How Seplat raised money to buy ExxonMobil assets

Seplat Energy is financing its $1.23 billion purchase of ExxonMobil’s onshore and shallow water assets through a debt financing of US$825 million fully committed to, by a syndicate of Nigerian and African banks, and energy and commodity traders, analysts at Wood Mackenzie, a leading global energy intelligence firm have said.

In a newly released investor information, the analysts put the equity-based valuation of Mobil Producing Nigeria Unlimited, (the local unit of ExxonMobil) – excluding the Qua Iboe terminal – at $870 million (discounted 10 percent as of Jan. 2021, assuming $50 per barrel long-term). However, at $70 per barrel, they put the value of the company at US$1,678 million.

The portfolio includes a massive 1.3 billion barrels of oil equivalent (boe) of contingent resources, 75 percent of which is gas. Less than half of its 70 fields have been developed. Although the Joint Venture has been in production since the early 1970s, its maturity relates more to the extensive infrastructure than the reservoirs themselves. Yes, many fields are in decline, but they have also been under-invested for over 20 years, the analysts said.

Wood Mackenzie disagrees with some analysts’ view that NNPC could pre-empt the deal and press its claim for the right of first refusal citing its Joint Operating Agreement. BusinessDay had reported that this could be a key concern citing analysts rendering of the agreement and view of NNPC GMD who issued terms for the deal to progress.

The Wood Mackenzie analysts had a different take. “Because this is a corporate acquisition, NNPC has no rights to pre-empt a deal under the Joint Operating Agreement (JOA), which governs the JV. This means that ministerial consent would be the only hurdle remaining,” the note said.

However, the analysts concede that “nothing can be taken for granted.”

The same holds true for Shell’s ongoing divestment of its subsidiary SPDC, which similarly rules out pre-emption, the analysts said.

“If NNPC wants to acquire that portfolio, then it will have to out-bid the competition. If successful in raising up to US$5 billion with Afrexim Bank it would have the firepower to do just that, and massively strengthen its position in the onshore delta,” the analysts said.

In the energy transition era, ExxonMobil will be pleased with this deal, they said “But so will Seplat, as the deal offers huge upside for oil as well as gas.”

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The portfolio includes a massive 1.3 billion boe of contingent resources, 75 percent of which is gas and less than half of its 70 fields have been developed.

Although the JV has been in production since the early 1970s, its maturity relates more to the extensive infrastructure than the reservoirs themselves, the note said.

“Yes, many fields are in decline, but they have also been under-invested for over 20 years,” the analysts said.

On the implications of the deal, Wood Mackenzie analysts said if it completes, the deal will be transformational for Seplat Energy.

“It is already the leading indigenous company in Nigeria, but this will triple its working interest production to over 140,000 boe/d. In total, Seplat will operate 15 percent of Nigerian oil production.

“ Crucially, the deal diversifies its operations into shallow water, which is largely devoid of the thefts afflicting its onshore operations. Although this is Seplat’s first offshore acquisition, it will acquire all of MPNU’s Nigerian staff, thus allaying any concerns about its operational capabilities,” they said.

However, the success of the deal will largely be based on NNPC’s ability to raise enough financing to contribute to the field development as Seplat, its new joint venture partner, would be unable to incur cash call areas.