ExxonMobil-Seplat Deal: When regulator overrides the minister

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It also indicated a deep crack in cooperation between the Ministry of Petroleum Resources and two key agencies under it: the Nigerian National Petroleum Company (NNPC) Limited and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC). The polarization spell s clash of interests in a deal between two private commercial players seeking transaction approval on assets in which government holds overriding interest.

Discerning observers can also trace the crack right up to the Presidency where two separate camps issued conflicting statements on the position of President Muhammadu Buhari on approval of the acquisition deal.

In the first release which sparked jubilation in the industry, Chief Press Secretary to the President, Femi Adesina, announced that President Buhari had approved that Seplat’s acquisition of ExxonMobil’s interests in Mobil Producing Nigeria Unlimited (MPNU) be progressed to conclusion.

Outside the government, Seplat Energy fired a jubilant press statement announcing to shareholders across the globe that the deal which has remained a source of suspense in the company’s performance reports had finally crossed the last mile.

The Chief Executive Officer, Seplat Energy Plc, Mr Roger Brown

While congratulations poured in for the deal makers, the flares went dim with a counter announcement from the NUPRC declaring that the approval request from the private players remained declined: an unprecedented display of brazen effrontery in any official setting.

“The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) affirms that status quo remains in respect of ExxonMobil/Seplat Energy share acquisition,” Komolafe declared in the press release he personally signed.

He clarified that “the Commission in line with the provisions of the Petroleum Industry Act 2021 is the sole regulator in dealing with such matters in the Nigerian upstream sector. As it were, the issue at stake is purely a regulatory matter and the Commission had earlier communicated the decline of Ministerial assent to ExxonMobil in this regard.

“As such the Commission further affirms that the status quo remains. The Commission is committed to ensuring predictable and conducive regulatory environment at all times in the Nigerian upstream sector,” the statement read.

Very many people dismissed the press release personally signed by the Commission Chief Executive (CCE) of the NUPRC, Mr Gbenga Komolafe, as a ruse by mischievous internet fast fingers that might have been running parallel transactions on the same assets.

Chief Financial Officer at Seplat Energy, Emeka Onwuka, declared that “Seplat Energy has received no official notification of such a decision and is seeking clarification from the relevant authorities.

“We will continue to work with all parties to achieve a successful outcome to the proposed acquisition and will provide an update in due course.”

Those familiar with the commission agree that the letterhead upon which the press release was issued is not the regular one normally used by the NUPRC. Second it the fact that the commission has a full fledged Public Affairs Directorate that normally handles press matters. No experienced energy reporter expected a press release personally signed by the CCE.

But worries began to develop when there was no prompt disclaimer from the commission. Instead the fears of internal rancour were confirmed in a television interview granted by the CCE justifying his public objection to approval granted by President Muhammadu Buhari for Seplat Energy Plc to consummate the acquisition agreement with ExxonMobil Corporation of USA.

It later turned out through clarification from the senior presidential aide on publicity, Garba Shehu, that President Muhammadu Buhari had rescinded his highly hyped and applauded approval of the transaction!

This would be the second time the NUPRC would deflate a build up to sign-off on the acquisition process.

Earlier in the year, the regulatory agency had in a letter informed Seplat Petroleum that it was not the right party to approach the minister for asset divestment approval since, according to the lease administrator, is not yet the assignor of the assets operated under a joint venture between government and MPNU.

The regulator who related the position of the minister of State for Petroleum Resources, Chief Timipre Sylva, on the request cited procedural error in presenting the request and advised Seplat to approach ExxonMobil for guidance on the process.

In turning down Seplat’s request in a letter to the company in May, the NUPRC stated: “regardless of the mode of the transaction, MPNU, remains, to all intents and purposes, the assignor under Nigerian law and is the proper person to bring an application for Ministerial consent to the transaction, not Seplat. Consequently, you are hereby requested to revert to MPNU, the assignor, to receive updates on your application.”

There are many blind sides to subsequent moves by both MPNU and Seplat to reset and progress the process of securing ministerial consent, but analysts had expressed worry that procedural matters took the regulator’s priority over more germane indices for value generation.

The industry pundits who were jubilant over the president’s approval of what would be a landmark merger and acquisition deal in Africa are now analysing the role of the regulator in deciding for the minister, and, in fact, rejecting ministerial assent.

Worse is that a leaked query in which the Minister of State expressly directed the CCE to take correction and align with initial directives was totally ignored by the commission.

Hon Minister of State for Petroleum Resources, Chief Timipre Sylva

In his query to Komolafe, Chief Sylva took time to address all legal issues raised by the commission in its objection to the ministerial assent. He also asserted strongly that the law also provides for the minister to “reject” recommendation of the commission if valid reasons exist.

“My attention has been drawn to the unfortunate incident of press conferences that you granted on 8th and 9th August 2022, in electronic and print media, rejecting the approval of Mr. President and Ministerial Consent on the grounds that it did not comply with the Petroleum Industry Act, 2021 (PIA 2021), after the Presidency had issued a press release on Mr. President’s approval,” the minister pointed out.

