Olusola Bello
The Nigerian National Petroleum Company (NNPC) has no rights of pre-emption in the ExxonMobil and Seplat Energy deal that led to the acquisition Mobil Producing Nigeria (MPN) Unlimited, because it is a corporate acquisition.
This means that Seplat Energy plc has bought over Mobil Producing Nigeria (MPN) Unlimited as a company, a subsidiary of ExxonMobil which operates some assets under the joint Operating Agreement (JOA) with Nigerian National Petroleum Company.
Unlike the situation with Shell which sold off some of it assets, ExxonMobil/Seplat deal is not divestment of assets, but a total sale of the company.
Esso which is the parent company of MPN and which has the biggest deepwater assets among the international oil companies in Nigeria is however still very active in the country.
According to a document prepared concerning the deal by Wood Mackenzie and cited by Business Standards, it says NNPC has no pre-emption in the deal under the Joint Operating Agreement (JOA) which governs the Joint venture between MPN and NNPC. In the assets operated by MPN, NNPC has a 60 percent stake in them.
“Ministerial consent would be the only hurdle remaining, although nothing can be taken for granted. In Shell’s ongoing divestment of its subsidiary SPDC, similarly rules out pre-emption.”
The document stated further that If NNPC wants to acquire that portfolio, then it will have to out-bid the competition. If successful in raising up to US$5 billion with Afrexim Bank it would have the firepower to do just that, and massively strengthen its position in the onshore delta.
On 25 February, Seplat Energy announced an agreement to acquire the entire share capital of Mobil Producing Nigeria Unlimited (MPNU), a subsidiary of ExxonMobil. MPNU has a 40% operated interest in a Joint Venture with NNPC (60%).
The JV includes OMLs 67, 68, 70, 104, the Qua Iboe oil export terminal. MPNU also has a 51% interest in the Bonny River NGL Recovery project.
Seplat has agreed to pay US$1,283 million plus a contingent consideration of up to US$300 million.
The effective date is 1 January 2021 and completion is expected in H2 2022, pending ministerial approval. Seplat’s debt financing of US$825 million is fully committed by a syndicate of Nigerian and African banks, and energy and commodity traders.
“If it completes, the deal will be transformational for Seplat Energy. It is already the leading indigenous company in Nigeria, but this will triple its working interest production to over 140,000 boe/d. In total, Seplat will operate 15% of Nigerian oil production. “
“Crucially, the deal diversifies its operations into shallow water, which is largely devoid of the thefts afflicting its onshore operations. Although this is Seplat’s first offshore acquisition, it will acquire all of MPNU’s Nigerian staff, thus allaying any concerns about its operational capabilities.”
“Our equity-based valuation of MPNU – excluding the Qua Iboe terminal – is US$870 million (discounted 10%, Jan. 2021, US$50/bbl long-term). However, at US$70/bbl, we value the company at US$1,678 million. In the energy transition era, ExxonMobil will be pleased with this deal. But so will Seplat, as the deal offers huge upside for oil as well as gas. The portfolio includes a massive 1.3 billion boe of portfolio becomes very oil dominated. ExxonMobil refused to be drawn into the high risk domestic gas market, and had no contingent resources, 75% of which is gas. Less than half of its 70 fields have been developed. Although the JV has been in production since the early 1970s, its maturity relates more to the extensive infrastructure than the reservoirs themselves. Yes, many fields are in decline, but they have also been under-invested for over 20 years.
Seplat has built a business turning around the Majors’ unwanted assets, a process it started in 2010. With the acquisition, its portfolio becomes very oil dominated.
ExxonMobil refused to be drawn into the high risk domestic gas market, and had no exposure to NLNG. As a result the acreage has the highest concentration of gas flaring in the country. Seplat, a listed company, will tackle this need to immediately.
Longer-term it will look to develop access into the domestic market in line with government policy, while there is also scope for LNG too. An FLNG project at Yoho on OML 104 was already under discussion before the deal. That could now accelerate, while long-term supply to NLNG is another option.
“There is also possible upside from the Petroleum Industry Act (PIA) fiscal terms. Our analysis shows the JV portfolio would more than double in value if Seplat converts. However, this is far from certain, since it would have to relinquish up to 60% of its acreage and much of the resource it has just acquired.
According to the document a thorough review of its now extensive portfolio to identify the most advantaged barrels will be an urgent priority.
“The deadline for converting to the new fiscal terms is February 2023. The deal is not without risks either. Seplat will have to find billions of dollars in the longer term to transform its portfolio and some rationalisation could follow.”
“NNPC will of course be Seplat’s JV partner, and its ability to fund its 60% equity longer term as it transitions to a limited liability company will be just as critical to the success of the deal.
ExxonMobil has been planning to sell its JV business for years, and its exit is overdue. The shallow water JV assets have long been non-core and are some of the highest-cost barrels in its global portfolio. Although emissions were not a key driver for selling, the deal will help with its recently announced net-zero targets for scope 1 and 2 emissions. The portfolio has an intensity of 48 kgCO2e/boe, more than double its global average. It can now focus on renegotiating workable fiscal terms for its Nigerian deepwater assets like Erha and Usan. However, if that does not end successfully, a country exit could be on the cards, given its deepwater options in Guyana and Brazil.
