Nigerian firms gain as IOCs’ exit brings opportunity

Nigerian oil firms are gaining from divestments being made by international oil companies (IOCs) which is opening up opportunities in the upstream sector for mergers, acquisitions and rapid growth.

Oil majors, including Shell and Chevron Corp., are selling fields as they scale back Nigerian operations following unrest, violence and crude theft in the Niger Delta.

Royal Dutch Shell plc announced on Wednesday that it had completed the sale of its oil lease in Nigeria’s Eastern Niger River Delta for $1.7 billion to the country’s Aiteo Eastern E&P Co. Limited.

The divestment is part of Shell’s strategic review of its onshore portfolio in the West African nation and “is in line with the Federal Government of Nigeria’s aim of developing Nigerian companies in the country’s upstream oil and gas business,” the firm said in a statement.

Last week, Mart Resources, another indigenous oil firm, announced that it had entered into definitive arrangement agreement with its co-venture Midwestern, pursuant to which Midwestern will acquire Mart’s common shares.

“We think Midwestern interest in Mart is based not just on the latter’s attractive fundamentals, but also on the strategic value associated with its gas business,” said IIdar Davletshin, an energy analyst with investment bank Renaissance Capital (Rencap) in a March 16 note.

“Through the acquisition of a 10 percent stake in OML18, Mart gained access to c.500bcf of gas resources, which represents a strategic interest to Midwestern.”

Nigeria’s largest listed oil firm Seplat announced on February 5 the completion of two separate acquisitions: a 40 percent interest in OML53 (from Chevron) and a 22.5 percent indirect interest in OML55 (from Belema Oil).

Another indigenous player Oando, also recently completed the acquisition of Conoco Phillips assets for $1.6 billion. There are three types of potential opportunities for indigenous players to pursue, according to Rencap.

These include further divestments by international oil companies (IOCs) which are likely to continue in the medium term; farm-in opportunities, with several deals announced recently such as by Lekoil and Eland, and governments move to proceed with its marginal field licensing round scheduled for this year.

The prospect for supplying gas to power plants by domestic firms are also bringing opportunities due to the recent power sector reforms that privatised most generation and distribution companies.

“Installation and commissioning of the new 150MMscfd Oben gas processing facility is a major step forward for Seplat’s gas business and increases volumes available to the domestic market; new pipeline to Warri refinery commissioned in March 2014,” Seplat said in a statement announcing FY 2014 results.

Nigeria’s peak power generation averaged a little more than 4,000 megawatts on Thursday, as gas shortages continue to hit output. Total demand may be close to 20,000 megawatts, according to the power ministry. Meeting that demand means raising gas supply to the domestic market to 6 billion scf a day from about 1.5 billion scf today.

The acquisition multiple by Seplat for OML53 is c. $5/barrel of oil resources and $1.7/boe for oil and gas resources. The multiples are c. 50 percent lower relative to average historical M&A prices paid in Nigeria, suggesting according to Rencap.

This may suggest that the slump in oil prices is helping to temper the high valuations of Nigerian energy assets from just 18 months ago. Opportunity in the sector is also being aided by the recent local content act passed by the Nigerian government.

Since 2010, IOCs have been selling onshore assets to focus on the more complex offshore assets.

Shell also recently sold OMLs 30, 34, 40 and 42 to other indigenous firms. Other IOCs such as Total, ConocoPhillips and Petrobras have divested assets.

 

PATRICK ATUANYA