He also pointed at procedural error in the commission’s communication to the presidency which he said bypassed the office of the Minister of State; drawing Komolafe’s attention to subordinate position of the NUPRC as an agency under the Ministry of Petroleum Resources.

He further punctured claims to absolute powers claimed by the commission in handling lease administrations and acquisition approvals.

“The CCE is aware of an extant Presidential directive that all memoranda from his office should be passed through the Board of NUPRC to the Office of the Honourable Minister of State for Petroleum Resources, for onward transmission to Mr. President. The CCE had in the past adhered to this directive, except in cases in which, for whatever interest, he chose not to.

“For the avoidance of doubt the NUPRC is still an agency under the Ministry of Petroleum Resources, and the regulatory power given to the Commission under the PIA 2021 is also embedded in the Honourable Minister’s role as stated in Section 3(b) of the PIA 2021, which is to ‘exercise general supervision over the affairs and operations of the petroleum industry in accordance with the provisions of this Act.

“Contrary to what you stated, the Ministerial Consent was granted in exercise of the powers conferred on the Honourable Minister of Petroleum Resources by the provisions of Paragraphs 14-16 of the First Schedule to the Petroleum Act, 1969.

“This is because the assets are Oil Mining Leases (OMLs) which have not been converted to the regime established by the Petroleum Industry Act, 2021 (PIA 2021), but remain under the regime of the Petroleum Act, 1969, a legislation that has been preserved and grandfathered by Section 311 (9) of the PIA.

It added, “Even if the Ministerial Consent was made pursuant to the regime established by the PIA 2021, the Act is also clear on the consent required of the minister on assignment of interest. Section 95(2), PIA 2021 states that ‘the consent of the Minister shall be granted upon recommendation by the Commission’, while Section 95(7a) states: ‘where the Minister rejects the recommendation of the Commission the Minister shall provide the reasons for such rejection.’

“The above sections of the PIA 2021 state unequivocally that a recommendation by the Commission is not cast in stone.

“The approval of Mr. President, who doubles as the Honourable Minister of Petroleum Resources, therefore supersedes any other position on the subject matter.”

Chief Sylva ordered the CCE to restore approval to Seplat’s acquisition of MPNU as earlier granted.

“The CCE is hereby directed, as a matter of urgency, to implement Mr. President’s approval conveyed under cover of my letter dated 8th August 2022 on the above subject,” Chief Sylva directed.

But Chief Sylva’s query was promptly nullified by President Buhari backing of the commission on the matter.

President Buhari’s publicist, Garba Shehu, pointed out that “it has become clear that the various agencies involved in the decision had not coordinated well among themselves and having looked at all of the facts with all of the ramifications, the president decided the position of the regulator is to be supported.”

“From what has emerged since Monday, there are clear indications that powerful forces are at play. The power flow structure in the Ministry of Petroleum Resources is currently standing upside down, with regulatory agencies and sister units of the ministry securing presidential support to stand publicly in defiance of the Minister of State. And for the first time, President Muhammadu Buhari who holds the infamy of rigid decisions had to bite a humble pie and swallow his spit after notifying the world and equity markets that Seplat Energy Plc was underway to become a major Nigerian player. Those who have followed President Buhari since 2015 understand how difficult it is for the former army general to rescind his decisions.“

What is at stake in the ensuing power play between the junior minister and the regulatory agency is ministerial assent to a transaction between private players. And obviously, the CCE of NUPRC is by no means a minister. It logically follows that whereas he drives the administrative process for the minister’s signature, he is limited by his current position and role. It could therefore be safe to interpret the role of the CCE in the present circumstances as insubordinate, encumbering and disruptive.

A lateral issue in the deal is the declaration by the Nigerian National Petroleum Company (NNPC) Limited that it deserves a pre-emptive right to be offered the acquisition opportunity first, having been the senior non-operating partner in the joint venture operated by MPNU under a Joint Operating Agreement (JOA).

The Oracle Today reports that the NNPC Limited holds 60 percent financial interest in the JV while MPNU holds 40 percent operating interest. And what is at stake in the acquisition of MPNU is the 40 percent JV stake held by parent ExxonMobil.

Our enquiries at both companies showed that Seplat was never at any point in contention or competition with the NNPC Limited during any proposal or bid process for the ExxonMobil shares in MPNU. We gathered that asset hungry Seplat was casting nets when it became clear that multinational oil firms which have committed to net zero targets set by home governments were focusing on investment recovery from Nigeria.

The Chief Executive Officer of Seplat Energy, Mr Roger Brown, had told The Oracle Today during a stock market outing that the company had approached ExxonMobil with a private proposal to acquire its local JV affiliate. The proposal, he explained, formed the foundation upon which consideration for the deal progressed.

He had told equity market pundits that divestment opportunities are still abundant in the Nigerian conventional hydrocarbon play as international companies continue to diversify from fossil energy in line with net zero targets and ESG commitments.

