Why NNPC’s Acquisition of ExxonMobil Assets is Strategic to Nigeria’s Growth

Adekunle Gboyega

The transition by the Nigerian National Petroleum Company Limited from a purely oil and gas company to an integrated energy company is strategic to Nigeria and its overall economic growth. As an energy company, the NNPC would diversify its operations to transcend oil and gas exploration and production to the entire value chain of the energy industry, including gas development and exports, natural gas liquids (NGLs), liquiefied petroleum gas (LPG) and power generation, transmission and distribution. In essence, the NNPC will not only be the producer of the resource that generates the wealth of the nation, but it will be the guarantor of the country’s energy security. Through the development of the country’s abundant gas resources, the country would earn huge revenues from exports. But the distribution of gas to industries would boost production, while supply for power generation would ensure available of electricity for other businesses that drive economic growth.

“Gas is the new oil, and as a company transiting from operating as a purely oil and gas business into an energy company, the NNPC is committed to becoming an enabler for energy transition, but also a guarantor of the country’s energy security,” the Group Managing Director/CEO of NNPC, Mele Kyari, told participants in the recent Nigeria International Energy Summit in Abuja.

“The NNPC will drive the strategy in reshaping and optimizing its operational portfolio not only emerge as the most capitalised company in Africa, but also to make Nigeria the No. 5 gas producer in the world. This is our target. It is possible. The resources are available and the will to achieve it is also there. We will prioritize the acquisition of assets that are rich in gas, especially assets ready for blowdown.

“To reshape our operational portfolio, we will carefully select assets with low vulnerability with regards to security and production losses over those with high vulnerability and poor performance capabilites,” he said. Prior to the passage of the Petroleum Industry Act (PIA), the NNPC was in a bad place. As the state-owned national oil company representing the Nigerian government’s interests in ths six major joint venture multinational operations in the oil and gas industry, NNPC’s place should have been to create wealth and share the country’s prosperity.

But, over the years, the company appeared to have thrived more in other negative vices that conspired to give it a bad name. Despite all the opportunities at its disposal, the NNPC recorded losses from its operations, over the last ten years, with its latest audit accounts and financial statements for 2020 showing a profit of N287.2 billion after cumulative losses of over N1.53trillion in the previous year. However, the picture of the post-PIA NNPC appears to be that of transformation, efficiency, growth and development. As an incorporated limited liability company under the regulation of the Companies and Allied Matters Act (CAMA), the NNPC now sees itself as a commercial entity with a business mindset and profit-making orientation committed to delivering dividends to its shareholders.

The implication of its new status is that as a business entity that is now independent of government support, its obligation would henceforth be to harness and mobilise its potentials, leverage its operational systems and processes to compete for investment opportunities that would be developed profitably, like peer around the world, to guarantee energy security and prosperity for the country.

Under the new dispensation, the NNPC says it is committed to the transformation agenda, with a deliberate focus on gas development. Therefore, in acquiring assets to grow its portfolio and build its capacity, the company said priority attention would be given to those facilities that would not only help realise its set objectives, but also ensure that its operations are devoid of avoidable losses. To direct its asset acquisition drive, the NNPC has deliberately targeted existing assets owned by multinational operators in its joint venture partnerships in the oil and gas industry.

The company’s interest has been on those assets the multinationals JV partners are divesting from, which it believes would help harness the over 220 trillion standard cubic feet of proven reserves of gas in the country, in addition to giving value to the over 603 trillion standard cubic of unproven gas potentials. Considering the lingering crisis in the oil producing communities in the Niger Delta region, which has forced the multinational operators to relocate away from their onshore and shallow water operations, the NNPC is derermined not to be entangled with the acquisition of assets already mired in community crises or conflicts. In 2015, Aiteo Eastern Exploration and Production Company, acquired Oil Mining License (OPL 29), along with the associated Nembe Creek Crude Oil Trunk line from Shell Petroleum Development Company (SPDC) after the company decided to divest its interest and relocate its operations offshore following alleged incessant attacks and sabotage of its facilities by campaigning community youths.

Years after the acquisition of the asset, Aiteo Group is still suffering the devastation of the crisis that its predecessor grappled with for years. In November 2021, there was a massive blowout in one of the pipelines that resultes in a massive oil spill from the Opu Nembe Community at Well 1, Wellhead located at the Southern Field of Sant Barbara, in Bayelsa State. Apart from the disruption to its operations and the impact of the oil spill on the immediate environment, the company suffered massive losses in material resources and assets. Apparently with the benefit of hindsight, the NNPC is determined to avoid the Aiteo experience, and has placed strategic interest on other assets across the country operated by its divesting JV partners, particularly those with high performance capacity and low vulnerability to security issues, capable of resulting in production losses. This disposition may have informed NNPC’s interest in acquiring the   divested asset by Mobil Producing Nigeria Unlimited (MPNU) in Nigeria long before the recently touted sale/purchase agreement with an indigenous operator.

