The value of mergers and acquisitions (M&A) deals in Nigeria’s oil and gas sector has reached $17 billion since 2010, according to data from investment bank Renaissance Capital.
Oil majors, Shell and Chevron Corp., are selling fields as they scale back Nigerian operations following unrest, violence and crude theft in the Niger Delta.
At the same time, Nigerian oil firms are gaining from the divestments that are opening up opportunities in the upstream sector for M&A and rapid growth.
“Shell will likely accelerate its divestments in Nigeria to meet its plan for $30 billion of disposals globally during 2016-2018, which would be used to fund dividends, and a minimum of $25 billion in buybacks from 2017,” said Renaissance Capital analysts led by IIdar Davletshin in an April 23 note.
“Seplat is in a strong position to participate in forthcoming divestments by Shell and other IOCs in Nigeria, in our view.”
Nigeria’s largest listed oil firm Seplat announced on February 5 the completion of two separate acquisitions: a 40 percent interest in OML53 (from Chevron) and a 22.5 percent indirect interest in OML55 (from Belema Oil).
Another indigenous player Oando, also recently completed the acquisition of Connoco Phillips assets for $1.5 billion.
Royal Dutch Shell plc announced in March that it had completed the sale of its oil lease in Nigeria’s eastern Niger River delta for $1.7 billion to the country’s Aiteo Eastern E&P Co. Limited.
The divestment is part of Shell’s strategic review of its onshore portfolio in Nigeria and “is in line with the Federal Government of Nigeria’s aim of developing Nigerian companies in the country’s upstream oil and gas business,” the firm said in a statement.
Mart Resources, another indigenous oil firm, recently announced that it had entered into definitive arrangement agreement with its co-venture Midwestern, pursuant to which Midwestern will acquire Mart’s common shares.
“Through the acquisition of a 10 percent stake in OML18, Mart gained access to c. 500bcf of gas resources, which represents a strategic interest to Midwestern,” according to Renaissance Capital.
There are three types of potential opportunities for indigenous players to pursue, according to Renaissance Capital.
These include further divestments by international oil companies (IOCs), which are likely to continue in the medium term; farm-in opportunities, with several deals announced recently such as by Lekoil and Eland, and governments move to proceed with its marginal field licensing round scheduled for this year.
The prospect for supplying gas to power plants by domestic firms are also bringing opportunities due to the recent power sector reforms that privatised most generation and distribution companies.
“Installation and commissioning of the new 150 MMscfd Oben gas processing facility is a major step forward for Seplat’s gas business and increases volumes available to the domestic market; new pipeline to Warri refinery commissioned in March 2014,” Seplat said in a statement announcing FY 2014 results.
Nigeria’s peak power generation averaged a little more than 4,000 megawatts, as gas shortages continue to hit output. Total demand may be close to 20,000 megawatts, according to the Power Ministry. Meeting that demand means raising gas supply to the domestic market to 6 billion scf a day from about 1.5 billion scf today.
The acquisition multiple by Seplat for OML53 is c. $5/barrel of oil resources and $1.7/boe for oil and gas resources. The multiples are c. 50 percent lower relative to average historical M&A prices paid in Nigeria, according to Renaissance Capital.
This may suggest that the slump in oil prices is helping to temper the high valuations of Nigerian energy assets from just 18 months ago.
Opportunity in the sector is also being aided by the recent Local Content Act passed by the Nigerian government.
PATRICK ATUANYA
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