How Oando shattered the barriers to divestment deals

• As NUPRC still spurns the MPN-Seplat deal 

Sopuruchi Onwuka

The late entry of Oando Energy Resources (OER) in the prevailing divestment programme and its rapid progress to secure the first approval from the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) now dominate hushed discussions in the industry.

Before now, the NUPRC had been the time proven dead end to transactions between international oil companies (IOC) and indigenous independent companies seeking buy up the interest of the multinationals that currently pull their capital from operated joint ventures with the Nigerian National Petroleum Company (NNPC) Limited.

The transactions for sale and acquisition of oil interests require the recommendation of the NUPRC and subsequent consent or approval of the petroleum minister. But none of the deals ever progressed beyond the NUPRC until Oando arrived.

Mobil Producing Nigeria (MPN) Unlimited which, after a frustrating wait, launched a direct access to the minister and actually secured an approval from the Minister of State for Petroleum Resources had the ministerial consent overturned at the petition of the NUPRC. 

Shareholders of both Seplat and ExxonMobil in Nigeria and abroad have marked the unfinished divestment deal as unmet aspiration featuring in the companies’ annual reports in the past three years.

While the MPN divestment deal festered, the Shell divestment queued up; then the Equinor deal arrived, and NAOC also made a timely landing. The indigenous companies buying the petroleum interests also queued behind their transaction partners in conjuring differing strategies to appease intransigent NUPRC.

But Oando arrived with signals of hope! The NAOC-Oando deal came at a time the key contender in the divestment issues, the NNPC Limited, was yet to settle into the new government administration which came into power last year. The Group Chief Executive Officer, Mr Mele Kyari, was constantly in the entourage of the new president.

It became a huge relief when the national oil company announced that it was withdrawing its objection to the NAOC-Oando divestment deal. The shift in the position of NNPC Limited has since left the Commission Chief Executive (CCE) of NUPRC, Mr Ggenga Konolafe, quickly shopping for new narratives to justify delays in approval.

New reason now is that the NUPRC has been meticulous to avoid mistakes noticed in similar divestments elsewhere in the whole wide world. No mistake has been pointed out as addressed in the Nigerian process so far.

And when Mr Komolafe announced last weekend that Oando’s acquisition of NAOC JV interests have been approved and awaiting signing ceremony, many conference delegates applauded with some understanding glee! The door is finally open no matter how. And the last has become the first.

Was the Oando deal politically facilitated of patronized? No one can tell because the Group Chief Executive of the company, Mr Wale Tinubu, holds a solid image in the industry as an astute businessman who has no history of mingling with politicians. He has always been in the trenches, avoiding the limelight of political power.

But Wale Tinubu has history of inorganic business growth in the petroleum industry, grooming the Oando brand from a marketing and trading concern to an indigenous upstream stalwart. He has pulled some for the most audacious acquisition deals in the industry and made sacrifices to maintain a stable altitude. He has traversed rough paths that taught him prized lessons. He has also suffered some bruises.

So, the entry of Oando into the ongoing asset divestment programme might have been perfectly timed to be propelled by the wind of change in government and in the industry.

How Tinubu built the Oando brand from Ocean and Oil, and from downstream marketing business to exclusively upstream play is legendary. The new story is how Oando is fast becoming a dominant player in the industry where it was considered a rookie a few years ago.

Mr Wale Tinubu has had his eyes on the dormant upstream oil assets sitting in the portfolios of the international oil companies (IOCs) operating in the country. He had vigorously canvassed divestments as early as 2005 after most of the IOCs abstained from the 2005 bid round in resentment to introduction of the rights of first refusal by the defunct Department of Petroleum Resources (DPR), the nation’s lease administrator.

In several policy debates across years, Mr Tinubu had vehemently pressed on with calls on government to persuade the IOCs to give up dormant assets in their respective portfolios for acquisition by indigenous companies seeking landing and growth assets in the upstream petroleum play.

