Business
Stakeholders decry govt policy on IOCs divestment, local content
BY EMEKA EJERE
The growing rate of divestment by International Oil Companies (IOCs) from the Nigerian oil and gas sector is posing a threat that has kept the federal government strategizing on how to save the sector from collapse, findings have shown.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said at the weekend that collaboration, strategic alliances, mergers and acquisitions may provide leeway for Independent Petroleum Producers Group (IPPG) to enable them compete with multinationals.
The IPPG, an umbrella body for indigenous Petroleum Exploration and Production (E&P) companies in Nigeria, is made of 25 indigenous member oil and gas companies with global reach and capacity in the sector.
There are five IOCs operating in Nigeria, which include Shell Producing Development Company, TotalEnergies, Chevron, ExxonMobil and Eni. According to reports, most of the assets targeted for divestment by the IOCs were the onshore properties located mostly in shallow waters on land.
A report in the Africa Report, a journal on African politics and business, stated that in the past 11 years the IOCs had divested a total of 26 Oil Mining Licences in the Niger Delta Basin with more set to be sold.
However, the federal government, in May, declined its consent to the proposed acquisition of oil and gas assets belonging to Mobil Oil Producing Nigeria Unlimited (MPNU) by Seplat Energy, citing overriding national interest among other reasons.
Seplat Energy Plc., a leading indigenous energy company listed on the Nigerian Exchange and the London Stock Exchange, had in February this year, announced its acquisition of the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) for $1.28 billion from Exxon Mobil Corporation, Delaware, USA (ExxonMobil subject, however, to Ministerial Consent and other required regulatory approvals.
The President, ExxonMobil Upstream Oil and Gas, Liam Mallon, said the company sold its equity interest in its shallow-water business, MPNU, to Seplat Energy through Seplat’s wholly-owned Seplat Offshore.
Rendering highlights of the deal, which is the first of its kind since the coming on stream of the Petroleum Industry Act (PIA), Seplat, on its part, put the purchase price at $1,283 million plus up to $300 million contingent consideration.
The transaction, it said, would create one of the largest independent energy companies on both the Nigeria Stock Exchange and London Stock Exchange as well as bolster Seplat Energy’s ability to drive increased growth, profitability and overall stakeholder prosperity, delivering 186% increase in production from 51,000 bpd to 146,000 bpd or 170% increase in 2P liquids reserves, from 241 MMbbl to 650 MMbbl.
In addition, it was expected to deliver a 14% 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).
Little wonder Nigerians were excited as they awaited the final Ministerial Consent to bring such strategically important national assets fully into Nigerian ownership alongside the Nigerian National Petroleum Corporation (NNPC), the exiting Joint Venture Partner. This is in line with government’s objective to achieve a pragmatic, progressive and just energy transition for Nigeria.
Wood Mackenzie (WoodMac), a global and reputable intelligence provider that empowers decision-makers with unique insights on the world’s natural resources, lauded the deal saying it was a win-win for Seplat, ExxonMobil, and the Nigerian government, offering huge upside for oil and gas.
Mackenzie added: “Because this is a corporate acquisition, NNPC has no rights to pre-empt a deal under the Joint Operating Agreement (JOA), which governs the JV. This means that ministerial consent would be the only hurdle remaining, although nothing can be taken for granted.”
However, few weeks after, it was reported that the Nigerian National Petroleum Company (NNPC) Limited had opted to exercise its Right of First Refusal (RFR) on the sale of the assets, which then put a hold on the transaction.
Threat to economy
Speaking at an event organised by the IPPG on the eve of the Nigeria Oil and Gas (NOG) Conference and Exhibition in Abuja at the weekend, Chief Executive of NUPRC, Gbenga Komolafe said although the threat posed to the development of the Nigerian hydrocarbon industry by divestments of the IOCs remained of serious concerns, the impetus for divestment by the majors should spur IPPG and other prospective indigenous player.
“The impetus for divestment by the IOCs is mainly attributable to the hostile upstream petroleum environment arising from the menace of crude oil theft and energy transition as a global response to the advocacy for the reduction in carbon emission”, Komolafe said.
“Our view as a commission is that the IPPG and other prospective indigenous players should perceive the IOCs’ divestments in some of the upstream assets as an opportunity rather than a threat to the development of the Nigerian upstream petroleum sector.”
Komolafe argued that there was need for stronger IPPG through collaboration, strategic alliances, mergers and acquisitions targeted at producing synergies and large independents that can compete with multinationals.
“It is indeed the right time to look inwards in the sector to proof the capability of the local content in value addition and optimizing development of the nation’s hydrocarbon resources,
“Therefore, we encourage you as indigenous players across the value chain to deploy your competency and ingenuity in promoting vibrancy and capacity utilization in the industry,” he noted.
Chairman IPPG, Abdulrasaq Isa said the indigenous companies must understand the changing dynamics in the oil and gas industry, especially energy transition and divestment by IOCs to ensure that energy security is guaranteed for the country.
He urged the operators to see the opportunities in the prevailing situation, noting that there was need to guide against the effects that these events pose to the nation’s energy security.
Recently, the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, expressed fears over the increasing divestments by the IOCs from Nigeria, begging the federal government to provide more incentives to the IOCs to remain in Nigeria.
In a statement by its President and General Secretary, Festus Osifo and Lumumba Okugbawa, respectively, PENGASSAN noted that the trend which started in 2012, spread quickly in the industry and had reduced the fortunes of developments in the Oil and Gas fields.
The statement read in part, “While we are not averse to indigenous participation in the Nigerian Oil and Gas industry, we will not fold our arms and allow mediocre to take hold of our national assets and ruin the fortunes of future generations for immediate gains.
“It is on record that since IOCs started divestment in 2012; most of the companies that purchased such assets do not have and cannot attract the requisite finances for capital expenditures in such fields or have made reasonable efforts to provide the required human and technical developments of Nigerians within their establishment.”
Similarly, the Nigerian Content Development and Monitoring Board (NCDMB) has lamented that the divestment by the IOCs and their reluctance to make fresh investments in the nation’s oil and gas industry have worsened incidence of capital flight out of Nigeria.
The development according to NCDMB is stifling the nation’s economy of the much-needed foreign exchange with funds used as loans to acquire oil and gas assets leaving the country instead of being used to develop new production facilities in-country.
Delivering a convocation lecture at the Federal University of Petroleum Resources (FUPRE) Effurun, Delta State, titled “Defining the Value of Local Content in Petroleum Education” at the Federal University of Petroleum Resources (FUPRE) Effurun, Delta State, recently, Executive Secretary, NCDMB, Mr Simbi Wabote, posited that the IOCs’ divestment has resulted in the emergence of indigenous companies playing major roles in exploration and production activities.
This, he said, has seen companies like AITEO, FIRST E&P, EROTON and others acquire assets and are now responsible for producing about 15 per cent of Nigeria’s oil and more than 60 per cent of domestic gas.”
Meanwhile, a former board member of the Nigerian Extractive Industries Transparency Initiative (NEITI) and Managing Partner at ENR Advisory, Mr. Gbite Adeniji, has faulted the denial of ministerial consent to Seplat Energy’s bid to acquire MPNU oil assets, the move implied that real players and investors were never wanted nor desired in Nigeria.
Adeniji also wondered why the federal government had not been able to subject the massive oil losses and attendant negative impact on the nation’s economy to an independent judicial inquiry to ascertain the cause and address the menace.
“The message seems to be that real players are never wanted nor desired in Nigeria. We need to be worried”, he stated.