NNPC Vs Seplat: What Exactly is the Endgame?
The spanner thrown in the works of Seplat Energy, a private oil firm, in its bid to acquire assets owned by Mobil Nigeria Limited, at a time the nation is in dire need of private investment, will have consequences for the oil industry, writes Emmanuel Addeh
Although Charles Dickens may not have had the oil industry in mind when he wrote his opening lines “It was the best of times, it was the worst of times”, in “A Tale of Two Cities”, however, that clearly depicts the oil industry at the moment.
It’s the best of times for most oil-producing countries because as the price of oil continues to stabilise above $100 for months, a rarely seen phenomenon, they have literally continued to cash out.
But in contrast, it’s also the worst of times because globally, investment in fossil fuels, of which oil is chief, is gradually drying up amid the rush for renewable sources of energy and efforts by world powers to cut carbon emissions.
Therefore, many Nigerians who follow the oil industry closely were excited earlier in the year, when information leaked that Seplat, an indigenous oil company was in the process of acquiring the entire offshore shallow water business of ExxonMobil in Nigeria.
But for industry players who believe in free enterprise and the massive breakthrough that the deal represented for wholly Nigerian-owned businesses, the elation was short-lived: The state-run Nigerian National Petroleum Corporation (NNPC) had placed a cog in the wheel of the progress of the process.
THE DEAL
Essentially, Mobil holds a 40 per cent stake in four oil mining licences, including more than 90 shallow-water and onshore platforms as well as 300 producing wells in the country.
In the agreement, seen as the first since the signing of the Petroleum Industry Act (PIA) by President Muhammadu Buhari in August last year, Seplat Energy Offshore Limited, a subsidiary of Seplat Energy Plc, had entered into a Sale and Purchase Agreement to acquire the entire share capital of Mobil for a purchase price of $1.283 billion plus up to $300 million contingent consideration.
The transaction, the document stated, encompassed the acquisition of the entire offshore shallow water business of ExxonMobil in Nigeria.
According to the sponsors, the deal was supposed to create one of the largest independent energy companies on both the Nigerian and London Stock Exchanges, and bolster Seplat Energy’s ability to drive increased growth, profitability and overall stakeholder prosperity
The deal, at the time THISDAY exclusively reported it, was expected to deliver 186 per cent increase in production from 51,000 bpd to 146,000 bpd or 170 per cent increase in 2P liquids reserves, from 241 MMbbl to 650 MMbbl.
In addition, it was expected to deliver a 14 per cent increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, plus significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf)
Furthermore, it would increase by 89 per cent, the total 2P reserves from 499 MMboe to 945 MMboe, including offshore fields with dedicated, MPNU-operated export routes offering enhanced security and reliability.
In the oil industry, 2P reserves are the total of proven and probable reserves while probable reserves are less likely to be recovered than proven reserves.
Being the first transaction to be announced since the Nigerian government’s recently ratified PIA, the company stated that the deal will support Nigeria’s energy transition and objectives of the new Act.
In summary, the assets primarily comprise a 40 per cent operating ownership of four oil mining leases (OMLs 67, 68, 70, 104) and associated infrastructure with NNPC being owner of the rest 60 per cent.
It includes the Qua Iboe Terminal, one of Nigeria’s largest export facilities as well as a 51 per cent interest in Bonny River Terminal and Natural Gas Liquids Recovery Plants at EAP and Oso.
According to the document, the cash consideration payable under the transaction will be funded through a combination of existing cash resources and credit facilities of Seplat Energy, and a new $550 million senior term loan facility and $275 million junior offtake facility.
It was to be funded through a global financing syndicate comprising Nigerian and international banks, as well as commodity trading companies, while contingent payments, if materialised on Brent oil price annual average above $70/bbl, will be funded through share of net cash flows from operations.
Under the Sale and Purchase Agreement, Seplat Energy was expected to pay a deposit of $128 million, which will be applied towards the purchase price on closing.
BAD NEWS
But the federal government has now turned down the application for ministerial consent necessary to seal the planned $1.3bn planned deal.
Among others, it cited overriding national interest as one of the reasons for rejecting the deal.
