2015 overview

07 January 2016

2015 was a tough year, with exceptional challenges for two of our energy companies, Addax Bioenergy and Oryx Petroleum. At the same time, our real estate investments continued to perform well, as did our other energy company, Oryx Energies.

Oryx Energies: continued integration, developments and brand consolidation

2015 marked the third year since the launch of the Oryx Energies brand in sub-Saharan Africa, as the fruit of the merger of AOG’s trading and downstream activities.

Strong investments in the expansion of this integrated downstream platform continued during the year, consolidating a model that is successfully mastering the value chain from oil product sourcing and strategic storage, to distribution and services to end-users.

The trading division produced outstanding results for the year. The brutal drop in the oil price, together with a solid contango, helped increase the volume traded with reduced storage and financing costs.

The context of lower oil prices and market over-supply also increased the capacity of end-users to access essential energy products and drove contingent demand for oil storage. The strategic oil terminal that opened in Las Palmas in September 2014 benefitted from the trend and supported trading in gasoil through an active blending activity.

At the same time, downstream results were affected by two major and simultaneous challenges in South Africa. Firstly, Oryx Energies’ national LPG supplier, SAPREF, had a series of break-downs, drastically limiting the supply of LPG and forcing the affiliate to purchase at higher alternative supplier prices. Secondly, the continued devaluation of the South African Rand significantly diminished USD margins, in a government-controlled pricing formula. Negotiations with the Government were ongoing to mitigate the problems through an import parity based pricing model.

Investments covered the expansion of Oryx Energies’ storage capacity, as well as its retail network. This aimed to ensure both the reliability of supply and ease of access to fuels, lubricants and LPG in urban and rural areas across the region.

Key investments in 2015:

  • LPG storage and filling facilities were added in the towns of Moshi, Mwanza and Mbeya, in Tanzania, as part of our strategy of promoting LPG as a cleaner, healthier and more ecological alternative to other fossil fuels (in particular charcoal and firewood);
  • A mini fuel storage depot and an LPG filling plant were built in the Ugandan capital, Kampala, to reinforce control of the supply chain as Oryx Energies expanded its business in the country;
  • 12 service stations were added to the Oryx Energies-branded retail network. This included new sites in Burkina Faso, Kenya, Tanzania and Zambia, providing fuels and LPG and/or lubricants to consumers;
  • The construction of a new deep water jetty at the Kissy oil terminal in Freetown, Sierra Leone, was completed and the final touches were underway in December to make the facility fully operational. The first vessel is expected to berth in January 2016.

Oryx Energies created a service dedicated to Key Accounts, reflecting its experience and focus on serving large businesses. Sales teams were also reinforced within the markets, to respond to business needs in sectors as diverse as mining, construction, hospitality, the food industry, farming, schools and hospitals. Whatever the sector, fuels, lubricants, LPG and bitumen (asphalt) remained essential to powering businesses in the region.

At the same time, the ISO 9001 and 14001, and OHSAS18001 certification processes advanced according to plan, ready for completion in 2016. Pre-certification audits were conducted by a team of IRCA-certified auditors at the 8 largest Oryx Energies affiliates. HSSEQ (Health, Safety, Security, Environment and Quality) training and KPI monitoring were performed regularly. The HSSEQ Culture indicator came in above plan, showing that HSSEQ behaviours were becoming a reflex across the organisation.

Finally, our pan-African advertising campaign was expanded, raising awareness of the brand and its products through international Africa-focused media and directly in seven national markets. Launched in September 2014, the campaign received the Gold Award for “Best implementation of a brand development project across multiple markets” at the 2015 Transform Awards Europe in London.

Addax Bioenergy: review process to decide the future

During the first half of 2015, our pioneering sustainable energy company, Addax Bioenergy, produced approximately 7,000 tons of sugarcane ethanol and generated 15MW of electricity, with the surplus exported to Sierra Leone’s national grid. This was the second production season, following the commissioning of the ethanol distillery and electricity plant in May 2014.

Nevertheless, in June, AOG - as majority shareholder - and Addax Bioenergy SA decided to downscale the operation and conduct a 6-month review of all options for the future, working closely with H.E. the President of Sierra Leone and his government. In December, the review period was extended for 2 months, to the end of February 2016.

The decision to review options for the future was taken due to a number of unforeseeable events since the inception of the Greenfield project in 2008. These events had a significant impact on the planned timeframe, costs and revenues. They included the Ebola outbreak in May 2014, which not only took a terrible human toll on the country, but also led to substantial delays as most of Addax Bioenergy’s trade contractors declared “force majeure” and left the site. The number of expatriate consultants was reduced, while most local employees were maintained and assets kept in good working order.

