Folorunsho Alakija,
a Nigerian billionaire oil tycoon, Fashion designer and philanthropist
who is worth at least $3.3 billion- contrary to a recent Forbes Magazine
ranking which
pegs her net worth at only $600 million.
Alakija, 61, was born into a wealthy, polygamous Nigerian family. She
started out her professional career in the mid 70s as a secretary at
the now defunct International Merchant Bank of Nigeria, one of the
country’s earliest investment banks. In the early 80s, Alakija quit her
job and went on to study Fashion design in England, returning to Nigeria
shortly afterwards to start Supreme Stitches, a premium Nigerian
fashion label which catered exclusively to upscale clientele.
The business thrived, and Alakija quickly made a tidy fortune selling
high-end Nigerian clothing to fashionable wives of military bigwigs and
society women.
Folorunsho Alakija – Oil Prospecting License
In May 1993 Alakija applied for an allocation of an Oil Prospecting
License (OPL). The license to explore for oil on a 617,000 acre block –
(now referred to as OPL 216) was granted to Alakija’s company, Famfa
Limited. The block is located approximately 220 miles South East of
Lagos and 70 miles offshore Nigeria in the central Niger Delta.
This was in 1993. Many wealthy Nigerian businessmen and military
bigwigs who had been allocated oil blocs by the military administration
at the time had no clue as to the technicalities in operating an oil
block, so many of them typically acquired OPLs, and then flipped them
off to international oil companies for substantial profits.
But Alakija was intelligent. She had no expertise or experience in
running an oil field, but she decided not to sell off her license. In
September 1996, she entered into a joint venture agreement with Star
Deep Water Petroleum Limited (a wholly-owned subsidiary of Texaco) and
appointed the company as a technical adviser for the exploration of the
license, transferring 40 percent of her 100 percent stake to Star Deep.
Subsequently, Star Deep sold off 8 percent of its stake in OPL 216 to
Petrobas, a Brazilian company. Folorunsho Alakija and her family owned
60 percent.
Folorunsho Alakija and the Nigerian Government
Star Deep Petroleum carried on with exploitation of the oil field. In
2000, the first appraisal well was confirmed to have recoverable
reserves in excess of 1 billion barrels of oil equivalent. When this was
discovered, the Nigerian government, led by Olusegun Obasanjo
immediately ordered that a 40 percent interest in OPL 216 be allocated
to the Nigerian National Petroleum Corporation (NNPC) under the
Back-in-Right Regulation of 2003 which gives the Nigerian government
participatory rights in any OPL or OML. You can read more about this
back-in-right regulation in detail
here.
This would leave Famfa Oil with a 20 percent stake. This was in 2000,
and the government did not pay Famfa a dime for the stake. In 2003,
Famfa applied for a conversion from an OPL to an OML, and in 2004 the
request was granted. OPL 216 became OML 127.
But the Nigerian government was not content with its 40 percent stake in
Famfa. In 2005, the government led by General Olusegun Obasanjo
forcefully acquired a further 10 percent stake in OML 127.
Folorunsho Alakija immediately went to the courts to challenge the
government’s forceful acquisition take a 50 percent in the license. It
was a lengthy court battle which lasted for several years, but in May
2012,
the
Supreme Court voided the government’s acquisition of a 50 percent stake
in OML 127 and subsequently transferred the 50 percent stake back to
Famfa Oil. (Read about Famfa’s victory
here).
The Nigerian government tried to appeal the Supreme’s court decision,
but the case has been dismissed- a victory for Famfa Oil which sees the
little-known oil company owning a 60 percent in OML 127, which is one
of Nigeria’s most prolific oil blocks.
Valuation Of OML 127
Daily production at OML 127 currently stands at 200,000 barrels per
day. When the Nigerian government, through its wholly-owned petroleum
company, NNPC, was trying to justify its forceful acquisition of a 50
percent stake in OML 127 at the Supreme court, the Government admitted
that if Famfa Oil owned a 60 percent stake in the OML, the company stood
to earn $10 million on a daily basis (after taxes and other exploration
costs have been settled). The government’s argument at the Supreme
Court can be found through this
link, (item number 23).
So how much is a 60 percent stake in OML 127 worth?
Comparator: In July 2012, Royal Dutch Shell
agreed to sell its 45 percent stake in OML 30 for $850 million to Heritage Oil and Shoreline Energy.
According to
Fool.co.uk, OML 30 currently produces 35,000 barrels of oil per day.
So, if 45 percent of a 35,000 bpd-producing oil bloc is $850 million,
100 percent of the same bloc = $1.88 billion i.e 100/45 x $850 million
If a 100 percent stake in a 35,000 bpd-producing oil bloc is $1.88
billion, by the same logic, a 100 percent stake in 200,000 bpd-producing
oil bloc is worth $10.74 billion i.e 200,000 bpd/35,000 bpd X $1.88
billion
Folorunsho Alakija’s 60 percent stake in a $10.74 billion oil well is worth $6.44 billion.
Technically, her 60 percent stake in OML 127 is worth $6.44 billion.
Another comparator: In November 2012, French oil
group Total announced that it was selling a 20 percent stake in its
Nigerian offshore oil field to China’s Sinopec in a $2.5 billion deal.
The block in question, OML 138 is a 180,000 bpd facility.
So, if a 20 percent stake in an 180,000 bpd facility offshore block
is worth $2.5 billion, the entire block is worth $12.5 billion i.e
100/20 x $2.5 billion. Since a 180,000 bpd-producing facility is worth
$12.5 billion, a 200,000 bpd-producing facility is worth $13.8 billion
because 200,000/180,000 x $12.5 billion.
Using the Total-Sinopec deal as the yardstick, we could also value
OML 127 at $13.8 billion. In that case, her 60 percent stake would be
worth $8.3 billion.
But to be conservative, we prefer to go with the lower valuation of $6.44 billion.
On Debt
Ventures Africa reached out to Famfa Limited to comment, but the company
declined to divulge any information regarding any long-term or
short-term debt. We have no idea on how much debt (if any, the company
has), but even if we take the high side, and subtract 50 percent of the
value of her stake for debt, that still gives her 60 percent stake in
OML 127 a market value of $3.2 billion, which makes her richer than the
$2.7 billion Oprah Winfrey is worth according to Forbes Magazine’s last
rankings.