May 30, 2024

$1.3 billion ExxonMobil’s oil asset: Technical competence, nuanced experience, position Seplat to take over divestments assets – Investigation

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.To raise over $3 billion worth of revenue in 5yrs

Ilenre Irele

As oil giants divest from Nigeria’s onshore assets, local
consortiums are fervently applying themselves to fill the void left by these oil majors departing from onshore fields as they are increasingly attracted to secure offshore sites.

For example, after many decades of operation in Nigeria, TotalEnergies is the most recent foreign oil major that plans to leave the country’s onshore oil market.

The French energy company intends to sell its 10% stake in the Shell Petroleum Development Company of Nigeria (SPDC), following Shell’s divestiture in January.

The Niger Delta, Nigeria’s main hub for oil production, is often said to be the world’s largest oil-polluted region. Every year, thousands of leaks occur as a result both of bad infrastructure and sabotage. These imperil efforts by international oil companies (IOCs) to meet environmental and social regulations. The Nigerian Extractive Industries Transparency Initiative (NEITI) serves as the industry’s ombudsman.

It claims that persistent challenges with oil theft and vandalism were among the causes of a progressive withdrawal from the downstream sector by IOCs and other large companies.

The federal government through the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in March 2022 estimated that from January 2021 to February 2022 more than $3.3bn was lost to crude oil theft.

TotalEnergies is not the only big name departing the onshore scene. At the start of this year, Shell declared that it had reached an agreement to its 30% share in Shell Petroleum Development Company (SPDC) of Nigeria to a consortium of five businesses, four of them indigenous, known as Renaissance. Shell will loan the consortium $1.2bn to cover funding requirements and will provide additional finance of $1.3bn to fund SPDC’s share of a joint venture with the government’s Nigerian National Petroleum Corporation (NNPC) and other oil companies to supply the Nigeria Liquid Natural Gas (NLNG) plant, as well as its share of specific decommissioning and restoration costs.

Meanwhile, Norwegian major Equinor triggered the sale of its Nigerian operations to Chappal Energies, a Nigerian energy firm. With the transaction, the Norwegian energy company’s three-decade direct collaboration in Nigeria comes to an end. During that time, the business extracted over a billion barrels of crude oil from the Agbami field. In September, Italy’s Eni agreed to sell its Nigerian onshore subsidiary Agip Oil Company to local company Oando.

Enter the indigenous giants, testament

The divestitures are providing an opportunity for local firms to develop the onshore market. These are more likely to hire indiginous talent, giving Nigerians the opportunity to advance to high-ranking positions in the oil and gas industry and boosting to the domestic corporate sector as they step into the void.

Seplat Energy, listed on the Nigerian Stock Exchange (NGX) and the London Stock Exchange, has seen its share price trading at an all-time high this year while its market valuation is over $1bn at the time of writing.

Roger Brown, CEO of Seplat Energy, says that oil majors for many years scaled back on their onshore investments in Nigeria, as a result of local challenges and the competition from IOC assets in other countries. The dual-listed energy firm recently agreed to purchase ExxonMobil’s shallow-water oil assets. However, due to opposition from the NNPC, the transaction has not yet been finalised.

But competent sources familiar with the development told EnergyDay that approval for the sale can be secured in two weeks ending a two-year delay since the deal was first agreed upon.
The $1.28 billion sale in Africa’s largest oil exporter has awaited regulatory approval since 2022.

The source confided in EnergyDay that NUPRC might invite local companies, including Seplat to a meeting where approval will be given for Seplat ExxonMobil deal.

Seplat, Africa Oil and Decklar Resources are best placed to thrive in a climate of international under-investment in the sector, according to research from Renaissance Capital analysts Nikolas Stefanou, Alexander Burgansky and Sergey Raskolov.

The Head of Financial Institutions rating at Agusto&Co, Ayokunle Olubunmi, recently said that divesting the international oil company (IOC) to the Nigerian indigenous firms could come in the form of a two-edged sword.

It could relieve key technical competence areas in the oil and gas operations to Nigerians as there are specialised positions the IOCs reserve for expatriates and have never been occupied by Nigerians, Olubunmi said.

According to him, whatever profit the indigenous firms make will be retained in Nigeria, stressing that it could improve the stock market’s performance if the companies are listed on the country’s stock exchange.

On this score, Dr. Olufemi Omoyele said the presence of Seplat in Nigerian and London stock exchanges is a ” big plus for the company, so any divestments assets acquired by it will be judiciously managed, and in terms of finance it can tap into international finance.”

Prospects unveiling, concerns

Gbenga Komolafe, chief executive of NUPRC, says that Nigerian companies are now generating an increasing proportion of gas and crude oil production.

