This Day (Lagos)

26 February 2013

Nigeria: Natural Gas Business Holds Promise for Oando's Continued Profitability

As Nigeria's leading integrated energy conglomerate, Oando's business model is unique. Its investments span the entire energy value chain, having diversified from its traditional petroleum products marketing segment of the downstream division to natural gas distribution and power in the midstream; exploration & production and rig drilling services in the upstream division.

The business integration affords Oando a portfolio of high margin businesses and multiple income streams that guarantee steady growth and value creation for its shareholders. Today, Oando's subsidiaries are individual market leaders in the respective niche.

One of the subsidiaries with vintage contribution to the group bottomline is the Oando Gas and Power Limited (OG&P). Notably the largest local natural gas distribution company in Nigeria, supplying cheap, reliable, efficient, safe and clean fuel to industries in Nigeria, OG&P gas distribution coverage include an over 100km of distribution pipeline system in Lagos; another 128km in Akwa Ibom and Cross River States, as well as a concession award for the Port Harcourt Gas distribution franchise in River State.

The company today supplies over 130 leading manufacturers in Nigeria, including Dangote, BUA, Flour Mills, Cadbury, Nigerian Bottling Company, Nestle, Guinness, Nigerian Breweries, 7Up, Chi Limited to mention but a few. In 2012, Oando Gas and Power commenced gas supplies to United Cement Company (UNICEM) in Calabar and is increasingly poised to bring the gas advantage to the industrial cluster in the region.

OG&P has also successfully developed independent power plant from existing gas infrastructure in Lagos with the Akute Power Plant commissioned in 2012 to generate dedicated power to Lagos Water Corporation. It is also set to unveil another power project in the in 2013.

A power industry analyst believes: "The full actualisation of the power Sector roadmap will enable Oando Gas and Power to increase its footprint by taking advantage of new and additional opportunities to participate in grid generation and electric power distribution."

The company continues to deliver excellent gas grid operations, increasing new connects to the network, deploying optimisation initiatives to reduce cost of operations as well as Distribution Integrity Management Programmes (DIMP) and instituted emergency readiness to safeguard asset.

Commenting in a press release to announce the 2012, third quarter financial results of the Group, Mr. Wale Tinubu, Group Executive Oando PLC said: "In the Midstream, our Gas and Power business is at advanced stages of completion of the CNG project and we have commenced construction of Alausa IPP, with both projects aiming to reduce the cost of power generation for commercial customers and significantly increase our total power generation capacity respectively, thereby aid in resolving our drive to increase the nation's dependence on Gas".

According to a source close to the company, "Oando Gas and Power realised that there are a number of industries that can benefit from the advantages of natural gas but are located too far for a pipeline extension to be economical. These stranded industries can best be served by compressing natural gas and transporting the gas to them in cylindrical vessels. Many of these industries have indicated their interest in the Oando CNG and are finalising contractual and commercial arrangement prior to take off".

Indeed, Oando Gas and Power has set Gas Network Services Limited, (GNS) a special purpose vehicle, to develop a 150.000 standard cubic metre per day Compressed Natural Gas (CNG) facility at Ilasamaja in Lagos, to ensure that natural gas is available for all remotely located energy users in Nigeria. These users include housing estates, schools, hospitals, commercial complexes such as office blocks, hotels, banks, telecommunication base stations and masts to mention but a few. CNG is natural gas compressed to less than 1% of the volume it occupies at standard atmospheric conditions. CNG can be stored in containers at a pressure of 200-300 bar (2900-4351 psi), usually in cylindrical vessels for storage and transportation over short/medium distances (10km to 250km on average).

The investment in natural gas is already yielding positive returns for the Oando Group. By the end of the third quarter of 2012, OG&P had contributed 36 per cent to the Group's profit after tax (PAT) of N9.3 and 9 per cent of its earnings before interest, taxes, depreciation and amortisation (EBITDA). In the same period, OG&P had recorded 25% increase in PAT to N2.3bn and 28 per cent growth in turnover to N14.2 compared to third quarter in 2011.

As the Oando Group continues on the path of impressive and exemplary growth, analysts believe the development will herald a brighter future for shareholders of the company, who are witnessing their company gradually metamorphose into an indigenous energy giant.

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