American multinational oil and gas corporation, ExxonMobil, has joined the league of multinational oil companies divesting from Nigerian assets and the company’s looming plan to sell its oil and gas assets comes across as mixed blessings for the economy.
According to sources, ExxonMobil is weighing the possibility of selling its stakes in Oil Mining Leases (OML) 66, 68, 70 and 104 with a total production capacity of 120,000 barrels per day as at 2017, which might provide an opportunity for indigenous companies who have purchased assets worth billions from firms such as Eni, Shell, Chevron and Total in the past five years.
ExxonMobil is one of the largest oil and gas producers in Nigeria, with 106 operated platforms. Its oil output in the West African country reached 225,000 barrels per day (bpd) in 2017.
Exxon officials have held talks in recent weeks with several Nigerian companies to gauge their interest in the fields, according to reports.
One source said Exxon was soon due to open a “data room”, which would provide technical information on the fields, such as seismic and production details in Nigeria.
International Oil Companies (IOCs) account for more than 70 percent of the nation’s daily crude production. Naturally, a wave of divestment of oil and gas assets previously held by these IOCs will no doubt ignite interest from different stakeholders in the Nigerian oil and gas industry.
“They are mostly shallow water oil assets and indigenous players such as First E&P Ltd may be interested buyers. But I also think government will keep a close eye on the deal to avoid it going sour like the ones Oando got into,” said Wumi Iledare, professor of petroleum economics at the University of Ibadan’s Centre for Petroleum, Energy Economics and Law.
Another industry source who chose to be anonymous said other indigenous oil and gas companies capable of acquiring and developing those oil assets include Seplat plc, Lekoil and Aiteo. But Lekoil’s books are not looking so good at the moment.
“And what can also happen is that some of the indigenous players may acquire the assets and look for a foreign company able and willing to develop and produce the oil assets. This is called rent seeking,” the industry source told BusinessDay.
Stakeholders believe that majority of the indigenous players with the capacity and balance sheet to attract financing will be gearing up to participate in the long-rumoured divestment which may have become a reality today.
“One of the key things we have targeted with our current capital structure and our balance sheet is to, at a very short notice, be able to participate in any acquisition opportunities,” Austin Avuru, CEO of Seplat, said at the firm’s ‘Facts behind the Figures’ presentation at the Nigerian Stock Exchange recently.
Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), said beyond the question of who is buying the assets, there is need to take a critical look at what Nigeria is not doing right that is scaring away investors and reducing foreign direct investment (FDI).
“We need to ensure we send the right signals out,” Henry told BusinessDay.
However, the IOCs’ attempt to sell their assets to local companies has not always been smooth, particularly where bureaucracy, difficult operating or security conditions feature prominently.
Government’s recent directive regarding the transfer of operatorship of OML 11 from Shell to Nigerian Petroleum Development Company (NPDC) Ltd generated a lot of ripples in the industry because NPDC was seen as unfit to develop and produce the oil fields. Besides, NPDC already has 32 prolific oil fields in the Niger Delta.
Buoyed by high oil price and the need to boost local content in the nation’s oil industry, many banks doled out loans to indigenous players for the acquisition of assets being divested by IOCs such as Royal Dutch Shell, Chevron and Total.
Between 2010 and 2018, a number of indigenous companies including Starcrest Energy, Aiteo, Oando, Seplat, Eroton, First E&P, Neconde, Midwestern, Notore Lekoil, PanOcean, Newcross and Shoreline threw in billion-dollar cheques in their scramble for assets divested by major multinational oil firms which have recorded mixed performance.
Seplat Petroleum Development Company plc successfully bought assets such as OMLs 4, 38 and 41 which were producing 15,000 barrels per day (bpd) but are today producing 80,000 bpd.
Oando Energy Resources, a subsidiary of Oando plc, incurred a $2.5 billion debt after the 2014 acquisition of oil and gas assets from U.S. giant ConocoPhillips, while Seven Energy, a Nigerian company founded in 2004, ran into troubled waters after several defaults on its debt servicing obligations.
The involvement of NNPC and NPDC and the exercise of pre-emption rights have also periodically posed a challenge to previous divestment attempts. NPDC has often encountered difficulty in attracting acquisition finance from foreign backers due to perceived operator risk, though arguably this has provided local banks with an opportunity.
In a bid to remedy some of these challenges, NNPC has explored the possibility of seeking technical partnerships for the NPDC to put forward joint bid for future divestments.
STEPHEN ONYEKWELU & DIPO OLADEHINDE
