Business
Seplat’s historic deal raises fresh investment, environmental concerns
By Uche Chris
Nigeria’s indigenous oil exploration company, Seplat Energy PLC weekend, made history as the first to acquire major assets of an International oil company, IOC, Mobil Oil Producing Nigeria Unlimited, MPNU. It is an unprecedented move by the local firm, which has continued to expand new frontiers of operations since its inception over a decade ago.
The deal signifies both positive and negative developments in the Nigerian oil sector, and poses new challenges to the future contributions of oil to the economy. Although, the acquisition points to the emerging new status of Nigerian firms and the significant role they can play in the sector and also speaks to the advantage of the Petroleum Industry Act, PIA, however, it also signals the continuing divestment of IOCs from the country.
Since the rise of militancy in the Niger Delta following the execution of the Ogoni nine including renowned playwright and environmentalist, Ken Saro Wiwa, on November 6, 1996, IOCs have been divesting from onshore explorations, as the activists or militants raised the risks and costs of operations, thus forcing them to move into deep waters out of the reach of host communities.
This development boosted the participation of Nigerian companies, whose involvement increased beyond marginal fields – oil wells developed by the IOCs but do not contain oil in commercial quantities to warrant continuing exploration. Seplat Energy is one of the products of this emerging trend in the oil sector.
However, this led to the decline in investment in the sector by the IOCs, which shifted policy from Joint Venture, JVC, participation to Production Sharing Contracts, PSC. JVC required cash calls funding from the country and the partners, while PSCs are funded exclusively by the IOCs. This investment shift ultimately affected production and output as deep water explorations are more expensive and takes longer time to exploit.
Also, energy experts said that this may be a direct reaction to the Petroleum Industry Act, signed into law by President Buhari in 2021 to open up the sector and provide global policy framework for both government, host communities and operators, which had languished in the National Assembly for over a decade. Most IOCs had fought against the PIA because of its added financial contributions imposed on them for host communities.
Mr. Gbite Adeniji, Managing Director, ENR Advisory, described the deal as bitter-sweet, and portends far-reaching implications for the sector and country. According to him, our oil producing partners are leaving our land assets to safer deep water areas, because of hostile business environment, which exposes them to legal and environmental hazards in their home countries and in Nigeria.
“Nobody will protect our interest after our strategic partners, namely U.S. and U.K represented by ExxonMobil and Shell, leave. China is coming in but can they defend our interest as U.S. and U.K.
“What happened is great for Nigeria, but we must ensure that such assets are taken over by good and competent people.”
He said that the acquisition is essentially about gas production, which is the future of the industry, and Nigeria is endowed with much of it, and should provide clear option to oil. Sadly, he said that the country does not have clear gas policy for domestic and industrial use, and it is still being callously flared.
According to him, Nigeria, instead of focusing on oil as we have now, should think ahead by developing gas infrastructure to reduce dependence on oil and to increased revenue.
“ExxonMobil assets sit on the gas belt in the South east region, known as the Golden Triangle area. We need to focus on gas and begin investment; but where is the plan for such. Gas is the future and by 2025 or so, oil revenue will drop drastically.
” So, what is the alternative investment. For instance, the Nigeria-Morocco-Algeria pipeline to Europe which is very strategic and has capacity to boost Nigeria’s revenue has remained outstanding for so long.
“Europe is an inelastic market and it has been waiting; look at the Nord stream 2 gas pipeline from Russia to Germany, it is biggest gas pipeline project; supply is not bound by distance. Nigeria can become alternative supplier to Europe given growing political tension with Russia.
“The local people taking over from the IOCs must up their game in terms of finance and technology. It is in these two areas that IOCs divestments create a major challenge for the country.”
He said that environmental issues will be critical and recent experience gives cause for concern, because technology is important in dealing with certain spills, such as the Nembe River blowout in late 2021, which lasted over six weeks discharging 22,000 barrels of oil daily. Also, such spill many become frequent give the aging condition of the assets.
Seplat Energy Plc, a leading Nigerian energy company listed on the Nigerian Exchange Limited (NGX) and the London Stock Exchange (LSE), was expected to announce the agreement to acquire the entire share capital of Mobil, with the completion of the transaction subject to ministerial consent and other required regulatory approvals.
The statement from the company showed that Seplat Energy Offshore Limited, a wholly owned Nigerian subsidiary of Seplat Energy Plc, entered into a Sale and Purchase Agreement to acquire the entire share capital of MPNU for a purchase price of $1.283 billion plus up to $300 million contingent consideration.
The transaction, according to statement, encompasses the acquisition of the entire offshore shallow water business of ExxonMobil in Nigeria, which it said is an established, high-quality operation with a highly skilled local operating team and a track record of safe operations.
