Forte Oil has said it plans to sell its upstream services and power businesses in Nigeria and divest from Ghana to focus on its core fuel distribution operation at home, according to a report by Reuters on Wednesday.
The move comes as a surprise about-turn for a company, whose Chief Executive, Akin Akinfemiwa, told investors in Lagos in August that he wanted to aggressively pursue mergers and acquisition opportunities along the energy value chain, and acquire marginal oilfields to boost its upstream business.
The company, majority owned by billionaire, Femi Otedola, has also been in talks with a major refinery to form a strategic partnership for local refining of petroleum products.
Forte Oil’s share price plunged by 49 per cent last year after the company struggled to get hard currency to import products. It now has a total market value of N57.3bn but gave no indication on Wednesday of how much the businesses for sale might fetch.
It said interest costs attributable to the businesses to be sold stood at N2.2bn as of December. It now plans to seek shareholder approval for the sale on May 23 and appoint advisers, it said in a notice to investors.
Forte Oil did not give a reason for the change in direction but said the downstream sector in Nigeria had gone through changes in recent years and was expected to evolve further.
It added that the industry had operated under a tightly regulated fixed margin but could be deregulated, especially given its impact on the Nigerian currency and import bill.
The government increased petrol prices by 67 per cent to N145 in 2016 to cut subsidies paid for fuel imports after a plunge in oil prices hit state revenues, caused dollar shortages and halted infrastructure projects, with firms laying off tens of thousands of workers.
However, the hike did not prevent fuel shortages, which have plagued Nigeria for much of last year and this year.
Nigeria’s existing and ageing refineries have a daily domestic refining capacity of six million litres, while the daily consumption stands at 35 million litres, so the country has to import the bulk of what it consumes.
Forte Oil has two storage depots, five aviation fuel depots and a lubricant blending plant. It also has 100 trucks for distribution of products across its more than 500 retail outlets, which will require a lot of capital to expand.
Its 57-per cent owned power unit, Amperion Power Distribution Company, has a lot of receivables due from the state-backed off-taker and its upstream unit has contributed less than seven per cent to group earnings over the past three years.
The unit in Ghana has declared losses over the last three years and has uncollectible trade debts due to tough economic conditions and a currency devaluation in the cocoa-rich country.
Forte Oil said proceeds from the divestment would be used to expand its downstream fuel distribution business and to invest in storage infrastructure.