NNPC failed on Exxonmobil-Seplat asset sale deal

An exciting affair

The world of business and enterprise Nigeriaparticularly the oil and gas industry, was literally inflamed and in turmoil following the announcement by Seplat Energy Plc., a major indigenous energy company listed on the Nigerian Stock Exchange and the London Stock Exchangeand ExxonMobil Corporation, Delaware, United States (ExxonMobil) that they had entered into an agreement for the acquisition by Seplat of the entire capital of Mobil Produce Nigeria Unlimited (UNPM) of the latter, subject however to the usual Ministerial Consent.

President, ExxonMobil Upstream Oil & Gas, Liam Mallonsaid the company had sold its stake in its shallow water business, Mobil Produce Nigeria Unlimited (MPNU), to Seplat Energy via Seplat Offshore, a wholly-owned subsidiary of Seplat.

Presenting the highlights of the transaction, which is the first of its kind since the entry into force of the Petroleum Industry Act (PIA), Seplat, for its part, set the purchase price at $1,283 million more until $300 million Conditional consideration.

The transaction, he said, would create one of the largest independent energy companies in both the Nigeria Stock Exchange and London Stock Exchange as well as strengthening Seplat Energy’s ability to drive growth, profitability and overall stakeholder prosperity, delivering a 186% increase in production from 51,000 bpd to 146,000 bpd or an increase of 170% of 2P liquids reserves, from 241 Mbbl to 650 Mbbl.

In addition, it was expected to generate a 14% increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, as well as significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf).

Nigerians are delighted as they await final ministerial consent to ensure that these strategically important national assets are wholly owned by Nigerians alongside the Nigerian National Petroleum Company, NNPC, the outgoing joint venture partner. This is in line with the government’s objective to achieve a pragmatic, gradual and just energy transition for Nigeria.

In his incisive analysis, Mackenzie Wood (WoodMac), a reputable global intelligence provider that empowers decision makers with unique insights into the world’s natural resources, hailed the deal saying it was a win-win for Seplat, ExxonMobiland the Nigerian government, offering huge oil and gas benefits.

Very instructively, Mackenzie added: “Because this is a corporate acquisition, NNPC has no right to pre-empt an agreement under the Joint Operating Agreement (JOA), that governs the joint venture. This means that ministerial consent would be the only remaining obstacle, although nothing can be taken for granted.

Misinterpretation of the JV Agreement

Unfortunately, amid this local and international acclaim, the NNPC seems oddly more interested in throwing wrenches in the works. In order to block the deal, NNPC, as widely reported in the media, through its Group Managing Director (GMD), Mele Kyari, wrote to MPNU, informing it of its intention to exercise a right of first refusal on the agreement.

“We are aware that you have reached an agreement to divest yourself of the onshore and shallow water joint ventures… We are clearly interested,” the GMD said.

Meanwhile, a recently published article in support of NNPC’s action quoted an alleged oil industry source asserting NNPC’s rights under the law to exercise such preventative powers.

NNPC articulates its movement on a June 28, 1990 Joint operating agreement between it and Mobil Producing Nigeria with respect to “participation”.

Regarding the transfer and assignment of interests, Article 19.4 provides: Subject to sub-clauses 19.1 and 19.2, if a Party has received an offer from a third Party, which it wishes to accept, for the assignment or transfer of its participation hereunder (the “Selling Party”), it will give the other Party the priority right and the option in writing to purchase this Participation as provided for in sub-clauses 19.4.1 to 19.4.2 .

Sub-Clause 19.4.1 provides: The transferring party must first give notice to the other party, specifying therein the name and address of the above-mentioned third party and the terms and conditions (including monetary and other consideration) of the proposed assignment and transfer.

Sub-Clause 19.4.2 states: “Upon receipt of the notice referred to in Sub-Clause 19.2.1, the other party may, within thirty (30) days thereafter, request in writing the assignment and transfer of these participations to it, in which case the assignment or transfer will be made to it under the same conditions or under equivalent conditions”.

In the meantime, these provisions could not be read or understood apart from the definition of “participation” by the same agreement.

Section 1.24 states: “Participation means the undivided percentage interest held by the Parties from time to time in the concession(s), the Common Property and the rights and obligations under this Agreement, namely: sixty percent ( 60%), in the case of NNPC; and forty (40%) in the case of Mobil”.