“Remarkably, I’m proud to say that indigenous companies contribute about 30% of crude oil and 20% of gas production, as well as 40% and 32% of oil and gas reserves, respectively.”

Consultancy Westwood Global Energy Group says that the upcoming years will present an exceptional chance for indigenous oil companies to take the lead in onshore and shallow-water exploration, with drilling and production likely to increase at least to the end of this decade. However, there are also downsides to the IOC exit. In some cases international oil services companies are also heading to the exit door: under the umbrella of the Independent Petroleum Producers Group, indigenous oil and gas producers have expressed concern about their departure because of “strict” local content standards in the country’s upstream petroleum sector.

Concerns have also been raised about the competence of local oil corporations, which are sometimes taking over with fewer resources and less experience. There are indications that the environmental, social, and governance performance of onshore fields may deteriorate further, which means that communities will continue to suffer challenges but may have fewer avenues available to them to pursue justice, in particular access to international tribunals.

But Dr. Omoyele allayed the fears over competence saying companies like Seplat have proved its mettle ” I think it will unfair to talk of lack of technical competence here, given the operations of most of these local oil companies.”

Still, the departure of IOCs from onshore does not mean they are exiting the country altogether. Offshore sites – which lack the security challenges of onshore – are increasingly attractive to the oil majors. The government says that about 13bn of Nigeria’s 37bn barrels of proven oil reserves were in the deepwater sector.

President Tinubu said that there were plans afoot to entice international investors in both offshore and onshore fields, with the transition to natural gas a clear priority.

“The moment I took over, there was a clear path that we set out to pursue, and we will ensure that Nigeria remains a top-level investment choice in the dynamics of the offshore and onshore sectors. We will review troublesome areas, fiscally and otherwise, to incentivise gas production in the age of transition to cleaner energy. We are ready to make a difference as a government. The good handshake that we have is for partnership and to accelerate and incentivise gas production in pursuit of the energy transition.”
However, of the indigenous showing interest in divestment assets, Seplat is definitely among the most promising.

The pedigree, trajectory

The company recently disclosed its unaudited results for the three months ended 31 March 2024, declaring a US 3-cent dividend per share for the period.

For the period under review, production averaged 49,258 barrels of oil equivalent per day, boepd, down 4.8 percent on the prior period,3M 2023: 51,720 boepd, but 5.7 percent above Q4 2023 production, and towards the upper end of 2024 guidance, 44,000 boepd – 52,000 boepd.

Seplat Energy also achieved more than 2.3 million hours without Lost Time Injury, LTI, at Seplat-operated assets in Q1 2024.

According to Seplat Energy, the message to investors on the acquisition of ExxonMobil’s share capital in Mobil Producing Nigeria Unlimited, MPNU, is unchanged. Dialogue between key parties is active and constructive, and the company remains confident that a conclusion will be reached on the transformational acquisition.

The company is the operator of five oil blocks: OMLs 4, 38 & 41, OML 53 and OML 40, and has shown leadership in the supply of processed natural gas to the expanding Nigerian domestic market with working interest gas volumes of averaged 112.3 million metric standard cubic feet per day (mMscfd), 30 percent of processed gas used for electricity in Nigeria.

In 2023, the company committed $11.5 million in 2023 towards projects that will end routine flares in its operations, including $10.8 million towards installing gas compression facilities at the flow stations in Amukpe, Oben and Sapele, and $0.7 million towards incineration at the Amukpe flow station.

With a significantly high indigenous workforce of 98 per cent, Seplat Energy seeks to ensure there is a positive multiplier effect on the local economy through significant local content spend, enhancing the Company’s local supply chain and contributing to a thriving and competitive local market. Seeking to use local business partners has also simultaneously reduced its operating costs and project risks by developing a mutually beneficial relationship with the Company’s local partners.

In 2023, the company grew its revenue by 31.0 per cent to $810.4 million by the end of September, 30 compared to $618.6 million as of September 2022

Despite the challenges of crude oil theft and pipeline vandalism, the company successfully raised it’s production output 48,152 boepd, as at September 2023, indicating an increase of 11 per cent from the level in the corresponding period of 2022, thus helping to boost Nigeria’s efforts to meet it’s Organization of Petroleum Exporting Countries (OPEC) production quota.

The company also successfully reduced it level of indebtedness, with Net debt declining to $347.6 million as of September 2023, compared to $452.2 million in the previous year.

In addition, Seplat has committed $1 million towards planting trees across Nigeria as part of afforestation efforts that will capture residual emissions.

The oil firm also funds a significant amount of sustainable community development initiatives to create shared value for communities. The company channels investment to areas that align local priorities with its business objectives whilst addressing the people’s broader development.

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