonstrated its resolve in guaranteeing a non-repeat of the scarcity the nation experienced at the end of 2017 and quite frankly has done well so far.  However, with the Nigerian National Petroleum Corporation being the sole importer and supplier of petroleum products in Nigeria at the cost incurred, it should be clear to all Nigerians that this policy direction is not sustainable.”

He added: “We believe the path to fully achieving a sustainable operating environment for the Nigerian petroleum industry begins with the downstream private sector.  We feel the time is now to encourage a well informed and honest debate amongst ourselves as Nigerians on our downstream pricing policy, showing sensitivity to the fears of Nigerians and the challenges we face as a people and as an economy, to arrive at an equitable but sustainable business model.”

MOMAN said the lack of investment in the country’s infrastructure, the quality of the distribution network, the changes in international petroleum economics, or simply the inability to keep abreast with Health Safety Security Environment and Quality (HSSEQ) developments in other parts of the world, (including other African countries) have plagued the Nigerian petroleum industry, resulting in an unsustainable business model.

“The current business model unfortunately does not generate enough revenue for oil marketers to inculcate technological and other advancements to meet international safety, quality and environmental standards; standards that we at MOMAN believe the Nigerian populace deserves,” it added.

Shareholders react
Stakeholders in the nation’s capital market have urged the regulators to ensure that the new investors of Forte Oil have the competence to turnaround the company within the shortest period.

They argued that the firm’s current debt profile is on the high side, noting that an individual having such huge stake in any firm is detrimental.

They however admitted that the divestment would enable Otedola to focus more on his core business area.

According to them, business is about interests and that interest is what drives an investor to dedicate his time and resources to create values for the business.

Specifically, the Chief Research Officer of Investdata Consulting Consulting Limited, Ambrose Omodion argued that individual holding huge percentage stake in a company is unhealthy.

“In the first place, individual holding such percentage is not healthy for any company. The expertise or background of the buyers will determine the next phase of Forte oil.”

For the Managing Director of Highcap Securities Limited, Imafidon Adonri, FO needs a lot of money to survive.