MPNU is the operator of the joint venture with the NNPC on behalf of the Federal Government. In the joint venture the NNPC is the princpal partner controlling 60 percent equity, with 40 percent MPNU. Since 1961, when MPNU was granted Oil Prospecting License (OPL) to carry out offshore operations in Ibeno in present Akwa Ibom State, the company has been working with NNPC to finance and execute several key projects that contributed to the joint venture emerging as the second largest producer of oil and gas  in Nigeria’s petroleum industry. The joint venture’s portfolio spans oil mining leases (OMLs) 67, 68, 70, 104, and the Qua Iboe oil export terminal, Ibeno, in addition to 90 offshore platforms, comprising over 300 producing oil wells, with the capacity to produceover 550,000 barrels per day of crude oil, condensate and natural gas liquids (NGLs). Also, has a 51 per cent interest in the Bonny River NGL Recovery project. operations

As part of the decision by its mother company, ExxonMobil Corporation, for MPNU to divest from part of its onshore and shallow waters investments in Nigeria, it is natural to expect that the right of first refusal would have been given to its ersrwhile principal partner. Rather, ExxonMobil announced recently that it reached an agreement with Seplat Energy Offshore, a wholly-owned subsidiary of Seplat Energy Plc, for the entire share capital of MPNU to be sold to them. Details of the sale, which was subject to final approval by the regulatory authorities in the oil and gas industry and the Minister of Petroleum Resources, included an offer by Seplat Energy to pay $1.283 billion for the assets, in addition to a contingent consideration of up to $300million. MPNU’s operated shallow water portfolio primarily comprises a 40% interest in four oil mining leases (OMLs 67, 68, 70 and 104) under a joint operating agreement with NNPC, along with the Qua Iboe Terminal and a 51% interest in the Bonny River Terminal and the Natural Gas Liquids Recovery Plants at EAP and Oso.

Despite the announcement about the purported agreement with Seplat Energy, the Group Managing Director of NNPC, Mele Kyari, has written to ExxonMobil to fault the deal and to register his displeasure that NNPC, as the principal partner in the joint venture was not given the opportunity to buy over the asset. Kyari in his letter pointed out that as a senior partner in the NNPC/Mobil JV, the NNPC should have been given the pre-emptive right of first refusal to acquire the MPNU interests before ExxonMobil’s decision to call for bids for the share of its affiliate. Pre-emptive right of first refusal is a legal term for granting a party in a joint venture to be considered first before others for any planned sale or takeover of assets in a JVs.

As part of NNPC’s commitment to focus on building its portfolio towards its long-term profitability, Kyari said in the letter to ExxonMobil that the company was more than ready to fully match the offer of the winning bid in line with the terms of the joint venture operating agreement. Pursuant to its aspiration to build its operational portfolio, the NNPC last January sealed a $5billion corporate finance deal with the African Export-Import Bank (Afreximbank), its first finance deal post-PIA and its incorporation into a limited liability company. Under the financing deal, Afreximbank agreed to provide financial advisory services and fundraising for $5billion to NNPC to “acquire, invest and operate energy producing assets in Nigeria as part of NNPC’s growth strategy. ”

In addition, Afreximbank also agreed to underwrite $1billion as part of forward sales base trade finance transaction. The finance would enable the NNPC to fund some of its major investments in the country’s upstream oil and gas sector, including the planned acquisition of pre-emptive rights in select Joint Venture operations in the industry as well as take over the ownership of some divesting partnerships. Others include investing in strategic assets to address integrity, bottlenecking, and growth issues in the oil industry, such as rigless activities and oil drilling campaigns. In line with its criteria for the acquisition of assets, the NNPC identified as “significant and strategic targets” assets under the MPNU JV, which have not been able to monetize its huge gas resources.

After spearheading Nigeria’s gas revolution in the 1990s, with the construction of the OSO Condensate Natural Gas Liquids (NGLs) facility to export the country’s gas, ExxonMobil refused to get involved in the high risk domestic gas market, limiting itself to the supply of liquefied petroleum gas (LPG), popularly called cooking gas for domestic consumption, despite having some of the acreages with the highest concentration of gas resources in the country. Therefore, the determination of the NNPC to press for the acquisition of the MPNU divested assets is not only for the good of the company, but for the overall benefit of the country desirous of building a national oil company that would grow to become the enabling energy company for the country’s progress and prosperity.

Gboyega writes from Lagos