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ExxonMobil-Seplat share transaction, not asset deal

Worried by the unending inquiries by investors and stakeholders, who barely a week ago welcomed its share deal with ExxonMobil, Seplat Energy on Monday, said no event of cancellation of the transaction has occurred.

Nigeria’s corporate and business world, especially the oil and gas industry, was literally agog following the share purchase announcement by Seplat Energy Plc., a leading indigenous energy company listed on the Nigerian Exchange and the London Stock Exchange.

Seplat and Exxon Mobil Corporation, Delaware, USA (ExxonMobil) that they had entered into an agreement for the Seplat to acquire the entire share capital of Mobil Producing Nigeria Unlimited (MPNU) from the latter, subject, however, to the usual 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, to Seplat Energy through Seplat’s wholly-owned Seplat Offshore.

“Seplat Energy has become aware of newspaper and social media reports 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).

“The Company wishes to clarify that the Sale and Purchase Agreement (SPA), earlier announced on February 25, 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,” Seplat Energy said in a statement at the Nigerian Exchange Limited (NGX).

This announcement was made pursuant to Rule 17.10 of the Rulebook of the Nigerian Exchange, 2015 (Issuer’s Rule).

“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 Energy is a compliant company and will continue to follow the laws of the Federal Republic of Nigeria,” the statement read.

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 the other divestments.

Transaction package

Rendering highlights of the deal, which is the first of its kind since the enactment 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 Exchange Limited and London Stock Exchange. It will also 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).

Nigerians are excited as they await the final Ministerial Consent to bring such strategically important national assets fully into Nigerian ownership alongside the Nigerian National Petroleum Company (NNPC), the existing Joint Venture (JV) partner. This is in line with the government’s objective to achieve a pragmatic, progressive and just energy transition for Nigeria.

In its incisive analysis, 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.

Very instructively, 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.”

The transaction will also 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.

JOA misinterpretation

However, amid this local and international acclaim, and in a move to block the transaction, the NNPC Group Managing Director, Mele Kyari, according to a media report, has 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,” Kyari was quoted.

This is just as a recently published article in support of NNPC’s action quoted oil industry source affirmed NNPC’s rights under the law to exercise such pre-emptive powers.

NNPC hinged its move on a June 28, 1990, Joint Operating Agreement (JOA) between it and MPN, as it pertains to ‘Participating Interest”.

Regarding transfer and assignment of interest, Article 19.4 provides: 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: 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: “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 states: “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%), in the case of Mobil.”

Thus, these provisions clearly show a misunderstanding of issues, as the transaction that happened between Seplat and ExxonMobil, Delaware, USA, was not a transfer of a “Participating Interest”. Besides, 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, and in line with its business/investment strategy, to dispose of all its shares in MNPU, which owns the said assets in Nigeria.

This is the major point that must be understood so as not to give the wrong impression to the international business community, as according to the shares owners, it visibly has no Right of First Refusal (RFR) to exercise on this transaction.

Seplat 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 it easily raised $260 million through a consortium of banks to fund its part of $650 million financing for the project.

Recently, the NNPC, and analysts pushing its case have argued that with its transition into a registered profit-making and limited liability company vide the PIA, it was out to reshape and optimise its portfolio by acquiring assets with high performance, low vulnerability and huge gas potential.

Analysts believe NNPC‘s sudden 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.

They wondered that as a government-backed entity, is it not supposed to be more interested in taking over perceived more vulnerable assets with higher security and production issues?

Prioritisation of gas

Meanwhile, it is reported that NNPC’s interest in taking 100% possession of the assets in question was informed by its efforts not to risk another partner on the NNPC MPNU JV that might not see the monetisation of the assets gas component as a priority.

This should not even be considered given Seplat’s profile in gas investment and its leading role in Nigeria’s energy transition. It produced 20,758 boepd gas in 2021 and supplies 30% 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 it easily raised $260 million through a consortium of banks to fund its part of $650 million financing for the project.

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