He argued that divestment of idle assets would let smaller indigenous companies assist in delivering governments production and reserves growth aspirations in the petroleum industry and also prepare local players for inevitable crew change. He had said many times that the IOCs would definitely discard more assets as onshore Niger Delta goes brown.

Mr Tinubu saw the big picture early in the game, and he was early in mopping up micro interests in a number of small assets operated by indigenous companies in the industry. Today, Oando arguably has one of the largest and widespread upstream exploration and production equities in the industry. Its choice and partnership Eni operated entities has also sparked studies.

Maintaining a grip on ConocoPhillips which was a non operating interest in the NNPC/NAOC/ConocoPhillips JV, Oando became Nigeria’s first indigenous interest holder in a producing deep offshore oil block when in 2008 it announced acquisition of 15 percent stake in AGIP’s OML 125 and OML 134 hosting the deepwater Abo field.

Wale Tinubu had declared at the time that the company would continue to explore opportunities to build a robust portfolio of upstream oil and gas properties.

Later, in December 2012, Oando entered into agreements to acquire ConocoPhillips’ entire business interests in Nigeria. The acquisition conferred Oando with 20% non-operating interest in Oil Mining Leases (OMLs) 60, 61, 62, and 63 as well as related infrastructure and facilities in the NAOC JV. 

Oando also inherited 17% interest in the defunct Brass LNG Limited, 95% operating interest in OML 131, and 20% non-operating interest in OPL 214 previously held by affiliates of ConocoPhillips in Nigeria.

Every step in the company’s progress was challenged with daunting political, financial, disputation and sometimes, legal obstacles; including very costly approval delays. Thus, the company appears to have, across the years, mastered how to make strategic leaps.

 Oando jumped into the divestment fray at a strategic moment, leveraging already developed and shared confidence with the Eni affiliates in the country. And the acquisition of the NAOC JV also came at a time Nigeria is suffering debilitating production plunge, a situation the industry blames in part on official lethargy in rapidly managing ownership transition of the assets. 

The company joined in at a time the regulator is under fire to move the industry forward. And at time there is logical consensus in the industry that the regulator is holding down the hands of players who are willing and ready to inject vibrancy into an industry after years of activity lull.

Torrents of calls have been made on players in the Nigerian petroleum industry to rise up to the challenge of boosting oil and gas production from the onshore and offshore terrains.

Government agencies in the industry blame falling production on crude oil stealing and illegal artisanal refineries. The NNPC Limited estimates that thieves running illegal export routes steal significant 400,000 barrels per day. That is nearly the combined processing capacity of all three refineries run by the national oil company.  By industry estimates, it would take about 10 onshore oilfields to produce what thieves steal on daily basis.

But the industry pundits point out that the steepest declines come from JV assets currently in divestment stages. And analysts posit that the thieving syndicates and all the illegal artisanal refineries lack the facilities and infrastructure to steal that volume of production without notice.

Chairman of AA Holdings, Mr Austin Avuru, appears to paint a perfect picture of what has happened to Nigeria’s output. And he has consistently explained that Nigeria’s abysmal production performance is a direct result of low activity level in existing assets and lack of new development investments in discovered deepwater fields.

He made it clear that the crude thieving syndicates operating illegal artisanal refineries in the creeks of Niger Delta do not have holding capacity for the 400,000 barrels per day that government attributes to them.

He blamed lingering divestment deals and disputes over deepwater operating terms for the acute decline in production, saying no new investments were going into the assets in divestment limbo or development of new assets in the deepwater.

Mr Avuru admits that crude oil stealing is still a visible menace to the industry and that the artisanal refineries compound environmental and operations difficulties. But he made it clear that the menace of thieving syndicates in the operating environment is decades old and predates the current challenge of rapidly falling production.

He also noted that most of the onshore oilfields in the country including major deepwater producers have actually gone brown and below their plateau output levels.

He had called on the regulators of the upstream petroleum industry to evolve a recovery plan that would enable a fresh flow of investments into exploration and development both in the deepwater and conventional oil terrains.

