Orient Petroleum PP

[Taipan]

Originally Posted by Babs_O

@crtide.

The closing date is 31-Dec-07. See Vanguard.
Vanguard Online Edition - Orient Petroleum Resources shops for N12b

I actually talked to one of their contacts in UBA, and she said that it will go on until they have the amount they are looking for. The impression i got is that they have quite some demand already and the offer could well close tomorrow! It seems they are looking more to institutional investors for this one. If you are observant, you would have noticed that the memorandum was terribly well prepared. Obviously, someone made lots of effort to make this thing a success.
So what can i say? Buy as soon as possible before you get shut out.

[Taipan]

About Us

[newton]

Yeah. The prospectus doesn't carry the closing date. A lady frm UBA global markets (Sara Duncan) confirmed that it'll be on till abt end of january.
I seem to like the board composition (Anyaoku, Ekwueme, Mbanefo), but it seems an all eastern affair.
The forecast for 2009-20011 seem to be quite tite, PE ratio of 2 and earnings/div yield of 45%/25% respectively.

[kiibaati]

I think Orient Refinery makes sense. And the pple behind it are grade 1(Anyaoku, Ekwueme, Mbanefo), .Not the kind of pple to mess up. I think by putting it in anambra, they are trying to develop their state and any investor can be assured that the usual South-south risks won't come up.

[newton]

Yeah I concur. You see, most guys dont even go thru d prospectus b4 concluding on the if an offer is good or otherwise. There's no doubt that this offer could be a potential money spinner to investors ready to take full advantage of the opportunities it provide

[DaInvestor]

Originally Posted by kiibaati

I think Orient Refinery makes sense. And the pple behind it are grade 1(Anyaoku, Ekwueme, Mbanefo), .Not the kind of pple to mess up. I think by putting it in anambra, they are trying to develop their state and any investor can be assured that the usual South-south risks won't come up.

Not trying to be sceptical or be a critic but i really dont care only about who sits at the board, thanks to transcorp even if u argue about their negative publicity, dont care either whether they are developing their state cos if the location is not good the intentions dont matter too, and im not too sure about ur assurance that the usual SS risks wouldnt come up cos these things do come up overnight unless well planned for, and remeber Anambra is not the safest of places in Nigeria, especially with the challenge of this their musical chairs concerning their Govs... just wanted u guys to be concious of these things b4 investing based on sentiments, im more concerned about the facts and figures after that sentiments can follow thats what determines how north or south the price can go but the facts datermine whether its north or south. just my personal take, over to u guys... and compliments of the season

[Taipan]

Originally Posted by DaInvestor

Not trying to be sceptical or be a critic but i really dont care only about who sits at the board, thanks to transcorp even if u argue about their negative publicity, dont care either whether they are developing their state cos if the location is not good the intentions dont matter too, and im not too sure about ur assurance that the usual SS risks wouldnt come up cos these things do come up overnight unless well planned for, and remeber Anambra is not the safest of places in Nigeria, especially with the challenge of this their musical chairs concerning their Govs... just wanted u guys to be concious of these things b4 investing based on sentiments, im more concerned about the facts and figures after that sentiments can follow thats what determines how north or south the price can go but the facts datermine whether its north or south. just my personal take, over to u guys... and compliments of the season

Point taken. But as I like to say, dyou know something we dont know or does your analysis tell you that Orient is a bad deal? If so, please share it with us.

[Apache]

Originally Posted by DaInvestor

Not trying to be sceptical or be a critic but i really dont care only about who sits at the board, thanks to transcorp even if u argue about their negative publicity, dont care either whether they are developing their state cos if the location is not good the intentions dont matter too, and im not too sure about ur assurance that the usual SS risks wouldnt come up cos these things do come up overnight unless well planned for, and remeber Anambra is not the safest of places in Nigeria, especially with the challenge of this their musical chairs concerning their Govs... just wanted u guys to be concious of these things b4 investing based on sentiments, im more concerned about the facts and figures after that sentiments can follow thats what determines how north or south the price can go but the facts datermine whether its north or south. just my personal take, over to u guys... and compliments of the season

I think the numbers have been looked at and they are not looking bad. Also, for a PP where there's no history abt the company to benchmark, the importance of the people who constitute the board cannot be overemphasized. Also location is very important in business of which citing the refinary in the same area where the raw materials are located makes good sense. I think this is a good deal for those that are interested.
Personally for me (even though i consider myself a long term Investor), i always like my investments to be liquid, so i think i will jump in whenever they decide to list although if i have spare cash, i might pick up some units

[newton]

Well, d offer is still very much on. Actually there's no closing date on the form and per discussion wt uba global market contact the offer is on 1st come 1st serve basis.

