How merger, acquisition options strengthen Nigerian content in oil, gas sector
BARELY five years after passing the Nigerian content bill into law, the indigenous oil and gas firms across the value chain may have exhibited strong commitment to the sector via several prevailing investment strategies.
As many independent operators gather momentum to hold enviable stakes in the nation’s hydrocarbon wells, the existing assets may have continued to produce oil at an impressively increasing rate. This development according to the stakeholders, was an indication of successful strategies towards financial liberation, which initially appeared to be a clog in the wheel of the operations of local firms.
ndeed, the Nigerian oil and gas industry has recently registered itself in the global list of merger and acquisitions (M$A), through the outright purchase of assets from interested parties as well as series of divestment by the International Oil Companies (IOCs). The divestments, according to experts were triggered by a number of factors, like security concerns, fiscal policy issues and particularly, the uncertainty surrounding the passage of the Petroleum Industry Bill (PIB).
A report recently launched by Aluko and Oyebode Chambers on the ‘Nigeria M$A in 2014 and the outlook for 2015’, predicted that there would be several M&A transactions amongst indigenous oil companies as they seek to enhance their financial capability to purchase the oil and gas assets which may be disposed of by the IOCs in 2015. Just recently, the Aiteo Group, an indigenous oil and gas company won the bid for Royal Dutch Shell’s oil mining licence 29 (OML 29) and an associated pipeline with a bid of $2.7 Billion.
Oando Plc also announced in April 2014 the completion of the sale of East Horizon Gas Company to Seven Energy International Limited for $250 Million. In July 2014, Oando Energy Resources completed the acquisition of Medal Oil Limited for 100 per cent ownership of OML 131, being the asset acquired in the ConocoPhillips deal.
Other oil multinationals such as Chevron and Total are involved in several divestment programme, while some have been concluded, others are under litigation.
The CFO at Total, Patrick de La Chevardiere, said: “The sale of these non-operated onshore blocks in Nigeria is yet another example of our strategy of dynamic portfolio management, achieved at attractive valuations. These transactions also reduce our exposure to non-operated blocks onshore Nigeria, and allow us to focus on our core, operated developments, such as the Egina project.”
Commenting on its M$A strategies, the Chief Executive Officer, Oando Energy Resources Inc, Pade Durotoye, said: “In 2014, we executed on our growth strategy by acquiring the Nigerian upstream business of ConocoPhillips Company and our continued focus over the near term will be on optimizing the performance of these key assets.
“While the acquisition propelled sizable improvements in our production base, we also invested in our legacy assets, which we expect will support further organic production growth in the near future.
In the wake of the acquisition we have acted on a number of opportunities to improve our balance sheet including converting debt to equity and, subsequent to year end, resetting our oil hedging program, which contributed $234 million of the $238 million debt reduction in a $50 per barrel environment.”
Besides, an indigenous upstream giant, seplat had recently indicated interest in acquisition of Afren, the British oil and gas group with operations in Africa and Iraq, but the transaction has since been scuttled.
A global management consulting firm A.T. Kearney also predicted a significant increase in mergers and acquisitions in the oil and gas sector for 2015, and encouraging the companies to take advantage of merger and acquisition opportunities created by lower oil prices.
The opportunities exist, according to the firm, as a result of oil prices falling below $50 from Brent’s $115 high in late June.
Because the intense pricing pressure challenges cash flows, all oil companies need to have a clear near-term and long-term response to the situation, as they did in the late 1990s when mergers and acquisitions were seized to reshape the competitive landscape to the companies’ advantage, A.T. Kearney.
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