In two separate letters, the Chief Executive, Nigerian Upstream Regulatory Commission (NUPRC), Mr Gbenga Komolafe, addressed to Seplat, the commission listed various reasons, mostly technical, for its actions. Not a few see these reasons as merely attempting to throw the baby away with the bathwater.
In summary, the federal government listed overriding national interest, failure to follow due process and alleged inappropriate application as its reasons for rejecting to append the much needed ministerial consent, a requirement for the consummation of the deal.
On the issue of overriding national interest, NUPRC acknowledged that although Mobil remains the assignor of the asset under the Nigerian law, national interest must override every other consideration.
It insisted that this principle will always be the compass through which decisions are taken. But the term national interest remains a weird and ambiguous term and many say that in this case, it has not been properly defined.
The regulatory commission stated that until an assignment was completed, including the granting of ministerial consent to such assignment, the leaseholder remains the registered owner of the asset and the only one with the locus to interact with the government in respect of the asset.
On the second point, NUPRC stated that Mobil failed to follow due process in its plan to acquire the assets.
”We also note that MPNU failed to follow the procedure for assignments laid down in the guidelines by not providing the requisite notices to the commission at all relevant stages of the transaction.
“Even if the transaction has been between Seplat Energy Offshore Limited and the MPNU shareholders, responsibility to ensure compliance with Nigerian laws, rules and regulations always remain that of MPNU, the entity that was awarded the assets,” it noted.
Yet, on the third issue of inappropriate application, in the letter to Seplat, the commission while highlighting relevant sections in the guidelines and procedures for obtaining minister’s consent, stated that it would have been the duty of Mobil to bring the application to the minister and not Seplat.
It added: “Thus, regardless of the mode of the transaction, MPNU, remains, to all intents and purposes, the assignor under Nigerian law and is the proper person to bring an application for ministerial consent to the transaction, not Seplat.
“Consequently, you are hereby requested to revert to MPNU, the assignor, to receive updates on your application,” the federal government agency stated.
Then the killer blow: “We regret to inform you that His Excellency, the Minister of Petroleum Resources has declined his consent to the transaction,” the letter stated.
REACTIONS AND CONSEQUENCES
Although the federal government has not foreclosed the chance that the process could be reworked and hadn’t completely put a lid on the deal, the decision to effectively halt the process came as a shock to Nigerians.
At a time investment in fossil fuels is waning and Nigeria had continued to complain about the development, it was thought that the deal would be supported by the federal government.
A handful of energy experts have also lent their voices in condemning what seemed an abrupt end to what could have created a pathway for more Nigerians to own assets being disposed by the IOCs.
Analysts believe that the move by the NNPC will not only discourage would-be indigenous investors, but would constrain lenders from taking such decisions when uncertainty still rules in the industry.
It is argued that with the nature of the arrangements in the sector, the NNPC literally runs things and has not fully justified its participation therein and therefore would be asking for too much if it is allowed to muscle private enterprise because of yet unclear reasons.
“I doubt if the NNPC has the financial backing to complete the transaction. We are talking about $1.3 billion worth of assets. For instance the NPDC financials and it still has close to N2.3 trillion in receivables.
“ I don’t see where the money is coming from. The NNPC may be biting more than it can chew with this move” an Oil and Gas Analyst with Chapel Hill Denham, Mustapha Wahab, told Arise Television, THISDAY’s broadcast arm.
Still on capacity, he noted that there was no doubt that the private company has shown capacity over the last 10 years, especially given that oil prices are skyrocketing which is driving robust economics of the company.
Also, a former Senior Technical Adviser (Upstream Gas Policy and Regulation) under the immediate-past Minister of State for Petroleum, Dr. Ibe Kachukwu, Gbite Adeniji, and ex-board member of the Nigeria Extractive Industries Transparency Initiative (NEITI) has faulted the move by the authorities.
The former Managing Partner at ENR Advisory, said the ministerial consent denial in the deal was telling, stressing that the message implied that real players and investors were not wanted or desired in Nigeria.
He spoke in Lagos at the public presentation of a book written by a former Managing Director of the Nigeria Liquefied Natural Gas (NLNG) Limited, Dr. Godswill Ihetu.
