Going Down To Blow Up? The Mathematics Of Femi Otedola’s Sale Of Forte Oil Shares

The best way to predict the future is to create it

Abraham Lincon

Yesterday, June 19th, billionaire oil magnate and Chairman of Forte Oil Plc announced the eventual sale of his 75% stack in Forte Oil, a company publicly listed company to another local energy trading firm. The shares are reported to be worth N64bn.

 

Announcing the transfer via his Instagram page where he has more than 650,000 followers, the Nigerian businessman signaled his intention to now fully focus on the power sector.

“A few years ago, my team and I embarked on an arduous task of transforming a moribund petroleum marketing business, African Petroleum Plc (formerly British Petroleum) into Forte Oil Plc; a leading integrated solutions provider with solid footprints in downstream petroleum marketing, Upstream Services and Power Generation and one in which we built intrinsic value to the benefits of our shareholders.

In line with my principle of business focus, we have divested from our marketing and upstream businesses and shall from now on focus and consolidate on the gains of our power generation business, Geregu Power Plc. We wish our successors the very best and urge them to build on our legacies which have been established since 1964,” Otedola said.

 

The Geregu Power Project

Geregu Power Plc is a corporate entity incorporated under the laws of the Federal Republic Nigeria on November 10, 2006, as one of the unbundled companies from the defunct PHCN with the sole interest of electricity generation through the use of Gas Turbines.

The company started operations in 2007 with GT 13 and was officially commissioned by the former President, Chief Olusegun Obasanjo in February 2008.

The plant is an Open Cycle Gas Turbine Power Plant, with a total installed capacity of 414MW at commissioning comprising of Siemens SGT5-2000E 3 x 138MW V94.2 Gas Turbines using natural gas.

In 2018, Otedola invested masssively in the project. In May of that year he had announced a $350 million investment days after he joined Twitter.

This apparently was after he had acquired the company way back in 2013 through a subsidiary of his Forte Oil Plc, Amperion Power Distribution Company Limited.

A Huge Dent On His Worth

Otedola was listed in 2016 as the 103rd richest person in the world but dropped off the list the following year as a result of the plunge in the share price of his oil company, Forte Oil.

And now, with the sale of his majority stake in the company which is a major player within Nigeria’s downstream oil sector has effectively dented his ranking among world billionaires but that will certainly not be for long as you are about to see.

Why Geregu?

A curious mind would easily ask the question: what is it about Geregu Power and why has the man who ranked 103rd on Forbes list of World billionaires in 2016 decided to pull in a huge chunk of his resources after divesting from Nigeria’s downstream oil sector which has been the main stay and source of wealth of many wealthy Nigerians.

The move into the power sector is a strong strategic realignment of business objectives with national position national direction. Femi Otedola by this single move, has made a bold statement as regards his interpretation of the dynamism of the Nigerian market space and what the future holds.

By migrating from the Oil business, Otedola has made a bold statement concerning his interpretation of the changing local business environment where the power sector is likely to appear more sustainable and profitable.

Otedola is seizing the future by creating what he thinks the future will be of Nigeria.

With this decision  to sell off the company’s downstream operations in Nigeria and its operations in Ghana, he has effectively increased the company’s liquidity, reduced short-term debt to equity ratio and upscaled its operations in mining and gas.

The move in effect means the company has exited the high turnover low margin end of the oil business and settled into the capital intensive but operationally more profitable upstream activities.

Otedola’s Geregu Power Plant Is Set To Disrupt Nigeria’s Power Generation

A major issue every Nigerian would agree on as being the bane of Nigeria’s growth and development is that of power. A major catalyst to the nation’s development is the adequate provision of power supply and so it holds for a fact that anyone who can solve this challenge or provide solutions that can aid in the power distribution and generation value chain in turn stands to become Nigeria’s next money bag.

Utilizing natural gas which is a sharp departure from the conventional and hitherto adopted hydro power model which makes use of water with its attendant challenge when the rivers run dry which in turn affects nationwide supply of power to households, this could possibly be the game changer in the power generation business.

The Geregu power plant according to reports will add at least 400 additional megawatts to the national grid with the possibility of increase in output as time progresses.

The power plant would be supplied feedstock from a SIEMENS 3 x 138MW V94.2 Gas Plant. The gas plant would increase the domestic use of gas and serve to improve the power output value chain, but with a likely review of domestic gas supply costs being advised to ensure optimization of the power production process

The plant will partly bridge the current power supply gap between consumer demand and national grid supply which would be partially offset by the full operation and future expansion of the plant.

The challenge between power generation and retailing has continually faced teething challenges over the years resulting in a fluctuating figure of available disposable power which continues to hover between 2000 and 3000 megawatts at the most and which comes down to as much as 1000 megawatts on our very bad days.

Again the issue of ranging pricing to cost recovery and mode of consumer payment has continually plagued the sector.

But with his wealth of experience and known tenacity as well as clarity of purpose, Otedola may well be on the way to becoming Nigeria’s Saviour in the power sector with the attendant reward with ample profit in his own pocket and so on his way to bouncing back on the list of world billionaires.

Otedola is banking on his foresight to predict where Nigeria’s next frontier with his known wealth of experience he may yet be on his way to becoming the next big player within the Nigerian power sector.

 

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