[Avocado]

In order to part-finance the establishment and construction of a private refinery, following the liberalization of the downstream sector of the oil & gas industry, OPR-R&P had in 2005/2006 issued 150 million shares of 50 kobo at N100 per share through a private placement of which only 7.5 million, representing 5% of the issued shares, were subscribed. Towards making up the difference, the company is now offering 120 million ordinary shares of 50kobo each at N100 per share through another private placement.

(Last paragraph, page 1 of UBA GLobal Markets document)

Question: Why did this PP raise only 5% of the target? Why are institutional investors not swooping on this?

Orient’s OPL blocks 915 and 916 will serve as the main source of feedstock supply, which will ensure steady supply of crude oil to the refinery as well as saving the company the likely costs arising from frequent modification of the refinery on the back of changing composition of oil feedstock

This is one reason this PP doesn't appear attractive. The feedstock will be dependent on prospecting licences? There's lots of uncertainties here. Where is the hydrocarbon resource base documents for these blocks?

In January 2005, a prospect evaluation was done for OPL 915; the engineering report from that work is essential for one to evaluate the prospect of the company. Orient does not have the technology to operate an OPL; who will they be partnering with? This is a long-haul investment. The UBA Global Markets report is very misleading in making projections for 2009. Unless Orient gets foreign partners, the refinery will not fly.
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[Taipan]

Originally Posted by Avocado

Question: ... Why are institutional investors not swooping on this?

This is one reason this PP doesn't appear attractive. The feedstock will be dependent on prospecting licences? There's lots of uncertainties here. Where is the hydrocarbon resource base documents for these blocks?

In January 2005, a prospect evaluation was done for OPL 915; the engineering report from that work is essential for one to evaluate the prospect of the company. Orient does not have the technology to operate an OPL; who will they be partnering with? This is a long-haul investment. The UBA Global Markets report is very misleading in making projections for 2009. Unless Orient gets foreign partners, the refinery will not fly.
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You're quite right in ur assessments. But we dont know what the institutional investors are doing right now and this investment is fully long-term.
But 915 and 916 arent the only feedstock supply options:

Crude Oil Feedstock Supply
To guarantee regular supply of crude oil feedstock, Orient Refinery design is based on
three (3) alternative sources of crude namely;
􀂟 barging Brass blend crude up from the Niger and Anambra rivers;
􀂟 construction of a bye-pass from the NNPC Auchi to Enugu pipeline; and
􀂟 development of nearby oil and gas fields in Oil Prospecting Licenses (“OPLs”)
915 & 916.

The above is from pg11 of the same memorandum.
And finally, UBAGM isnt trying to mislead anybody. They stated quite clearly that about 85% of the needed capital is being sourced from China EximBank on which interest will be paid. It is based on the success of this offer (which will go a long way in determining whether the loan goes through or not) that those projections are made.

[Avocado]

The last paragraph of page 11 reads:

The main source of feedstock supply to the Refinery will be the oil and gas fields in Oil Prospecting Licence (OPL) blocks 915 and 916, part of the Anambra River geological basin surrounding the refinery location. (Emphasis mine)

And its eitherthe UBA-GM researchers are sloppy, of they plain don't understand what an OPL means: it is inconsistent (and misleading) to make projections for a refinery for 2009 based on an OPL. They make the caveat that this is not an invitation to invest, yet they don't lay enough emphasis on the uncertainties regarding the main source of the feedstock for planned refinery.

China Eximbank will provide US$467.5 million or 85% of the required total project cost as a loan, while OPR Plc will provide its oil concession licences (OPL 915 and 916) as collateral for the loan. The parent company is also required to provide the balance of 15% of the project cost amounting to US$82.5 as internal counterpart funding for which OPRR& P will pay up to US$207,193,372 as financial charges over a period of 8 years (average
of US$25,899 per annum).

