The Nigerian National Petroleum Company (NNPC) Limited has secured an injunction from the Federal High Court in Abuja high court restraining the sale of shares of ExxonMobil’s Nigerian unit to any third parties, a development that puts on notice local investors planning future divestment deals that it will not back down.
The order granted on July 6 restrains Mobil Producing Nigeria Ltd and Mobil Development Nigeria Plc from selling, trading, allocating, transferring, or disposing of their shares in their interests covered by or connected to the Joint Operating Agreement between them and the NNPC.
The order restrains “sale of assets covered in Oil Mining Lease 68, Oil Mining Lease 69, Oil Mining Lease 70 and Oil Prospecting Licence 94, to anybody, person (s), company, consortium or entity howsoever described pending the determination of the claimant/applicant’s motion filed on the 5th of July or when the judicial tribunal is duly constituted and can make interim preservation orders,” the motion reads.
The motion, with suit no: FCT/HC/BW/CV/173/22 m/203/2022, was filed on July 5 at the High Court of the Federal Capital Territory, in the Abuja division, presided over by Justice B. Belgor. It had the upstream regulator as one of the defendants.
Analysts say NNPC’s action could have a material effect on future divestment plans based on how it communicates its intention to investors. Nigeria is in dire need of investments and the oil corporation, which only recently was transformed into a company, cannot be seen as scuttling investments.
“The big picture though is depending on how the narrative is shaped,” said Ayodele Oni, energy lawyer and partner at Bloomfield law firm.
In February, Seplat Energy Plc, a major energy company, had agreed to buy the entire onshore and shallow-water assets of ExxonMobil in Nigeria but the NNPC had opposed the deal.
Mele Kyari, group managing director of NNPC, had said International Oil Companies (IOCs) that divest from Nigeria’s upstream sector failed to address issues of abandonment and decommissioning of oil assets.
Decommissioning, which is the general term for returning an oil production site to its pre-lease condition at the end of the useful life of the oil asset, can be a costly exercise for the companies involved. Many fields abandoned in Nigeria are not decommissioned largely because of the local companies who acquire them.
The NNPC also objected that as a joint venture (JV) partner with Exxon’s Nigerian units, it had pre-emptive rights over any sales of the assets of the company. According to the terms of the JV contract, the NNPC, which holds a 60 percent share in the Mobil Producing Nigeria Unlimited (MPNU) JV, has the right of first refusal in any asset sale agreement.
These pre-emption rights usually give the NNPC the right to match the best (financial) terms for any such acquisition and acquire the asset, said Oni.
But Mobil Oil Producing said the deal was not an asset sale but merely a sale of its shares to another entity, an argument the NNPC has refused to accept.
According to the transaction document seen by BusinessDay, Seplat Energy had offered to buy ExxonMobil’s interests in its Nigerian offshore shallow-water assets at the cost of $1.2 billion.
The company said it had entered into an agreement to acquire the entire share capital of MPNU from ExxonMobil Corporation.
The determination of the NNPC suit could close the loophole of IOCs shedding their assets through share sale rather than embarking on asset divestments with its tedious process.
It would determine if ministerial consent was required for an oil company to sell its stake and test the validity of NNPC’s pre-emption rights over assets it jointly operates with its partners.
Assets
Based on 2020 working interest volumes for Seplat Energy and MPNU, the transaction delivers 186 percent increase in production from 51,000 barrels of oil equivalent per day (boepd) to 146,000boepd, 170 percent increase in 2P liquids reserves, from 241 million barrels (MMbbl) to 650 MMbbl, 14 percent increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, including the significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf).
It will also add an 89 percent increase in total 2P reserves from 499 MMboe to 945 MMboe1 and includes offshore fields with dedicated, MPNU-operated export routes offering enhanced security and reliability.
The MPNU asset portfolio in Nigeria primarily consists of 40 percent operating ownership of four oil mining leases (OMLs 67, 68, 70, 104) and associated infrastructure (NNPC is the 60 percent partner), the Qua Iboe Terminal, one of Nigeria’s largest export facilities and 51 percent interest in Bonny River Terminal and Natural Gas Liquids Recovery Plants at EAP and Oso.
It does not include ExxonMobil’s deepwater assets in Nigeria.
Ministerial consent
The completion of the Seplat/ExxonMobil deal was subject to ministerial consent and other required regulatory approvals. On May 19, the Federal Government turned down the application for ministerial consent.
According to Gbenga Komolafe, CEO of the Nigerian Upstream Regulatory Commission, the government cited overriding national interest, failure to follow due process and inappropriate application as major reasons for rejecting a deal that could deliver higher taxes, increased production, and generate more oil revenue to Africa’s biggest oil-producing country.
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Following this refusal, the battle to see the deal through moved to the courts.
Oil sector operators and analysts have said Nigeria continues to impose obstacles to investments while making fervent appeals for new investments and passing a law designed to attract investments.
“We need to stop playing politics in the oil and gas business because more Nigerians are sinking into poverty,” Ola Alokolaro, senior partner and head of energy and infrastructure group at Advocaats Law practice, told BusinessDay.
At the NOG gas conference in Abuja last week, Osagie Okunbor, managing director of Shell Petroleum Development Company of Nigeria Ltd and the Country Chair, Shell Companies in Nigeria, said a lack of stability in fiscals, issues with the sanctity of contracts, security of investments, and the sheer impact of crude theft continued to scare away investors.
Shell’s divestment plan has stalled over a legal tussle with a community in the Niger Delta.
The hearing date for the motion on notice in the NNPC suit has been fixed for July 15.
