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ExxonMobil-Seplat Sharing Agreement: Did NNPC Miss?

The Nigerian business community and companies, especially the oil and gas industry, have literally been on fire and turmoil following the announcement of Seplat Energy Plc., a major indigenous energy company listed on the Nigerian Stock Exchange and the London Stock Exchange, and Exxon Mobil Corporation, Delaware, USA (ExxonMobil) that they had entered into an agreement for the acquisition by Seplat of the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) from the latter, under subject, however, to the usual ministerial consent.

ExxonMobil Upstream Oil and Gas Chairman Liam Mallon said the company has sold its stake in its shallow water business, Mobil Producing Nigeria Unlimited (MPNU), to Seplat Energy through 100% owned Seplat Offshore. Seplat.
Presenting the highlights of the transaction, which is the first of its kind since the entry into force of the Petroleum Industry Act (PIA), Seplat, for its part, set the purchase price at $1,283 million plus a contingent consideration of up to $300 million.

The transaction, he said, would create one of the largest independent energy companies on both the Nigerian Stock Exchange and the London Stock Exchange, and strengthen Seplat Energy’s ability to drive growth, profitability and overall stakeholder prosperity, delivering a 186% increase in production from 51,000 bpd to 146,000 bpd or a 170% increase in 2P liquids reserves, from 241 MMbbl to 650 MMbbl.

In addition, it was expected to generate a 14% increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, as well as significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf).

Nigerians are delighted as they await final ministerial consent to fully integrate these strategically important national assets into Nigerian ownership alongside the Nigerian National Petroleum Corporation, NNPC, the outgoing joint venture partner. This is in line with the government’s goal of achieving a pragmatic, gradual and just energy transition for Nigeria.

In his incisive analysis, Wood Mackenzie (WoodMac), a reputable global intelligence provider that gives policymakers unique insights into the world’s natural resources, hailed the deal saying it was a win- winner for Seplat, ExxonMobil and the Nigerian government. , offering huge benefits for oil and gas.

Very instructively, Mackenzie added: “Because this is a business acquisition, NNPC has no right to pre-empt an agreement under the Joint Operating Agreement (JOA), which governs the JV This means that ministerial consent would be the only remaining obstacle, although nothing can be taken for granted.

A misinterpretation of the joint venture agreement

Unfortunately, amid this local and international acclaim, the NNPC seems more interested in throwing spanners in the works. In order to block the deal, NNPC, as widely reported in the media, through its Group Managing Director (GMD), Mele Kyari, wrote to MPNU, informing it of its intention to exercise a right of first refusal on the agreement.

We are aware that you have reached an agreement to divest yourself of the onshore and shallow water JVs…. We are clearly interested“said the GMD.

Meanwhile, a recently published article in support of NNPC’s action quoted an alleged oil industry source asserting NNPC’s rights under the law to exercise such preventative powers.

NNPC bases its action on a joint operating agreement dated 28 June 1990 between itself and Mobil Producing Nigeria with respect to “participation”.

Regarding the transfer and assignment of interests, clause 19.4 provides: Subject to sub-clauses 19.1 and 19.2, if a party has received an offer from a third party, which it wishes to accept, for the assignment or transfer of its participation hereunder (the “Selling Party”), it will give the other Party the priority right and the option in writing to purchase this Participation as provided for in sub-clauses 19.4.1 to 19.4.2 .

Sub-Clause 19.4.1 states: The surrendering Party shall first give notice to the other Party, specifying therein the name and address of the aforementioned third party and the terms and conditions (including monetary and other consideration ) of the proposed assignment and transfer.

Sub-Clause 19.4.2 states: “Upon receipt of the notice referred to in paragraph 19.2.1, the other party may, within the following thirty (30) days, request in writing the assignment and transfer of these interests, in which case the assignment or transfer will be made to him on the same or equivalent terms”.

In the meantime, these provisions could not be read or understood in isolation from the definition of “participation” by the same agreement.

Section 1.24 states: “Participation means the undivided percentage interest held by the Parties from time to time in the Concession(s), the Common Property and the rights and obligations under this Agreement, namely: sixty percent (60%), in the event of NNPC; and forty (40%), in the case of Mobil”.

