Seplat-ExxonMobil saga sends danger signals to oil investors

The Nigerian Upstream Petroleum Regulatory Commission’s (NUPRC) insistence that the ExxonMobil/Seplat Energy share acquisition deal cannot proceed, effectively contradicting the President’s approval, does not bode well for Nigeria’s troubled oil sector.

“This clearly sends a mixed signal to existing and potential investors in the Nigerian oil and gas that the President, in his position as the minister of petroleum resources, can extra-legally and unilaterally go against the stipulations of the PIA (Petroleum Industry Act),” said Ese Osamwonyi, senior oil and gas analyst at SBM Intelligence.

The matter clearly headed for the courts will seek to interpret the powers of the regulator and the minister in granting leases and consent for oil deals as the current position of the Petroleum Industry Act envisages that they would work in concert in arriving at a decision.

The commission’s statement suggests the public announcement of the consent by the Presidency without recourse to the regulator implied a procedural error was done, said Toyin Akinosho, publisher of Africa Oil and Gas Report. “But cancelling the deal on this account appears like an overkill; unless, of course, the NUPRC has another agenda,” he added.

In its earlier letter to Seplat and Mobil Petroleum Nigeria Unlimited (MPNU), the ExxonMobil Nigerian unit, the NUPRC claimed the President withheld ministerial assent based on complying with guidelines to transfer assets, notifying the commission during all the stages and Seplat not being the right person to apply for Ministerial consent.

“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 commission stated in its rejection letter to Seplat in May.

These clearly are procedural matters that an industry starved of any significant investment in over a decade would not allow to override the greater national interests of a viable energy sector that contributes to economic development, create jobs and provide government badly needed revenue instead of plunging the country into a miasma of debt.

Clearly, the PIA provides that the President provides consent based on recommendations of the commission, but some legal analysts argue that the minister, who doubles as the President, can indeed grant consent without recourse to the commission.

Ayodele Oni, energy lawyer and partner at Bloomfield law firm, said: “There is an interesting argument brought about by Section 303 (1) of the PIA, which is to the effect that the provisions of the PIA shall not apply to holders of an Oil Prospecting Licences (OPLs) or Oil Mining Leases (OMLs) who do not enter into contracts to convert their OPLs or OMLs to Petroleum Prospecting and Petroleum Mining Leases under the PIA regime (note that some have said this was a typographical error- unfortunately, it remains the law).

“One could then, maybe argue that, as far as this deal is concerned (assuming no conversion contract was executed and I believe none was executed) it is the Petroleum Act regime that applies. The PA gives the minister the sole powers to approve such transactions.”

Regardless of the position of the law, this situation is bad for optics, both for the industry and the country at large. Osamwonyi said it shows that contrary to what the PIA aims to achieve, the industry is still subject to government influence and interference.

Furthermore, it speaks to underlining schism between the ministry who crafts policies and the regulator who executes them on its behalf. This regulatory uncertainty ranks very high among the reasons international oil companies (IOCs) are leaving Nigeria.

By fighting hard to scuttle their quest to leave the onshore and shallow waters where their operations are threatened by oil thieves, whom the government and the regulators have failed to curb, the Commission and the government is proving their case that Nigeria is unsafe for investments.

“This development will be bad for future investments,” Akinosho said during an interview on Arise TV on Tuesday.

Some analysts say the PIA rules may have been ignored by the President, but when has he really complied with the rules? So far the government has cherry-picked parts of the PIA that will not disrupt the status quo to implement, and the regulators, including NUPRC, have not sounded the alarm.

Read also: ExxonMobil-Seplat deal – A timeline of events

The PIA, for example, demands a full deregulation of the petroleum downstream sector but that has not happened one year after the Act was passed. The Nigerian National Petroleum Company Limited recently unveiled a new logo and claimed it is now a commercial firm, but it is yet to publish its audited accounts for 2021 and still spends a pile of money on subsidies.

Many Nigerians across the social media platforms have expressed concern about the development, with some saying it showed the President was not in control of his government and others saying the government that cannot even follow its own laws is clearly in disarray.

However, the biggest concern among independents that are taking over assets the IOCs leave behind is that without the clout of the IOCs, the political risk of their operation in Nigeria would get worse. Nigeria is not making conditions worthwhile for local operators that are its best chance of extracting value from crude oil in the wake of the IOC departure.

Akinosho argued that it was in Nigeria’s interest to have a thriving energy sector, particularly at a time when investors prefer other destinations. For example, Nigeria is the only major oil producer where the IOCs are leaving despite the threat of energy transition. Globally underinvestment into oil projects is challenging but it is worse in Nigeria.

ExxonMobil is investing millions of dollars in Guyana where the oil they discovered in just one field in 2015 is more than all the oil they have found in Nigeria since the 1960s. Shell made so much more in the first half of the year, it gifted 8 percent of the profits to staff and these were profits largely made outside Nigeria.

The cavalier attitude of the Nigerian government and its officials to investors in the oil sector is borne out of some false sense of exceptionalism, as if Nigerian oil is something they cannot do without. Many hope they don’t find out too late that it is only crude, and crude anywhere else is just as black.