Oando’s NAOC Deal: New Era for Nigerian Oil Sector

Oando’s acquisition of NAOC, apart from the potential of boosting its production capacity, will add significant value by enhancing Nigeria’s energy production capabilities and advancing local content development, writes Festus Akanbi

Last week, Oando Plc completed the acquisition of 100 percent of the shareholding interest in the Nigerian Agip Oil Company (NAOC) from the Italian energy company, Eni, for a total consideration of $783 million comprised of consideration for the asset and reimbursement.

The feat by the serial entrepreneur and Group Chief Executive Oando Group, Jubril Adewale Tinubu, according to some industry analysts, is a solid testament to his visionary contributions to Nigeria’s, nay Africa’s economy.

Speaking on the acquisition, an elated Tinubu said: “Today’s announcement is the culmination of 10 years of hard work, resilience, and an unwavering belief that we would realise our ambition. It is a win, not just for Oando, but for every indigenous energy player as we take our destiny in our hands.

“This is a new dawn for the Nigerian energy sector, and we are confident that indigenous companies will play a pivotal role in this next phase of the nation’s upstream evolution. With our assumption of the role of operator, our immediate focus is on optimising the assets’ immense potential in contributing to our strategic objectives, whilst complementing the nation’s plan to boost production outputs.

 “Looking to the future, we will continue to pursue strategic opportunities that provide enhanced growth and value creation for our stakeholders, particularly in the clean energy, agri-feedstock sector, as well as infrastructure and mining.”

And in what looks like a clean bill of health, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) Monday said the approval of the divestment deal between Oando and Nigerian Agip Oil Company (NAOC) followed due process and was done in compliance with existing regulations.

A statement by the Head, the Public Affairs Unit of the upstream regulator, Olaide Shonola, stated that the explanation became necessary because of NUPRC’s avowed commitment to transparency and belief in the right of the public to know about its regulatory activities. Recall that former Vice President, Abubakar Atiku, had raised some posers over the $783 million acquisition, alleging that the deal was unduly accelerated as a result of the relationship between the Chief Executive Officer of the indigenous oil firm, Wale and President Bola Tinubu.

“The commission wishes the public to be aware that the approvals given to the NAOC-Oando andEquinor–Chappal divestments were following the Petroleum Industry Act (PIA) 2021, defined regulatory framework, and standard consent approval process set by the Commission under the PIA,” the NUPRC stated.

Expectedly, analysts in the oil and gas sector have commended the latest addition of NAOC to Oando’s growing business. They also predicted that the acquisition would significantly reshape Nigeria’s oil and gas industry.

For long, stakeholders in the oil and gas industry waited with eagerness for the deal to be finalised. Beginning from September 2023, when news filtered into the public space that the deal was being discussed, it became a daily topic of discussion among the who-is-who in the oil and gas industry across Africa.

 Takeaways from the Acquisition

Speaking on the significance of the acquisition, a foremost oil and gas analyst, Ms. Taiwo Alegeh, expressed confidence that this landmark acquisition will double Oando’s oil equivalent output from 25,000 barrels per day to 50,000 barrels per day.

She commended the leadership style of Adewale Tinubu and highlighted his ability to identify new business opportunities and create successful partnerships.

“His visionary mindset and astute business acumen have allowed him to navigate the complexities of the Nigerian market and foster collaborations with leading international companies. This not only speaks to his success but also showcases the immense potential within Nigeria’s business landscape,” Alegeh said.

 Another analyst, Femi Ojo, emphasised Tinubu’s status as a world-class businessman, lauding his visionary leadership and strategic acquisitions.

In weighing the implications of the acquisition for both the company and the Nigerian oil and gas industry, analysts said Nigerians should look out for increased production capacity as one of the gains of the business transaction because the acquisition promises to increase Oando’s production capacity significantly. Given the fact that NAOC operates large oil and gas fields in Nigeria, the implication is that taking over these assets will boost Oando’s output, positioning it as a more prominent player in the Nigerian oil and gas sector.

The business transaction will also give Oando access to key infrastructure, bearing in mind that NAOC’s assets include vital infrastructure like pipelines and processing facilities, which will now be under Oando’s control. Analysts said this could lead to more efficient operations and reduced costs. The acquisition not only doubles Oando’s participating interests in Oil Mining Leases 60, 61, 62, and 63 from 20 percent to 40 percent but also increases its stake in all NEPL/NAOC/OOL joint venture assets. 

