Energy Africa Limited is Engen’s hope for future market improvements, reports Lynda
After a lacklustre year, Engen has revived market interest with the decision to go ahead with plans to list its exploration and production business on the Johannesburg Stock Exchange (JSE).
The new company, to be known as Energy Africa Limited, is expected to raise up to $100- million from local and foreign investors and will give a much-needed cash boost to Engen’s increasingly promising exploration activities, mainly in West Africa.
Analysts said this week the move would help Engen side-step cumbersome foreign exchange regulations, which made it difficult to fund offshore operations.
“They can fund exploration from here, but if they find an oil field, how do they develop it with present-day foreign exchange regulations? They raise capital overseas,” said one
Engen’s exploration activities are mainly concentrated in the Alba oil field in the North Sea, Bukha field off Oman and Nkossa off the Congo. Alba and Bukha produced 5 600 barrels a day last year. Nkossa is expected to start up in mid-1996.
Engen is also involved in plans to develop the E-BT oil field off Mossel Bay with state-owned oil exploration company, Soekor,
Engen chairman Bernard Smith told shareholders last week that “plans are at an advanced stage” to list the shares on the JSE and after the directors’ final decision this week to go ahead with the project, the market expects the listing in late February or March. Engen has said it would retain a 60 percent stake in the new company, although there is some speculation that it could cut the stake if enough investors show interest.
And Engen, which has developed a solid reputation in oil exploration and production in the international oil market, is not expected to be disappointed with the response to its listing, analysts said.
“All this should be good for Engen’s share price,” said one.
As Smith admitted at last week’s annual general meeting, such a boost would be most welcome after a year in which earnings slumped to their lowest level this decade (73 cents) and dividends were a measly 60 cents a share compared to 154 cents the year before.
This poor performance was largely due to problems with phase two of the upgrading of Engen’s Durban refinery, poor Trek petrol sales, low international refining margins and static wholesale margins despite increased costs. Engen has now decided to phase out the Trek brand and will benefit from government’s decision to grant a one-cent increase in the wholesale margin, Smith said.
General restructuring is under way to cut costs and improve efficiency and Smith added that international refining margins were
“A significant improvement in the operational performance at the
Durban refinery is expected,” he said.