Seplat announced earlier in the year that it was progressing with ExxonMobil on the acquisition plan, assuring equity market players that that the company projected to conclude the deal by the end of the year. The company stated some months later that it now waited on the ministerial assent to acquire MPNU.

It was at this point that the hand of NNPC Limited became visible in the deal. The NNPC which has just acquired administrative and financial autonomy from the government declared dispute with its exiting JV partner and secured judicial acknowledgement of dispute as basis to bring ExxonMobil to arbitration.

By throwing a block under the wheel, NNPC significantly slowed down the progress of the transaction, leaving the transaction parties struggling with delicate and complex technicalities that spell out entitlements of the national oil firm under a new Petroleum Industry Act (PIA) that is currently under a test run. Thus, the resolution to the current quagmire appears to reside in the efficient interpretation and operationalization of divestment and exit clauses in the existing JOAs.

Outside the PIA regime into which the Seplat’s acquisition deal unfortunately walked, the NNPC and Seplat have existing templates on divestment. They both sit on precedents that actually brought Seplat into existence during the initial phase of divestment of interests by Shell, Total and Eni on the one hand; and further divestments by Chevron and Eland.

The erstwhile Chairman of the company, Dr ABC Orjiakor, had told The Oracle Today in an interview that Seplat would also continue to drive growth with accretive acquisitions.

The Oracle Today recalls that Seplat is established on pillars of asset acquisitions in which the NNPC has been involved. Seplat Energy had in July 2010 acquired a 45% working interest divested by Shell, Total and Eni in Oil Mining Leases (OMLs) 4, 38 and 41. It also assumed operatorship of the assets in which the NNPC through its Nigerian Petroleum Development Company (NPDC) retains original overriding 55 percent financial interest.

In September 2102, Seplat took additional 45 percent working interest in OML 40 in which the NPDC is operator. The company also acquired 40 percent interest in OML 53; revenue interest in OML 55; 40 percent working interest in Oil Prospecting Lease (OPL) 283; and working interest in OML in Ubima oilfield through the acquisition of Eland Oil’s Nigerian affiliate.

Beyond the acquisitions that bond Seplat with NNPC, there are other similar deals that support the precedent of acquisitions in the country. A clear model is the total acquisition of ConocoPhillips’ local affiliate in Nigeria by Oando Plc. And the exit of ConocoPhillips entailed that Oando took all its interests from deepwater PSCs to conventional terrain JVs; replacing the American oil multinational in all partnerships and agreements with the NNPC and other partners.

As in the PIA, the Petroleum Act which governed all known divestment and acquisitions in the country provided that the deals were cleared by the Minister of Petroleum Resources, a position which the new law only consolidates with minor modifications.

The ministerial assent, according to industry experts who apply caution in talking about the ongoing intrigues, is a traditional requirement that provides government with a clear view on transactions involving exploitation of mineral resources owned by full population of Nigerians.

Dr Sina Malomo of the Ministry of Solid Minerals told The Oracle Today that the mineral resources of a country are owned by the total population of past generations, present generation and future generations. This, he explains, requires that the interest of the state is protected at all times.

He made it clear that commercial arbitration among players is beyond the scope of regulators’ duties and should not form basis for taking decisions on approval requests. Dr Malomo was not making reference to the ongoing assent crisis rocking the petroleum ministry.

Another source in the industry pointed out in a phone conversation that the ongoing divestment process involving ExxonMobil, a publicly listed entity, is under international watch. He noted that the powers shaping the rules under the new PIA must be careful enough to realize that initial parameters and precedents for deals under the new law are emerging from the ExxonMobil divestment.

“Once a precedent is cast, the global equity markets and investment communities note it down. And that will play a big role in opening or squeezing the flow of investments into the country,” our source warned.

And beyond what has emerged as likely scramble for state assets by unseen contenders playing backstage, the strong pull to crash the deal marks a dangerous deviation from the prevailing migration of operating interests from the traditional foreign players that have formed government’s investment partners in the past 65 years to emerging crew of mainly indigenous independents that hold the future of the troubled Nigerian industry environment.

The PIA which is under test in the prevailing crisis provides preferential consideration for indigenous players with technical, financial and corporate management capacity to step into the shoes of the exiting multinational players.

Whereas both the NNPC Limited and Seplat Energy are indigenous companies, the national oil company stands a better stead for limitless opportunities for asset acquisition, funding access, sovereign guarantees and exploration rights.

As a national oil company, the NNPC Limited is the concessionaire of nearly all the nation’s oil blocks. Through the National Petroleum Investment Management Services (NAPIMS) the NNPC Limited controls government’s commercial stake in all commercial operations in the industry. Thus, using its huge influence in the industry to stall commercial considerations for mergers and acquisitions among its partners would pose a huge scare to investors.

That all the deep pocket players with capacity for high risk ventures are dismantling their structures in Nigeria should be enough source of worry to policy makers and regulatory enforcement drivers. Engaging in open display of insubordination and procedural flux defines the Nigerian worsening investment climate as shakier and riskier.

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