In otherwords, investors will lose their monies if the refinery doesn't come on stream if the OPL isn't converted to an OML which is dependent on the discovery of commercial quantities of oil. Hmnn. Where is the investment for developing the licence if commercial quantities of crude oil are discovered?

Supply of Feedstock Risk
The supply of feedstock risk is mitigated as the company plans to secure its feedstock supply by vertical integration with the upstream petroleum business; and this has been guaranteed by the award by the Federal Government to OPR-R&P (the holding company) of two licence blocks, OPLs 915 and 916 adjacent to the refinery site. In addition, the Federal Government (through NNPC) has equally agreed to supply crude from the
NNPC/Agip Joint Venture Operation in Brass, as a back-up.

The agreement (in principle) to supply crude from Brass is good; but that's "back up", meaning that the success of the OPLs 915 and/or 916 is essential to the success of the project. Tricky thing.

To suppose that these plans and projects can be completed in time for a N45 EPS for FY 2009 is quite laughable.
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[Dragon123]

The current price per litre of petrol in Nigeria is highly subsidised. How will they be able to make profit if they are to sell their product in the local market? Personally, I am not too keen.

[chineduz]

Link Update on Orient....The NEWS - News

[Taipan]

Originally Posted by chineduz

Link Update on Orient....The NEWS - News

Wow, I havent had such good news in quite a while. Avocado, dyou think this changes anything?

[Taipan]

Originally Posted by Dragon123

The current price per litre of petrol in Nigeria is highly subsidised. How will they be able to make profit if they are to sell their product in the local market? Personally, I am not too keen.

Dragon, imported fuel is subsidised because of the costs of acquiring it *(considering the $ price per barrel of crude) and transporting it to and fro. Locally refined fuel doesnt face the same problem, first of all because the dollar distortion doesnt affect it and there're no shipping costs to contend with.

*The crude produced is sold to foreign companies at about $90/barrel (presently). Now assume that it costs say $50 to produce this oil, the producers and the govt pocket $40. This crude then has to be shipped, tax paid on it in the destination country, refined, and then the resulting fuel shipped back. All these processes have associated costs which are significant thereby driving the cost of the fuel quite high - probably above N100. It is for this reason that the govt has to subsidise it - let's not debate the wisdom or stupidity of that for now.
Now, for a refinery with its own fields, the oil is extracted and sent straight to its plant at that $50 cost, no shipping, to taxes etc - well maybe with a little profit if another corporation owns the fields. This therefore makes locally refined fuel much cheaper than imported fuel and this is even moreso if the plant is an efficient one.

[Avocado]

Originally Posted by Taipan

Wow, I havent had such good news in quite a while. Avocado, dyou think this changes anything?

It does, to the extent that new information, if its credible, must shape opinion. What are the new things in the report? :

OPR has signed a Refinery Housing Development Agreement with Nerida International of Geneva, Switzerland. The agreement, signed on 20 November, aims at catering primarily for the housing needs of the staff of OPR-Refining and Petrochemicals.

This shows some seriousness... but...

The geophysical and geotechnical surveys were attained in 2006.

I'd like to see this report; and, this is just a first step. Even an enticing geophysical and geotechnical report doesn't guarantee the discovery of crude in commercial quantities. The weakest link in the plans is the investment it would take to develop OPL 915 and 916: there're no comments in the report about that. Now, if commercial quantities of crude are to be confirmed, the picture would change. The response right now shows that this is shaky.

What are the unrealistic and misleading aspects of this report?:

The facility is expected to begin operations early 2009 with a capacity to produce 55,000 barrels per day.

UBA-GM believes this too; it isn't sound to believe this.

As an aside, to show how much value could be put on newspaper reports about an engineering project such as this, read: http://www.guardiannewsngr.com/busin...ticle04/040406 ; were the claims in the article true, the refinery would be up and running right now. If institutional investors aren't rushing for this, you've got to ask yourself why.

Poser: on the average, how long does it take to complete a refinery and get it up and running? The answer to that question will tell you how irresponsibly negligent (in the very least) the UBA-GM researchers were, and should inform any small-time investor why they're better off putting their money elsewhere.