These assets include 40 oil and gas fields, 24 of which are currently producing, and an array of infrastructure, including 1,490km of pipelines, 12 production stations, and three gas processing plants.

For Oando, the acquisition is another opportunity to diversify its portfolio, particularly in onshore and swamp operations, thereby reducing risks associated with offshore and deepwater assets.

   Again, the fact is that NAOC has significant gas reserves, which aligns with Oando’s strategic focus on gas development as a growth area. Industry watchers said this could enhance Oando’s position in Nigeria’s growing gas market, especially with the push towards energy transition.

By acquiring NAOC, Oando strengthens its presence in the Niger Delta region, which is a critical area for Nigeria’s oil and gas production. The acquisition also gives Oando a competitive edge over other indigenous companies, potentially making it the largest indigenous oil producer in Nigeria.

On the implications on the Nigerian economy, the deal aligns with the nation’s local content policies by transferring control of key oil and gas assets to a Nigerian company. This could lead to more investment in local communities and enhanced local expertise in the oil and gas industry.

More importantly to the Nigerian economy, the reality is that increased production from Oando could result in higher revenue for the Nigerian government through taxes, royalties, and other levies. It also has the potential to create more jobs and stimulate economic growth.

Close watchers of the oil industry said the acquisition might lead to new strategic partnerships or collaborations with international oil companies (IOCs), especially those looking to divest from onshore assets due to the global energy transition. On the other hand, while the acquisition itself may not directly impact global oil prices, Oando’s increased production capacity might contribute to market dynamics in the Nigerian context, affecting local pricing and export volumes.

Another dimension to the acquisition, however, is the operational risks, with analysts saying that managing and integrating NAOC’s assets could pose challenges, including operational risks related to the ageing infrastructure and community relations in the Niger Delta.

They also pointed out that Oando will need to ensure strict compliance with Nigerian regulatory standards and environmental laws, which could be demanding given the scale of NAOC’s operations.

Overall, analysts said that Oando Plc’s acquisition of NAOC, which has been described as a transformative deal could reshape the landscape of Nigeria’s oil and gas industry, making Oando a more dominant player while also contributing to the country’s economic development. However, the success of this acquisition will depend on how well Oando manages the integration of these assets and navigates the associated risks.

Oando has cautioned that while it believes the acquisition will yield significant benefits, the transaction involves inherent risks and uncertainties. These include potential changes in project parameters, the future price of crude oil, and risks associated with international operations. The company advised investors to consider these factors when evaluating its prospects.

 With the latest transaction, the coast appears to be clear for Oando to lead and operate oil and gas assets previously dominated by International Oil Companies (IOCs) in Nigeria. According to a statement from the company, ‘’It is rather uncanny that this acquisition comes exactly a decade after Oando’s landmark $1.8 billion acquisition of ConocoPhillips’ Nigeria interest, a transaction which incidentally made the company a Joint Venture (JV) partner on the asset alongside NNPC E&P Ltd (NEPL) and NAOC.

 “The ConocoPhillips transaction propelled Oando’s production from approximately 4,500 barrels of oil per day to 50,000 barrels of oil per day at the time,” the firm added.

 The transaction, according to Oando, increases its current participating interests in Oil Mining Licences (OMLs) 60, 61, 62, and 63 from 20 percent to 40 percent and increases its ownership stake in the Joint Venture (JV) assets and infrastructure which include 40 discovered oil and gas fields, of which 24 are currently producing as well as approximately 40 identified prospects and leads.

 It stated that the deal also involves 12 production stations, approximately 1,490km of pipelines, three gas processing plants, the Brass River Oil Terminal and the Kwale-Okpai phases 1 & 2 power plants, with a total nameplate capacity of 960MW, and associated infrastructure.

 Furthermore, Oando said that it will significantly boost the company’s production reserves which currently stand at 505.6MMboe to 1.0bnboe.

 Reports show that in the last decade, international oil companies operating in Nigeria have pursued divestment strategies, focusing on exiting shallow water and onshore assets while maintaining interests in the deep waters.

Despite the uncertainties, Oando says it remains optimistic about the acquisition’s potential to drive growth and value creation, particularly as it explores diversification opportunities in clean energy, agri-feedstock, and energy infrastructure.