BDO Professional Services Chartered Accountants, the independent auditor of Oando Plc, has expressed worries over the company’s ability to continue as a going concern.

The company’s liabilities have again exceeded its assets, the auditor said.

The auditor raised its red flag in Oando’s audited annual reports and consolidated financial statements for the year ended December 31, 2021, released on Monday, September 18.

It disclosed that the company’s current liabilities exceeded its assets by N237.8 billion, as it reported net current liabilities of N202.4 billion in 2020.

The company also reported net liabilities of N202.2 billion from N174.1 billion in 2020 and a total comprehensive loss of N28.12 billion from N45.31 billion in 2020.

According to financial analysts, when current liabilities exceed current assets, the current ratio will be less than one. In that situation, the company might have problems meeting its short-term obligations.

A further look at the audited report showed that the group delivered a sign of recovery, posting a total comprehensive income of N30.6 billion in 2021 from a N132.8 billion loss in 2020.

However, the group’s current liabilities exceeded current assets by N674.8 billion from net current liabilities of N578.2 billion in 2020.

The company also reported net liabilities of N129 billion from N67.7 billion in 2020.

Oando Group comprises Oando Trading, Oando Clean Energy, and Oando Energy Resources.

A Nigerian multinational energy company operating in the upstream, midstream and downstream, Oando had suffered a two-year run of losses that began in 2019 when it reported loss after tax of N207.1 billion in 2019 and N140.7 billion in 2020.

The ICIR reported on June 30, 2022, that Oando was on the verge of voluntarily delisting from the capital market due to the enormous losses.

The company had been entangled in a messy shareholder dispute that involved an indirect shareholder, Ansbury Investment Inc., which prompted the Securities and Exchange Commission (SEC) to bar the firm from holding its annual general meetings, making it impossible to release its financials for three years.

At the heart of the conflict were loans granted to the shareholder, which forced Oando to make a colossal impairment allowance that pushed the company into a loss after tax of N207.1 billion in 2019 and N140.7 billion in 2020.

Background to the conflict

In 2017, the SEC received petitions from two shareholders who accused Oando of regulatory infractions, including corporate governance lapses and mismanagement.

Investigating the claim, the SEC sanctioned the group by suspending its AGM in 2018. It even attempted to get the company’s Group Chief Executive, Wale Tinubu, and other affected board members to resign in 2019.

The ICIR reported that Oando could not produce its results for over three years due to the SEC’s suspension of its AGM in 2018.

Negative operating cash flow

Although the group recorded a N30.6 billion profit during the year due to the net reversal of assets impaired in previous years, the company continued to incur losses with negative operating cash flows.

The independent auditor, in its notes, stated that the reversal of this trend was dependent on a successful outcome of its planned actions to refinance its debts to manage the funding gap of N768.1 billion and the attainment of revenues in the group forecast for the year ending December 31, 2023.

“As stated in the notes, these conditions, together with other matters, indicate the existence of a material uncertainty that may cast significant doubt on the company’s and the group’s ability to continue as a going concern and, therefore, may be unable to realise its assets and settle its liabilities in the ordinary course of business.

“Our opinion is not modified in respect of this matter,” the independent auditor stated in its report signed by Henry Omodigbo for the BDO.

The audited report also revealed that the firm recorded negative operating cash flows of N14.4 billion while the group recorded N38.8 billion, up from N36.2 billion in 2020.

As of the balance sheet date, the group could not achieve payment of the outstanding principal on the medium-term loan of N92.2 billion and the corporate facility of N97.4 billion.

It could not pay its total accrued interest of N65.6 billion and settlement of other net current liabilities (excluding current borrowings and accrued interest) of N315.7 billion.

After the reporting date, the firm has continued to incur significant borrowings, including funding of operations and partial repayment of borrowings.

The group recorded unaudited positive revenue variance in 2022 due to increases in oil prices and higher trading volumes.

However, the independent auditor stated that the increase in revenue did not translate to a corresponding increase in gross margin and positive cash flows from operations.

Consequently, the firm needed help to achieve the planned repayment of outstanding borrowings during the year.

Furthermore, the auditor hinted that the company and group recorded unaudited total comprehensive loss, net current liabilities and net liabilities at the end of 2022.

The group’s outstanding borrowings amounted to N506.7 billion (unaudited), excluding interest as of December 31, 2022, with N402.4 billion out of the N506.7 billion being due within twelve months.

The independent auditor stressed that Oando’s forecast to return to profitability by 2024 highly depended on the stability of crude oil prices within the current range.

It also depends on the Oando’s ability to engage in activities that will increase production volume and intensify security surveillance to arrest crude oil theft.

Production declined by 40% in one year

During Oando’s operations in 2021, its oil production dropped by 40 per cent.

Average production was 26,775 barrels of oil equivalent per day (boe/day) in 2021 compared to 44,550 boe/day in 2020.

Production consisted of 8,849 barrels per day (bbls/day) of crude oil, 1,699 boe/day of natural gas liquids (NGLs) and 97,363 million cubic feet per day (mcf/day) or 16,227 boe/day of natural gas.

Oando blamed the production decreases on shut-ins for repairs, maintenance, and sabotage incidents at the facilities.

“Although a surge in militancy and sabotage activities across the Niger Delta negatively affected our operations during the reporting period, we have since seen progress in security initiatives and are consistently seeking innovative solutions to stabilise our oil and gas production.

“Moving forward, we remain committed to driving growth within our upstream and trading businesses whilst simultaneously diversifying our portfolio by investing in non-fossil and climate-friendly energy solutions through Oando Clean Energy Limited,” Tinubu said.