He recommended rapid approval of pending divestment deals to allow new owners inject fresh capita in reserves replacement and enhanced production, as well as resolution of all pending fiscal and operational disputes hampering development of huge discoveries in the deepwater.

Chairman of the Independent Petroleum Producers Group, Mr Abdulrasaq Isa, called on the NUPRC last weekend to expedite approval of divestment deals to enable members of the group throw in their weight behind the coordinated efforts at bolstering production.

The Oracle Today reports that Seplat Energy Plc is locked in a protracted wait to secure approval to acquire JV assets of Mobil Producing Nigeria (MPN) Unlimited; Renaissance is seeking ministerial approval to acquire JV assets of Shell Petroleum Development Company (SPDC) Nigeria Limited; Oando queued in with transaction to acquire JV assets of Nigeria Agip Oil Company (NAOC) Limited.

In the deepwater, indigenous Project Odinmim came seeking approval to buy out Norwegian Equinor from Chevron operated Agbami fields.

Mr Avuru said that all the JV assets under transaction suffered investment and activity neglect due to uncertainties associated with the difficulty in securing ministerial approval.

Interestingly, the entry of Oando into the queue at a time of change in government appears to have moved the hands of the unwavering NUPRC. Also, the Oando brand melted the boldness of the Nigerian National Petroleum Company (NNPC) Limited in seeking overriding interest in the equity distribution in the divested assets.

The NAOC divestment is the only one that sailed unopposed directly to the table of the Commission Chief Executive (CCE) of the NUPRC, with the NNPC Limited declaring that it is not in the way of the NAOC-Oando divestment.

Again, it turned out that the NUPRC appears to have inverted the list during approval stages, starting with Oando which arrived last and which is likely to hold an imminent signing ceremony.

The CCE of NUPRC, Mr Gbenga Kmolafe, boasted at the Nigerian Oil and Gas (NOG) Energy Week hosted in Abuja that the NAOC-Oando divested was completed in about 60 days circle; a time line the industry actually estimates for deals of such nature.

According to him, “The NAOC-Oando divestment has been concluded. The signing ceremony is to be conducted in the coming days. The Equinor-Project Odinmim divestment had also been completed. Also, the signing ceremony is to be conducted in the coming days. For the SPDC–Renaissance deal, documents have been submitted by SPDC. The documents are undergoing due diligence as we speak.”

He stated that the NUPRC was still awaiting application for ministerial consent from the parties in the ExxonMobil– Seplat deal.

A source close to Seplat Energy told our correspondent that the requirement to raise fresh application would not be an issue in the new process, adding that Seplat had actually attempted a ministerial consent in the past.

“I think the company is on track in all the processes, and now that the CCE has declared he is waiting for the application is the time to move quickly,” our source stated.

A source close to Shell stated that the company and its parties in the divestment process are patient to pass all the stipulated processes now that government has declared it has no issue with free exit of investors.

With all the divestment deals lined up for approval, nearly all joint venture assets hitherto operated by SPDC Limited, NAOC Limited and MPN Unlimited would now be operated exclusively by Nigerian companies. Thus the NNPC/NAOC/Oando JV would now become NNPC/Oando JV. The NNPC/Shell/TotalEnergies/Agip JV would now become NNPC/Renaissance JV. And The NNPC/MPN JV would potentially become NNPC/Seplat JV.

This places over 67 percent of all onshore JV operations in the control of indigenous companies led by the exploration and production unit of the NNPC Limited.

Both Oando and Seplat, along with other smaller indigenous independent companies, already have active JV relationship with the NNPC Limited. And the size of assets trailing the new divestment deals holds immense potential to launch the indigenous independent companies into major players in the African upstream petroleum sector.

What remains to be seen is the level of harmony that would play when the new partners begin to interact. The changing operations crew would indeed form a critical capacity and competence appraisal for the national oil company and her new Nigerian cohorts.