Technical assessments of cane growth under local conditions were undertaken during the year, following the identification of the likely causes of lower-than-expected yields. The results of the assessment are expected to enable improved agronomic practices to achieve satisfactory yields in the future.

In the meantime, Addax Bioenergy pursued its Water, Sanitation and Hygiene (WASH) programme, completing the construction of a further 20 new boreholes and eight Ventilated Improved Pit (VIP) latrines in September. With around 400 people using each well, up to 11,000 more people gained access to clean water as a result of the programme. The initiative was part of Addax Bioenergy’s investments in Ebola control measures following the outbreak of the disease in 2014. Measures included building a 100-bed Ebola Treatment Centre and two Ebola Isolation Units in Makeni, and other donations to local communities and health ministries to tackle the disease.

During the second half of the year, Addax Bioenergy completed an evaluation of its Graduate Training Programme, which had hired and trained seven university graduates over 3 years, as part of efforts to promote local people across its business. It also continued to seek partners to continue the Farmer Development Programme it has deployed since 2010 and which has helped to increase food security in the area through improved farming methods.

Oryx Petroleum: production continues in a difficult environment

Despite a challenging environment, our upstream business, Oryx Petroleum, continued the regular production and sale of crude oil from Demir Dagh, in the Hawler license area of the Kurdistan Region of Iraq, following first production in June 2014. Production averaged 3,000 barrels/day for the first nine months of the year and sales were made to a regional marketer for export.

The company’s plans were nevertheless hindered by lower oil prices, technical challenges at the Demir Dagh field that limited production growth and a poor capital-raising environment. Capital expenditure plans were therefore reduced by 60% in March. Remaining spending was focused on production activities in the Hawler license area, while staffing was reduced, including at the company’s headquarters in Geneva, Switzerland.

AOG, the company’s majority shareholder, committed to provide a credit facility of up to $100 million to fund the company’s continued investment plans. This had been drawn down by the end of the year.

In September, Oryx Petroleum commissioned the first phase of the Hawler Production Facilities, with a gross capacity of 40,000 barrels per day, and completed the pipeline infrastructure to export oil to Turkey. The pipeline will be used once justified by production volumes and payment dynamics.

AOG Real Estate: continued value creation

AOG Real Estate had another successful year, progressing with its development programme and the management of its income-generating assets.

Our 90,000 sq ft office and retail development in Cannon Street, London, continued and is due for completion in late 2016. Similarly, the Parisian developments at Quai Ouest (169,000 sq ft office building) and Maillol (162,000 sq ft of leisure and residential space) advanced in 2015, under the management of AOG’s development partner, Emerige. Both projects are due for completion in early 2017.

AOG’s income-generating assets in London and Geneva performed well during the year, with all space fully let, while the Group’s indirect investment portfolio, managed by Brookfield Asset Management, continued to provide strong returns.

AOG Real Estate’s diversified portfolio of income-generating commercial properties, development projects and indirect investments spread across a number of locations, including London, Paris, Geneva, Malta and North America. With a small team, supported by professional and trusted partners (Emerige, Morgan Capital Partners and Brookfield), AOG Real Estate’s total contribution to the Group’s consolidated net income came to over $350 million for the period 2010 – 2015.

2016: looking to the future

We expect to overcome the continued challenges in the energy space and to pursue the growth of our real estate business in 2016, in particular:

  • Oryx Energies is expected to continue to grow its position as a key player in the energy sector in sub-Saharan Africa, offering the fuels, lubricants, LPG and bitumen needed to support the economic and social development of the region;
  • AOG and Addax Bioenergy should take a decision on the future of Addax Bioenergy in Sierra Leone by the end of February 2016;
  • Oryx Petroleum is expected to expand commercial oil production and sales from the Hawler license area in the Kurdistan Region of Iraq, with an objective of 12,000 to 15,000 barrels/day by the end of 2016. To achieve this, it is likely to seek $50 - $75 million in additional capital, on top of net revenues and cash on hand, in order to fund all budgeted cash expenditures in 2016.
  • AOG Real Estate will continue to grow and to create value for AOG’s bottom line.

2015 was a challenging year and I am proud of our ability to rise to the challenges and adapt our strategies to a continuously-changing external environment.

I would like to thank our employees across the Group for their ability to remain Alert, Principled and Adaptable, the characteristics that make us who we are. My thanks also go to our partners and service providers, without whom we could not succeed.

In 2016, we will continue to adapt to our environment and to leverage our ability to recognise opportunities to build our businesses.

Jean Claude Gandur
Chairman of the Board, AOG