Bloomberg News

Africa’s Richest Man Dangote Mulls Buying Nigeria Oil Fields (4)

January 21, 2014

Dangote Group, controlled by Africa’s richest man Aliko Dangote, is considering the purchase of Nigerian oil fields as international companies plan to sell onshore assets in the continent’s top crude producer.

The company, which has interests from cement to sugar, needs to secure a supply of crude oil and a “substantial amount of gas” for a $9 billion oil refinery and petrochemical complex it plans in southwest Nigeria, Group Executive Director Devakumar Edwin, 57, said in a Jan. 17 interview in Lagos, the country’s commercial capital. The company also needs energy for its cement plants in Africa’s second-largest economy, he said.

“We’re seriously thinking of investing in oil blocks both for gas and for oil,” Edwin said. “We’ve started talking with some companies who are divesting from onshore,” he said, declining to name them.

International oil and gas explorers including Royal Dutch Shell Plc (RDSA) and San Ramon, California-based Chevron Corp. (CVX:US) are selling onshore and shallow-water fields in Nigeria amid persistent violence and crude theft in the oil-rich Niger River delta, with smaller Nigerian companies taking their place.

Dangote “will require feed stock for the refinery,” Pabina Yinkere, the head of research at Lagos-based Vetiva Capital Management Ltd., said by e-mail today. With its “aspirations of becoming a global cement name, and the importance of energy in the cement production process, this could serve as a complement in the long run.”

Dangote Group believes it can manage unrest and aggrieved communities in the region with corporate social initiatives, Edwin said.

“We know the terrain much better, we know the risks and we believe that the risks can be managed,” he said. “The primary risk is people blasting your pipelines. I wouldn’t like to go and invest in a block which is totally inland and then I have to start buying inland pipelines.”

Oil Theft

Armed attacks mainly in the delta’s swamps and shallow waters reduced Nigeria’s oil output by 29 percent between 2006 and 2009, according to data compiled by Bloomberg. Although the violence eased after thousands of fighters accepted a government amnesty offer and disarmed five years ago, a surge in oil theft by gangs tapping crude from pipelines pushed output down to four-year lows last year. Nigeria pumped about 1.9 million barrels of crude a day last month.

Dangote’s complex will include a 400,000-barrel-a-day refinery, a 2.8 million-metric-ton urea plant and a petrochemical factory to produce polypropylene, used to make plastics. The company plans to expand the refinery capacity by another 100,000 barrels, Edwin said.

Nigeria, Africa’s most populous nation with about 170 million people, relies on fuel imports to meet most of its needs due to mismanagement, poor maintenance and aging equipment at its four refineries. Dangote’s refinery will cut fuel imports for the country in half, according to the company.

27th Richest

Aliko Dangote, who is co-chairman of this year’s World Economic Forum in Davos, has seen his wealth climb $1.1 billion in the month to date, making him the world’s 27th richest person with a net worth estimated at $24.9 billion, according to the Bloomberg Billionaires’ Index.

Dangote Cement Plc (DANGCEM), Africa’s biggest producer of the building material and Nigeria’s largest company, is looking at expanding in three South American countries and has signed a preliminary joint-venture agreement with one company, according to Edwin, who is also the chief executive officer of the cement business.

“The countries we’re looking at have huge natural resources and growth,” said Edwin, declining to name the nations so as not to alert competitors. “There are many large players in that region” that “may easily try to shut down entry to new players, but there’s still large scope of doing business,” he said.

Mining Rights

Dangote Cement, with a market capitalization of 3.9 trillion naira ($24.6 billion), has three plants in Nigeria and plans to expand in 13 other African countries, bringing total capacity to more than 50 million tons by 2016. The company is also expanding in Asia and has signed limestone mining rights in Indonesia and Nepal, Edwin said.

“The company’s intention to expand to Latin America will take some time to fully crystallize,” Tunde Abidoye, a Lagos-based equity analyst at FBN Capital Ltd., said in e-mailed comments. “Presently, the focus is more on its expansion across sub-Sahara Africa, due to the potentially higher margins and growth that can be achieved across the continent.”

Dangote will delay a planned listing of its cement company’s shares on the London Stock Exchange until at least next year when plants in countries including Cameroon, Senegal, Sierra Leone and Zambia are commissioned, Edwin said.

Dangote Cement’s shares closed 2.2 percent higher at 230 naira by the market close in Lagos, increasing its gains for the month to 5 percent. The stock advanced 71 percent last year, outpacing the 47 percent gain of the Nigerian Stock Exchange All Share Index. (NGSEINDX)

The sale will probably happen once investors can “see us as players outside Nigeria, not just as Nigeria champions and that we can repeat our success story elsewhere,” he said.

To contact the reporter on this story: Chris Kay in Lagos at ckay5@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net


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