The transaction, it said, would create one of the largest independent energy companies on both the NGX and LSE and bolster Seplat Energy’s ability to drive increased growth, profitability and overall stakeholder prosperity. The deal would deliver 186 per cent increase in production from 51,000 bpd to 146,000 bpd or 170 per cent increase in 2P liquids reserves, from 241 MMbbl to 650 MMbbl.
In addition, it was expected to deliver a 14 per cent increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, plus significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf). Furthermore, it was expected to increase by 89 per cent, the total 2P reserves from 499 MMboe to 945 MMboe and includes offshore fields with dedicated, MPNU-operated export routes offering enhanced security and reliability.
In the oil industry, 2P reserves are the total of proven and probable reserves while probable reserves are less likely to be recovered than proven reserves. Being the first transaction to be announced since the Nigerian government’s recently ratified PIA, the company stated that the deal would support Nigeria’s energy transition and objectives of the new Act.
In addition, it was expected to deliver a 14 per cent increase in 2P gas reserves from 1,501 Bscf to 1,712 Bscf, plus significant undeveloped gas potential of 2,910 Bscf (JV: 7,275 Bscf).
Furthermore, it was expected to increase by 89 per cent, the total 2P reserves from 499 MMboe to 945 MMboe and includes offshore fields with dedicated, MPNU-operated export routes offering enhanced security and reliability. In the oil industry, 2P reserves are the total of proven and probable reserves while probable reserves are less likely to be recovered than proven reserves.
Being the first transaction to be announced since the Nigerian government’s recently ratified PIA, the company stated that the deal would support Nigeria’s energy transition and objectives of the new Act. Seplat Energy said it was fully committed to working with the Nigerian government to bring the strategically important national assets fully into Nigerian ownership alongside the national oil company, NNPC.
In addition, it noted that the development of the gas resources would support the government’s objective to achieve a pragmatic, progressive and just energy transition for Nigeria. The transaction agreement also includes potential additional contingent consideration of up to $300 million in total, payable over the period 1 January 2022 to 31 December 2026, and contingent upon average Brent crude oil prices exceeding $70 per barrel and subject to MPNU’s average working interest production exceeding 60 kboepd (JV: 150 kboepd).
The deal primarily comprises a 40 per cent operating ownership of four oil mining leases (OMLs 67, 68, 70, 104) and associated infrastructure with NNPC being owner of the rest 60 per cent. It includes the Qua Iboe Terminal, one of Nigeria’s largest export facilities as well as a 51 per cent interest in Bonny River Terminal and Natural Gas Liquids Recovery Plants at EAP and Oso.
However, the contract does not include ExxonMobil’s deep-water assets in Nigeria.
According to statement, the cash consideration payable under the transaction will be funded through a combination of existing cash resources and credit facilities of Seplat Energy, and a new $550 million senior term loan facility and $275 million junior offtake facility.
Also included is a global financing syndicate comprising Nigerian and international banks, as well as commodity trading companies, while contingent payments, if materialised on Brent oil price annual average above $70/bbl, will be funded through share of net cash flows from operations.
Under the Sale and Purchase Agreement, Seplat Energy will pay a deposit of $128 million, which will be applied towards the purchase price on closing.
“If the transaction does not proceed, the deposit will be repaid to Seplat Energy where the agreement is terminated by Seplat Energy in certain circumstances.
“The Transaction does not require the approval of Seplat Energy’s shareholders and will not result in any changes to its Board. The Company currently expects the Transaction to close in H2 2022,” it stated.
Commenting on the deal, Chairman of Seplat Energy, Dr. Bryant Orjiako, said: “This is a transformational acquisition for Seplat Energy that strengthens our partnership with the national oil company, the NNPC, and consummates the spirit of the newly enacted PIA.
“As a significantly larger business, with a stronger resource base and greatly enhanced capabilities, we will be better positioned to provide sustainable energy solutions that drive growth and profitability for the benefit of all our stakeholders, particularly our host communities and the wider Nigerian economy.
“We fully support the aims of the federal government’s “Decade of Gas”, and this acquisition will accelerate our development of Nigeria’s gas resources to help achieve a just transition for our rapidly growing country.”
For months, Mobil’s officials have been holding talks with several Nigerian companies to gauge their interest in the fields, followed with the opening of a “data room” – which provided technical information on the fields, such as seismic and production details – in Nigeria.
The discussions focused on a number of onshore fields ExxonMobil shares in joint ventures with Nigerian state oil firm, Nigerian National Petroleum Corporation (NNPC), including Oil Mining Leases (OMLs) 67, 68, 70 and 104.
