Making ExxonMobil-Seplat transaction a reality in Nigeria’s interest
Just as stakeholders were settling into the news about the share deal between ExxonMobil, and Seplat Energy, the news about Nigerian National Petroleum Company (NNPC) Limited’s alleged objection via its Right of First Refusal (RFR) on the sale of the assets filtered in. As the country seeks improved production in the oil and gas sector, stakeholders hope the issues will be addressed without recourse to another round of legal battle while assets remain under-utilised.
Seplat Energy Plc and Exxon Mobil Corporation, Delaware, USA (ExxonMobil) recently announced that they had entered into an agreement for the former to acquire the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) from the latter, subject, however, to the Ministerial Consent.
The President, ExxonMobil Upstream Oil and Gas, Liam Mallon, said the company sold its equity interest in its shallow-water business, Mobil Producing Nigeria Unlimited (MPNU), to Seplat Energy through Seplat’s wholly-owned Seplat Offshore.
Just as the industry was settling into the announcement, the NNPC was alleged to have exercised its Right of First Refusal (RFR) on the sale of the assets.
Contrary to claims that the Nigerian National Petroleum Company Limited (NNPC) has exercised a right of pre-emption under the NNPC/Mobil Producing Nigeria Unlimited (MPNU) Joint Operating Agreement (JOA), Seplat Energy stated that the transaction remains valid.
In a statement made available to The Guardian, Seplat said: “The Company wishes to clarify that the Sale and Purchase Agreement (“SPA”), earlier announced on the 25 February 2022, deals with the acquisition of the entire share capital of MPNU’s shareholders, Mobil Development Nigeria Inc. and Mobil Exploration Nigeria Inc., being entities of Exxon Mobil Corporation registered in Delaware (“ExxonMobil”).
“MPNU is not a party to the SPA and continues to hold its interests, rights and obligations under the NNPC/MPNU JOA.
“There are also some reports that the SPA between ExxonMobil and Seplat Energy has been terminated. Seplat Energy confirms that no event of termination has occurred, and the SPA remains valid and subsisting.”
Seplat added that it will continue to follow the laws of the country.
Interestingly, the ExxonMobil-Seplat transaction is not the first in the industry in recent times. Many industry watchers wondered why the NNPC did not exercise the same pre-emption action in similar divestments.
Rendering highlights of the deal, which is the first of its kind since the coming of the Petroleum Industry Act (PIA), Seplat, on its part, put the purchase price at $1.283 billion 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 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).
Already, Nigerians await the final Ministerial Consent to bring such strategically important national assets fully into Nigerian ownership alongside the Nigerian National Petroleum Corporation, NNPC, the existing Joint Venture Partner. This is in line with the government’s objective to achieve a pragmatic, progressive and just energy transition for Nigeria.
In its analysis, Wood Mackenzie (WoodMac), a global and reputable intelligence provider that empowers decision-makers with 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.
A Misinterpretation of Joint Venture Agreement?
Unfortunately, amid the local and international acclaim, the NNPC, through its Group Managing Director (GMD), Mele Kyari, was alleged to have written to MPNU, notifying it of its intention to exercise a Right of Pre-emption over the deal.
“We are aware that you reached an agreement to divest from onshore and shallow waters JVs…. Clearly we are interested”, the GMD was quoted as stating.
NNPC hinged its move on a June 28, 1990 Joint Operating Agreement between it and Mobil Producing Nigeria as it pertains to ‘Participating Interest”.
Regarding transfer and assignment of interest, Article 19.4 provides that subject to sub-clauses 19.1 and 19.2, if any Party has received an offer from a third Party, which it desires to accept, for the assignment or transfer of its participating hereunder (the “Transferring Party”), it shall give the other Party prior right and option in writing to purchase such Participating Interest as provided in sub-clauses 19. 4.1 to 19 .4.2.
Sub-clause 19.4.1 provides that the Transferring Party shall first give notices 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 that “Upon receipt of the notice referred to in Sub-clause 19. 2.1, the other Party may within thirty (30) days thereafter, request in writing the assignment and transfer of such Participating Interests to it, in which event the assignment or transfer shall be made to it on the same or equivalent terms”.
Meanwhile, these provisions could not be read or understood in isolation of the definition of a “Participating Interest” by the same Agreement.
Article 1.24 explains that “Participating Interest means the undivided percentage interest from time to time held by the Parties in the concession (s), the Joint Property and rights and obligations under this Agreement, namely: sixty per cent (60%), in case of NNPC; and forty (40 per cent), in the case of Mobil”.
Thus, these provisions clearly show that the NNPC might be mixing things up because the transaction that happened between Seplat and ExxonMobil, Delaware, USA, was nothing close to a transfer of a “Participating Interest”. Seplat did not deal with Mobil Nigeria producing Unlimited (MNPU) the Party in partnership with NNPC. Rather, it transacted business with ExxonMobil, Delaware, the parent company, which acted within its rights, as it pleased and in line with its business/investment strategy, to dispose of all its shares in MNPU, which owns the said assets in Nigeria.
This explains why the NNPC may have no power to exercise its Right of First Refusal (RFR) on this transaction.
NNPC’s argument borders on its transition into a registered profit-making and limited liability company via the PIA, as it seeks to reshape and optimise its portfolio by acquiring assets with high performance, low vulnerability and huge gas potential. For this reason, it prioritises the acquisition of divested assets under MPNU JV over those in Shell Petroleum Development Company (SPDC) JV.
In other words, observers have noted that NNPC‘s interest in the deal and taking over the entire JV (if it had the legal backing) is all about the attractiveness of the assets in question. As a government-backed entity, stakeholders wonder if the NNPC is not supposed to be more interested in taking over perceived more vulnerable assets with higher security and production issues?
As the sole importer of fuel, Nigerians are still dealing with not only intermittent biting fuel scarcity, but they are also yet to recover from the importation of toxic fuel that wrecked vehicles and put households through hardships.
There are concerns that the NNPC, under its watch, has been unable to meet its statutory obligations to the Federation Account in recent years.
Despite the surge in oil prices in the international market, it was unable to remit anything to the Federation Account in January 2022, making it the second time within a year, as it was the case in April 2021. In fact, with a deficit of approximately N2 trillion out of its projected N2.511 trillion, NNPC was only able to disburse N542 billion as against the N2.511 trillion it was budgeted to contribute. The Nigeria Governors Forum has protested the development.
Therefore, stakeholders have wondered why a debt-burdened NNPC is so quick to accumulate more debts via the $5 billion corporate finance commitment from the African Export-Import Bank (Afreximbank) to “acquire, invest and operate energy-producing 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 businesses that would secure their loans by their assets, NNPC rides on the government’s back.
Given Seplat’s profile in gas investment and its role in Nigeria’s energy transition, stakeholders hope the transaction will sail through for the benefit of the country. Spelat produced 20,758 boepd gas in 2021 and supplies 30 per cent of gas to power Nigeria. It became the first company to record a 50-50 venture with the NNPC through the Seplat/NNPC gas plant project – ANOH Gas Processing Company (AGPC) where Seplat raised $260 Million through a consortium of banks to fund its part of $650 Million financing for the ANOH Gas Processing Plant.