What you wrote about margins is partly correct. BUT, remember the investment is not in an oil producing company, it is in refining; the two will be separated; the refinery does not "own" the oilfields. It is precisely because refineries operate on margins, and nto directly in the oil prospecting and production business that things are shaky. And Dragon123's fear is very real: refining by itself isn't very profitable, or, rather, there are mor eprofitable aspects of the oil industry; this has implications for investors; that's partly the reason why there've been no new refineries in the US, say, for about two decades. I'll locate a report or two for more information.

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[Taipan]

Originally Posted by Avocado

I'd like to see this report; and, this is just a first step.
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Well, i don't know about seeing the report.
First of all, if i paid millions to carry out such research, I'm not sure I'll want to make it available on the net to every Tom, Dick and Harry. Secondly, if they're lying about the whole thing, what will it take them to cook-up a phony report and paste it on the net? Thirdly, what makes you think you'll understand the report anyway? 100s, maybe 1,000s of pages of technical data. I read engineering but even i doubt my ability to professionally assess such a report. Finally, when the banks tell you they're raising N100b and in 5 lines tell you what they HOPE to use it for, dyou ask for research to support their conclusions/decisions?

Even an enticing geophysical and geotechnical report doesn't guarantee the discovery of crude in commercial quantities... Now, if commercial quantities of crude are to be confirmed, the picture would change. The response right now shows that this is shaky.

I wonder why you're up in arms about 915 and 916. First of all, OPR isn't placing all its' hopes on them. And secondly, the pix isn't so gloomy as your link well confirms:

Managing Director of OPR, Emeka. N. Nwawka, explained that the refinery though located in Anambra would be getting its crude from both the Anambra basin and the Niger Delta... "In the Anambra Basin, oil has been discovered by Shell and Elf. The prospective estimates are quite high, about one billion barrels of oil and gas and, maybe, 30 billion cubic feet of gas. Eighteen wells have been drilled out of which five were discovered to have oil and gas."

Concerning the institutional investors, like I said before, we don't know what they're doing now. For all we know, they whole offer has been taken up. Some years ago, it was difficult to raise even N5 from the market - of course, we all thought the bank consolidation thing will fail for lack of funds - but in recent times, the only offer that wasn't over-subscribed seems to have been Transcorp. So their timing seems to be just perfect.
But why are you even so concerned about inst. investors? They aren't God, are they? What if they sell their shares in a company you own, will you just do the same blindly? Investing is an individual thing. All that matters is if it fits your long-range plan.

How long does it take to build a refinery? Probably about 4 years. See Virgin plans oil refinery | NEWS.com.au Business and Why Not Build More Refineries
But OPR isn't building a refinery. Instead, they're importing a ready-made one:

...once the site preparation works was completed, the refinery would be shipped in from the United States...

Concerning finance, you'll find that the figures tally in Hapaco to start building Vietnam refinery in Dec | Markets | Reuters

And finally, I must tell you that you're very very wrong. Refineries are profitable esp when there's a shortage of petroleum products. Infact, that's one of the reasons why none has been built in the US for so long!
See EagleSpeak: Oil Refinery Shortage

But another reason you won’t see any refineries springing up soon is that oil companies like things the way they are: Their refineries are operating near capacity, so they sell practically every drop of fuel they make....
...In the first quarter, industry giant ExxonMobil saw its profits from refining operations jump 38.8 percent. Refining profits at ConocoPhillips grew 19.2 percent in the first quarter.

See also Highest hurdle for building oil refinery is finding $2.5 bil. | Chicago Sun-Times | Find Articles at BNET.com ;
Top Financial News pid=10000087&sid=ai2PoL0XZ1zY&refer=top_world_news ;
Peak Oil Debunked: 254. REFINERY BUILDING BOOM IN MIDDLE EAST .

[Avocado]

Interesting response. Now, let’s take a look:

First of all, if i paid millions to carry out such research, I'm not sure I'll want to make it available on the net to every Tom, Dick and Harry. Secondly, if they're lying about the whole thing, what will it take them to cook-up a phony report and paste it on the net?

You’re partly right about the geotechnical report: it's cost lots money, and you don't expect to find it in the open literature; but the UBA-GM report makes no reference to it. And, you misunderstand the point you attemted to make about “lying”: I accused UBA-GM of not appraising investors – in this published report – of the risks regarding the source of the feedstock for the refinery. OPR will be hopeful, and the refinery will almost certainly be profitable, but it is irresponsible to suppose that the timeline, with the projection to have earnings for FY 2009, is realistic. And no, you don’t cook up the essential details of such a report.

