Seplat/ExxonMobil deal puts new oil law to test

The $1.3bn planned deal between Seplat Energy Plc, a major energy company in Nigeria, and US-based ExxonMobil looks set to put the Petroleum Industry Act, which seeks to attract new oil and gas investments, to the test.

While approving a steering committee to supervise the implementation of the PIA last year, President Muhammadu Buhari said Nigeria had lost $50 billion worth of investments in the petroleum industry since 2011 due to the absence of a new law.

The United States Energy Information Administration estimated that Nigeria lost over $15 billion annually due to the delay in the passage of the Petroleum Industry Bill, which was first introduced in the National Assembly in 2008.

Seplat announced on Friday that it had entered into a sale and purchase agreement to acquire the entire share capital of Mobil Producing Nigeria Limited (MPNU), the shallow-water business of ExxonMobil in Nigeria, for $1.28 billion.

BusinessDay gathered that Seplat Energy and ExxonMobil had submitted their application for ministerial consent for the deal.

The Nigerian National Petroleum Company Limited (NNPC) has listed conditions that must be met before the deal sails through. Mele Kyari, the group managing director of NNPC, has said that International Oil Companies (IOCs) that divest from Nigeria’s upstream oil sector must address issues of abandonment and decommissioning of oil assets.

The state oil firm has expressed concern that many of the oil and gas assets sold to Nigerians since 2012, mostly by the IOCs, are rarely decommissioned or properly abandoned, a development that clearly breaches existing laws regulating the industry.

Read also: Petroleum industry in confusion as FG plans to amend new PIA

NNPC’s position is premised on its belief that as part of a joint venture with MPNU and with a 60 percent stake, it should have the right of first refusal over any sale or pre-empt the purchase, according to industry lingo.

However, an analysis of the NNPC Joint Operating Agreement (JOA) with private oil companies by analysts at Wood Mackenzie found that since this is share sale, not an asset sale, NNPC lacks pre-emption rights.

“Because this is a corporate acquisition, NNPC has no rights to pre-empt a deal under the Joint Operating Agreement, which governs the JV. This means that ministerial consent would be the only hurdle remaining,” it said.

The analysts, however, said, “Nothing can be taken for granted.”

The same holds true for Shell’s ongoing divestment by its subsidiary, Shell Petroleum Development Company, 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 Afreximbank, it would have the firepower to do just that, and massively strengthen its position in the onshore delta,” the analysts said.

The PIA had turned the NNPC into a commercial firm and this was expected to remove its influence over the sector as both a player and regulator.

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

They said, “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.”

The planned share sale by ExxonMobil covers a portfolio that includes 1.3 billion boe of contingent resources, 75 percent of which is gas and less than half of its 70 fields have been developed.