NNPC raises concerns over ENI’s planned onshore asset divestment deal with Oando

Nigerian National Petroleum Corporation Limited says its consent as a member of the joint venture member operating ENI’s onshore asset, was not sought before the planned divestment to Oando, a development that runs contrary to contract rules governing the joint venture operation, and could upend the deal.

In a letter to the Managing Director of Nigerian Agip Oil Company Ltd, dated September 4, seen by BusinessDay, the country’s state oil firm said if the deal goes through, “It would have far-reaching contractual/legal implications in relation to the joint Operating Agreement dated July 1991 governing the operations of the NAOC/NEPL/OOL Joint venture.

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“Clause 19.11 of the JOA provides that “No party may assign or transfer its interest or any part thereof without the prior written consent of the other parties, which consent shall not be unreasonably withheld,”

NNPC Ltd argues that by virtue of this provision, a party seeking to transfer part or the whole of its participating interest in the Joint Venture is obligated to seek the prior written consent of the other parties, especially since it controls 60 percent of the stake.

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The state-owned firm said according to terms of the JOA, if the ENI disposes of its shares without recourse to the other parties, it could lose its participating interest.

According to the NNPCL in the letter sent by NEPL, its subsidiary, the national oil company said it was not totally opposed to the transaction, but drawing attention to certain important clauses in the JOA, which might have been overlooked in error.

“Adherence to those clauses will protect the transaction now and in the future,” Garba Deen Muhammad, the chief corporate communications officer of the NNPC Ltd, said.

“We have highlighted the above provisions of the JOA to underscore the point that the purported assignment, even if valid, should by no means translate to transfer of operatorship to OOL. if NAOC’s divestment turns out to be valid, it will be incumbent on NEPL and OOL to decide on a successor operator,” the letter signed by Ali Muhammed Zarah, managing director of NNPC E&P Limited reads.

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In this instance, NAOC did not inform NEPL of any proposed assignment of its participating interest to Oando or any other party, nor did NAOC seek and obtain the mandatory pre-divestment written consent and approval from NEPL in accordance with the terms of the JOA, the NNPC claims.

Recall that on Monday, Italian oil major Eni issued a press release saying that it had signed an agreement with Oando, an energy solutions provider listed on both the Nigerian and Johannesburg Stock Exchange, for the sale of all its stake in Nigerian Agip Oil Company Ltd (NAOC Ltd), a wholly-owned subsidiary focusing on onshore oil & gas exploration and production in Nigeria, as well as power generation.

NAOC Ltd presently has interests across 4 onshore blocks (OML 60, 61, 62, 63), which it operates on behalf of NAOC JV (operator NAOC Ltd 20 percent, Oando 20 percent, NNPC E&P Limited 60 percent), in the Okpai 1 and 2 power plants (with a total nameplate capacity of 960MW), and in two onshore exploration leases (OPL 282 and OPL 135, respectively 90 percent and 48 percent) for which it also holds operatorship.

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NAOC Ltd’s participating interest in SPDC JV (Shell Production Development Company Joint Venture – operator Shell 30 percent, TotalEnergies 10 percent, NAOC 5 percent, NNPC 55 percent) is not included in the perimeter of the transaction and will be retained in Eni’s portfolio.

NNPC Ltd is saying that this proposed deal is proceeding without its consent despite owning a significant stake in the joint venture operation, contrary to the terms guiding the operation known as the JOA.

The NNPC Ltd in a the letter, said the failure to obtain the written consent of its NEPL, its subsidiary that handles upstream operations constituted a “grave breach of the terms of the JOA, and NEPL reserves its rights in relation to the said breach – including NEPL’s entitlement to invalidate the purported assignment to OOL.

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On the strength of this argument, the NNPC has temporarily torpedoed the planned divestment of ExxonMobil’s stake in its onshore assets to Seplat Petroleum Development Company and held up Shell’s plan to offload its onshore and shallow water operations. Unlike previous cases, the tone of NNPC Ltd letter was measured.

Oando acquired ConocoPhillips Nigeria assets, giving the company a 20% working interest in the NAOC Joint Venture which also includes the NNPC Exploration & Production Limited (NEPL) and NAOC. This singular transaction at the time catapulted Oando from producing 4.5kboepd to 50kboepd. At the same time the company set a target to increase its production to 100kboepd and its reserves to 500MMboe as well as realize operatorship. As of 2021, Oando had exceeded its reverses target with 2P reserves of 503.3MMboe. On completion of the transaction, the company’s reserves will increase by 98% to nearly 1 billion barrels of oil equivalent.

Upon completion, the Oando/Eni transaction will see Oando takeover as operators of the assets OMLs 60-63, it will also increase Oando’s current participating interests in OMLs 60-63 from 20% 40%; grow Oando’s exploration asset portfolio through the acquisition of 90% interest in OPL 282 and 48% interest in OPL 135; increase Oando’s total 2P reserves by 98% increase as well as increase Oando’s ownership stake in all NEPL/NAOC/OOL Joint Venture assets and infrastructure.