Thus, these provisions clearly show that the NNPC is completely confusing things because the transaction that took place between Seplat and ExxonMobil, Delaware, USA, was in no way close to a transfer of a “stake”. No! Seplat has not dealt with Mobil Nigeria producing Unlimited (MNPU). Instead, it transacted business with ExxonMobil, Delaware, the parent company, which acted within its rights, at its own discretion and in accordance with its business/investment strategy, to dispose of all of its shares in MNPU , which holds said assets in Nigeria.

This is the major fact that NNPC needs to sort out so that it can stop complicating a very simple issue and making Nigeria the laughing stock of the international business community because it has no right of first refusal (RFR) to exercise on this transaction.

Questions arising

In any case, the ExxonMobil-Seplat transaction is not the first in the sector in recent times. Many have wondered why NNPC did not exercise the same pre-emptive action in SPDC’s divestments.
Recently, NNPC and analysts supporting its case argued that with its transition to a for-profit, limited liability company registered under the PIA, it was poised to reshape and optimize its portfolio by acquiring high-performing assets. , with low vulnerability and huge gas potential.

For this reason, it gives priority to the acquisition of the assets transferred within the framework of the JV MPNU over those of the JV Shell Petroleum Development Company (SPDC). In other words, NNPC’s sudden interest in the deal and taking over the entire joint venture (if it had the legal backing) is all about the attractiveness of the assets in question. As a government-backed entity, isn’t it supposed to be more interested in taking over assets perceived to be more vulnerable with higher security and production concerns? If he’s only interested in the “juicy” flesh of the oil and gas industry, who does he expect to deal with the hard bones?

Worse, it’s not even like the NNPC is known to handle these things on its own. Most Nigerians know how and where these wallets end up.

Moreover, the NNPC does not enjoy popularity as one of the managers. If NNPC were to be an airline, one wonders how many Nigerians would be confident flying in its planes. If the NNPC was a hospital, how many Nigerians would give their lives to run it?

As the sole importer of fuel, Nigerians still face not only intermittent fuel shortages, but they have yet to recover from the importation of toxic fuel which has wrecked vehicles and strained households.

Worse still, the NNPC has yet to tell Nigerians how the country’s daily fuel consumption has risen from around 30 million liters around seven years ago to around 102 million liters and more.

Under NNPC’s watch, refineries have degenerated from producing enough for local consumption, to producing little, and now nothing. In 2020, NNPC recorded N10.27 billion in operational expenditure without refining a single drop of fuel. It is unable to repair any of the refineries, even with the award of a $1.5 billion contract last year to repair the Port Harcourt refinery.

The NNPC has struggled to meet its statutory obligations to the Federation account in recent years. Despite soaring oil prices on the international market, she was unable to pay anything into the Federation’s account in January 2022, making it the second time in a year that it was the case in April 2021. In fact, with a deficit of about 2 trillion naira on its forecast of 2.511 trillion naira, the NNPC was only able to disburse 542 billion naira from the 2.511 trillion naira it was expected to contribute. The Nigeria Governors Forum protested against the development.

Consequently, many Nigerians have wondered why an indebted NNPC is accumulating more debt so rapidly, given the African Export-Import Bank’s (Afreximbank) $5 billion corporate finance commitment for ” acquire, invest and operate power generation assets in Nigeria as part of NNPC’s growth strategy following its incorporation as a limited liability company”. It is important to note that unlike other companies who would guarantee their loans with their assets, the NNPC relies on the back of the government.

The issue of gas prioritization

Meanwhile, it is reported that NNPC’s interest in taking 100 possession of the assets in question has been informed by its efforts not to risk another partner on the NNPC MPNU JV which may not see the monetization of the gas component assets as a priority. This should not even be considered given Seplat’s profile in gas investments and its leading role in Nigeria’s energy transition. It produced 20,758 boepd of gas in 2021 and supplies 30% of the gas to supply Nigeria. It became the first company to register a 50-50 joint venture with NNPC via the Seplat/NNPC gas plant project – ANOH Gas Processing Company (AGPC) where Seplat easily raised $260 million via a consortium of banks to fund its share of the $650 million financing. for the ANOH gas treatment plant.

In these contexts, it is understandable that industry players believe that the NNPC has not only missed its mark, but also exceeded itself, playing on this unnecessary interference which discourages investors. He should back off.

The article was written by Adewale, a Lagos-based energy analyst.