Johannesburg - Listed oil and gas company, SacOil said on Thursday that its negotiations to buy southern African-focused petroleum products wholesaler were at was an advanced stage.
SacOil said the proposed acquisition was in line with its strategy of focussing on cash-generating opportunities that expand SacOil’s offering in the oil and gas value chain.
The company said if concluded, the proposed acquisition would significantly increase SacOil’s turnover and provide it with a foothold in the downstream oil and gas market, which compliments its existing upstream assets.
It said while the low oil environment made the pursuit of expensive exploration projects unattractive, it offered players in the downstream sector opportunities to grow revenue.
CEO Thabo Kgogo said the industry’s appetite for high risk capital-intensive upstream activities had waned considerably as a result of the oil environment.
“We recognised the importance of having material value in the company through assets which provide production and cash flow,” said Kgogo.
Read also: Earnings plunge as challenges overwhelm SacOil
Hinting at possible acquisitions, Kgogo said: “The severe sector headwinds have brought more opportunities to the fore as distressed companies are forced to undertake strategic reviews which may result in corporate mergers and acquisitions or divestment of assets at compelling valuations. Through our strong balance sheet relative to our small cap peers, our supportive shareholders who recognise our vision and support our growth strategy, and our growing reputation as a credible operator, we are well placed to capitalise on these opportunities.”
In the past two years, SacOil exited two exploration assets in Nigeria in order to focus on cash generating assets as well as low-risk exploration assets.
SacOil walked away from Nigeria’s Oil Prospecting Licence (OPL) 281 and OPL 233 in December 2014 and May last year, respectively.
As at July this year, SacOil had invested $12.5 million (R177 million) and $21.3 million in OPL 281 and OPL 233, respectively.
At the same time, SacOil reduced its exposure to speculative exploration assets.
While it has assets in the so-called upstream and midstream sectors, SacOil has previously expressed desire to get into the so-called downstream market which includes the distribution and marketing of petroleum products.
Travis Hough, a Business Unit Leader for Energy & Environment at Frost & Sullivan, said the drop in oil prices had resulted in a decrease in petroleum prices too. Hough said as the prices dropped, the demand for the product increased.
He said although the prices were regulated by the state, revenue of a petroleum business would increase by a pure surge in volume.
“However, whether the increase in revenue translates into petroleum companies being more valuable than upstream companies in the low oil price environment, is not as straight forward as looking at their increase in revenue. The value of petroleum businesses will depend on their cost structure, the countries they operate in, the clients they sell to, and their exposure to currency fluctuations,” he said, citing Puma Energy which increased revenue but reported a fall in third-quarter profitability.