Thus, these provisions clearly show that the NNPC is completely confusing things because the transaction between Seplat and ExxonMobil, Delaware, United States, was in no way akin to a transfer of a “participation”. No! Seplat has not dealt with Mobil Nigeria producing Unlimited (MNPU). Rather, she dealt with ExxonMobil, Delawarethe parent company, which has acted within its law, at its own discretion and in accordance with its business/investment strategy, to dispose of all of its shares in MNPU, which holds the said assets in Nigeria.

This is the major fact that NNPC needs to correct so that it can stop complicating a very simple question and do Nigeria a laughingstock in front of the international business community, because it obviously has no right of first refusal (RFR) to exercise on this transaction.

Questions arising

In any case, the ExxonMobil-Seplat transaction is not the first in the sector in recent times. Many have wondered why NNPC did not exercise the same pre-emptive action in SPDC’s divestments.

Recently, NNPC and analysts supporting its case argued that with its transition to a for-profit, limited liability company registered under the PIA, there was talk of reshaping and optimizing its portfolio by acquiring high-value assets. performance, low vulnerability and huge gas potential. For this reason, it favors the acquisition of assets sold within the framework of MPNU JV rather than those of Shell Petroleum Development Company (SPDC) JV. In other words, NNPC’s sudden interest in the deal and taking over the entire joint venture (if it had the legal backing) is all about the attractiveness of the assets in question. As a government-backed entity, isn’t it supposed to be more interested in taking over assets perceived to be more vulnerable with higher security and production concerns? If he’s only interested in the “juicy” flesh of the oil and gas industry, who does he expect to deal with the hard bones? Worse, it’s not even like the NNPC is known to handle these things on its own. Most Nigerians know how and where these wallets end up.

Moreover, the NNPC does not enjoy popularity as one of the managers. If NNPC were to be an airline, one wonders how many Nigerians would be confident flying in its planes. If the NNPC was a hospital, how many Nigerians would give their lives to run it?

As the sole importer of fuel, Nigerians still face not only intermittent fuel shortages, but they have yet to recover from the importation of toxic fuel which has wrecked vehicles and strained households.

Worse still, the NNPC has yet to tell Nigerians how the country’s daily fuel consumption has risen from around 30 million liters around seven years ago to around 102 million liters and more.

Under NNPC’s watch, refineries have degenerated from producing enough for local consumption, to producing little, and now nothing. In 2020, NNPC recorded N10.27 billion in operational expenditure without refining a single drop of fuel. He is unable to repair any of the refineries, even with the allocation of a $1.5 billion contract last year to repair Port Harcourt Refinery.

The NNPC has struggled to meet its statutory obligations to the Federation account in recent years. Despite soaring oil prices on the international market, she was unable to deposit anything into the Federation’s account in January 2022making it the second time in a year, as was the case in April 2021. In fact, with a shortfall of about 2 trillion naira out of its projected 2.511 billion naira, the NNPC was only able to disburse 542 billion naira against the 2.511 billion naira it was supposed to contribute. The Nigeria Governors Forum protested against the development.

As a result, many Nigerians have wondered why an indebted NNPC is accumulating more debt so quickly. $5 billion financial commitment of companies in the African Export-Import Bank (Afreximbank) to “acquire, invest and operate power generation assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company”. It is important to note that unlike other companies that would guarantee their loans with their assets, NNPC rides on the back of the government.

The issue of gas prioritization

Meanwhile, it is reported that NNPC’s interest in taking 100 possession of the assets in question has been informed by its efforts not to risk another partner on the NNPC MPNU JV which may not see the monetization of the gas component assets as a priority. This should not even be considered given Seplat’s profile in gas investments and its leading role in from Nigeria energetic transition. It produced 20,758 boepd of gas in 2021 and supplies 30% of gas to electricity Nigeria. It became the first company to register a 50-50 joint venture with NNPC through the Seplat/NNPC gasworks project – ANOH Gas Processing Company (AGPC) where Seplat easily raised $260 million through a consortium of banks to fund its share of $650 million financing of the ANOH gas treatment plant.

In these contexts, it is understandable that industry players believe that the NNPC has not only missed its mark, but also exceeded itself, playing on this unnecessary interference which discourages investors. He should back off.

Josiah AdewaleEnergy Analyst writes from Lagos

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