According to him, the refusal of the minister, President Muhammadu Buhari, to grant Seplat the go-ahead with the asset purchase deal with ExxonMobil would send wrong signals to foreign investors.
“And it was interesting on today’s headline, about the denial of ministerial consent to the sale of Exxon’s interest in MPNU to Seplat, and that’s telling.
“The message seems to be that real players are neither wanted nor desired in Nigeria. We need to be worried”, he stated.
He argued that the deal presents the country with one of the great opportunities of boosting and bringing more investment to the oil industry, but that the opportunity has been missed.
“Great opportunities in the past that would have moved the oil and gas industry to a higher level and increased government revenues have been carelessly been allowed to slip off the country’s hand in the past because of lack of vision,” he added.
FORGING AHEAD
But forging ahead, the indigenous firm has assured its shareholders that it is hopeful that it will complete the acquisition of the assets of Mobil Oil Producing Nigeria Unlimited (MPNU).
During its Annual General Meeting (AGM), held in Lagos, recently, its Chief Executive, Roger Brown, said the energy industry in Nigeria has a bright future and as Nigeria’s indigenous energy leader, the company has set its sight on powering the country’s energy transition and future prosperity.
“Once we have completed our acquisition of MPNU, we will add significant production from offshore assets with dedicated export terminals that also have higher availability and lower reconciliation losses,” Brown stated.
AN END FORETOLD
While the business community was upbeat that a wholly Nigerian company was taking over the shares of an international oil company that had operated for about six decades in the country, there were already signs that the NNPC may have created a wedge in the highly acclaimed transaction.
At the time, THISDAY had learnt from reliable sources that the state-owned oil giant had opted to exercise its Right of First Refusal (RFR) on the sale of the assets.
The RFR is reportedly contained in the Joint Operating Agreement (JOA) of the Joint Venture (JV), which represents NNPC’s position on the planned sale of the shares to Seplat Energy Plc.
As usual the national oil firm will rarely directly address the public on topical issues of national concerns, but will rather go through minions and third parties.
However, the contention is that whereas the NNPC has right of pre-emption over the sale of assets, it does not have right over sale of shares, which Seplat says the extant deal which involves the company buying ExxonMobil’s shares is all about.
However, a reliable source told THISDAY that the politics underlying the stoppage of the deal could markedly derail the new verve the Petroleum Industry Act (PIA) was expected to bring to the industry.
It was surprising therefore, a source said, that the NNPC, which has not shown much capacity to get results, having failed in all its targets in recent years, would be stopping a deal applauded by most Nigerians.
But a letter signed by the Group Managing Director, Mele Kyari, and addressed to ExxonMobil, had quoted NNPC as reiterating its resolve to take over the company’s share of the assets.
“We are aware that you reached an agreement to divest from onshore and shallow waters JVs,” the letter read, adding, “Clearly we are interested.”
Publisher of the Africa Oil and Gas Report, Toyin Akinosho, who had spoken on Arise News Channel, had also raised the alarm over what he described as the national oil company’s attempt to crowd out private investors, saying that enough space should be created for some level of diversity in investment.
“That alarm has now proved to be a wakeup call on increasingly seemingly grab all posture,” he said, urging the NNPC to free the space for entrepreneurs to come in and insisting that the company already has a lot in its basket and was even finding it difficult to cope.
Akinosho maintained, “NNPC is in JV with companies that produce at least 45 per cent of our crude. That’s a lot of material for them already. The assets they operate are the least optimised of all the assets in the industry.”
Wood Mackenzie, a company providing insights on the world’s natural resources, while lauding the deal had described it as a win-win for Seplat, ExxonMobil, and the Nigerian government, offering huge upside for oil and gas.
“Because this is a corporate acquisition, NNPC has no rights to pre-empt a deal under the Joint Operating Agreement (JOA), which governs the JV.
“This means that ministerial consent would be the only hurdle remaining, although nothing can be taken for granted. Alas, many Nigerians who were upbeat about the deal took this for granted too early.
So, what next? Will the NNPC through the federal government agencies kill the deal? The next few months will tell.