Thirdly, what makes you think you'll understand the report anyway? 100s, maybe 1,000s of pages of technical data. I read engineering but even i doubt my ability to professionally assess such a report.

This is bordering on the irresponsible. What makes you think I couldn’t understand such a report? You’re content to hint that you read engineering without stating what particular discipline; what good is that? And, if such a report runs to a thousand million pages, a one-page summary of the essential details – without giving out critical proprietary data – can still be made. But why not? Because a geotechnical report cannot by itself confirm commercial quantities of crude. Let’s offer a little help: OPR will need to drill a well. Now, how do you think that will play out? This is one aspect of the unreasonable FY 2009 estimate.

Finally, when the banks tell you they're raising N100b and in 5 lines tell you what they HOPE to use it for, dyou ask for research to support their conclusions/decisions?

This is the question that ought to have sparked some engineering judgement; let’s press forward with your banking analogy: if a bank has 50 branches, and states that they’ll be one of the “big three” in three years, and have no plans for branch network expansion in their current PO, do you need a seer to tell that they’ll either be coming to the market again, or, that they’re forgetting an essential part of their plans? And it is precisely the fact that the Orient-PP report does not mention anything about the plans of getting the OPL to become an OML and drilling wells and the infrastructure to support oil production that makes the UBA-GM report curious.

I wonder why you're up in arms about 915 and 916. First of all, OPR isn't placing all its' hopes on them.

The report is clear that the main feedstock for the refinery will be from OPL 915 & 916. Now, let’s assume that OPR MD’s explanation will be the case: how will this play out for EPS in FY 2009? The timeline is clearly unrealistic.
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[Avocado]

As to the rest of the post, we find even more curious conclusions:

And finally, I must tell you that you're very very wrong. Refineries are profitable esp when there's a shortage of petroleum products.

You’ve misunderstood the point. The point was not that refining isn’t profitable, but that where there are more attractive alternatives within the oil industry (and there is), refining wouldn’t be the first option. I’ll rather be investing on OPL 915 and 916 than on a refinery that’ll be dependent on possible production from those blocks.

Regarding the links you supplied:
1)What happened to the Akwa Ibom refinery, this news item is dated 2001. Aluko’s article is a good collection of refining projects that haven’t really taken-off; this would suggest there are issues beyond the discussion on these pages making things difficult.

2)Did you read the links you supplied? At the Eaglespeak location, you could have read: “The cost of building a refinery requires a sufficient return on investment projection to justify spending the money. If higher rates of return are available elsewhere, why would you invest in a lower rate of return?]”; this is the argument already posted in my earlier post; do you disagree with it?

3)You further quoted from the Eaglespeak location:

“...In the first quarter, industry giant ExxonMobil saw its profits from refining operations jump 38.8 percent. Refining profits at ConocoPhillips grew 19.2 percent in the first quarter.”

Why didn’t you quote the rest of the comment which reads:

“Increase in profits by percentage means nothing unless we know what the original number was. If refining profits were $.01 last year and increased 38%, then they are $.0138 this year, which is not much. The reporter seems to have a small bias and apparently has read How to Lie with Statistics”.

How about that? I’ll suppose you didn’t do this deliberately? You read enigneering; you shouldn't be easily deceived by percentages.

4)What’s your engineering opinion about the information and data on this page on refining margins: Estimated Gasoline Price Breakdown & Margins Details (this link is from one of the pages you supplied). The information in the links you supplied do not support your position.

Some general comments:
We’re here to share information and ideas, not to take rigid positions based on ideology. If Orient supplies good information regarding the source of the feedstock for the refining project, this poster’s opinion must change along with the facts of the new information. Even when we disagree, it’s all for good: humble investors looking to get things better by investing on the NSE; not to win arguments, but to articulate positions in order to help make better decisions. The least we could do int his regard is to read the information we post, or give a caveat if we haven't evaluated the information, and learn where was can. I've learned a few things from this exchange, least of which is not the history of failed promises regarding the building/assembly of refineries in Nigeria.
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