JV divestments: NUPRC owes new investors deal guidelines

Sopuruchi Onwuka

Industry response to the raging debate over the approval processes in the acquisition deal between American oil multinational firm, ExxonMobil, and indigenous multinational independent firm, Seplat, appears to raise anxiety about the fate of similar deals under the nascent Petroleum Industry Act (PIA) 2021.

Industry attention on the ongoing controversy is founded on the fears that the ongoing investment recovery by multinational oil companies forms the credible growth path for mainly indigenous independent oil companies that currently thrive on lean suboptimal assets in the upstream petroleum industry.

Chairman of AA Holdings, Mr Austin Avuru, told The Oracle Today that nearly all indigenous independent firms in the upstream petroleum industry are founded on lean assets.

“It is either that the reserves base is too lean or that the water-to-oil ratio is too high. It is clear that that the companies divesting the assets no longer consider them good enough for their scale of operations. Therefore they are no longer prime assets.”

He added that the only growth path for indigenous companies in the upstream exploration and production is accretive asset acquisitions, mergers and farm-in arrangements. He also pointed at organic growth opportunities, which, according to him, call for significant reserves growth programmes in operated assets that still have exploration potentials.

Whereas the Nigerian Oil and Gas Industry Content Development (NOGICD) Act of 2010 recommends preferential consideration for companies that operate in the country, the rate and frequency of licensing rounds have failed to offer the expected entry opportunity for aspiring indigenous investors seeking to thrust toes in the upstream industry.

Apart from Seplat which is obviously bullish with cash-for-asset acquaisitions, other indigenous independent oil companies with proven operating capacity in the conventional terrains, including Britannia-U, Consolidated Petroleum (Conoil), Platform and a host of others are desperate for new reserves.

With limited deepwater operating and funding capacity, the best available growth opportunity for the indigenous companies remains in the divestment programmes. And many indigenous companies await emerging divestments from the nation’s traditional joint venture partners.

Thus, analysts view that matters arising from the divestment of ExxonMobil joint venture portfolio as the critical set of issues that would ultimately dominate subsequent transactions as multinational major continue to recover capital from traditional joint ventures.

And how the regulators manage asset swaps in the industry would shape the fate of mainly indigenous upstream upstarts currently grappling with lean reserves base. 

In the most recent move to secure political approval, the deal in which ExxonMobil Corporation of the United States seeks to sell out all its stakes in Mobil Producing Nigeria Unlimited (MPNU) to Seplat suffered debilitating glitches in securing ministerial assent for a second time. What made the second attempt spectacular is the drama that shifted from failed backstage arrangements to onstage confrontations; introducing scary hints of power tussle in the official power flow chart.  

Thus, the country’s first post-PIA divestment deal involving attention grabbing billion dollar cash movement resulted in an initial success, some temporary jubilation and a disappointing fail.  

It has since become obvious that different recommendations and shades of advice had taken different routes to the president; and the time and quality of content determined the sequence and accompanying responses from the president who had in the present circumstances refused to delegate the ministerial role to his deputy, the minister of state.

Obviously, the Minister of State for Petroleum Resources, Chief Timipre Sylva, was not in the same lane with the Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Mr Gbenga Komolafe. The Nigerian National Petroleum Company (NNPC) Limited which had sufficiently established its position against the deal was not openly visible in last power play but its influence was very palpable.

The lack on internal cohesion, contending public statements in the ministry and in the Presidency, as well as the pendulum character of the president’s decision on the matter all delivered an impact that has kept the industry vibrating in the past one month. Local and foreign equity market players, industry players and government officials are all sucked into the debate about the strength of the new regulatory institutions upholding the provisions of the Petroleum Industry Act 2021 against currents of pressure that impinge from powerful political fronts.

Concerns are also high about the danger of regulatory overkill; with many analysts emphasizing the necessity for a flexible regulatory environment that enhances deal flow in the operating environment.  

The clear polarization of camps among interests in the MPN divestment also followed different logical premises and viewpoints: legal, commercial and political. Whereas some opinion camps fault the deliberate progression of a disputed transaction which remains subjudice, another pointed at the powers of the regulator as the fulcrum of the PIA. There are also sentiments in favour of the rights of players in the industry to legitimately trade in their equities without third party encumbrances.

Survey of comments by different investment groups in the petroleum industry showed pointed convergence on the need for regulators and policy drivers in the sector to generate specific guideline for mergers and acquisitions in the PIA environment.

The calls for guidelines come with the consciousness of the overriding pre-emptive rights of the NNPC on assets that would soon begin to fall under acquisition transactions. A regular reference has been made to the role of the national oil company in old and new divestments in the industry.

Suspicions are high that losers in a competitive bid could still launch a backdoor attempt through NNPC. Commentaries are still running on the role of the national oil company in divestment of the Chevron JV interest in OMLs 86 and 88 onshore Niger Delta. Fingers point at the final destination of the asset after NNPC exercised its pre-emptive acquisition right.

Another concern the recommended guideline must address is the relationship between NURPC, the minister of state and exercise of executive fiat in granting ministerial assent to deals in which companies have invested millions of dollars to drive to the last mile. Both the Petroleum Act and PIA require ministerial assent to divestments and license renewals. Both laws are not specific on the role of the Minister of State in the exercise of approval roles. Whereas it is clear that the Minister of State ought to step back when the Minister is in role, his role in exercise of executive fiat ought to be clarified.

Another gray area is the dichotomy between equity sale and asset sale. A regulatory guideline is urgently required to define the fate of investors in equities of companies operating in the upstream petroleum industry. And for exploration and production companies seeking equity funds from bourses, their relationships and commitments to the NNPC ought to be clearly defined and declared to investors.

With Shell still processing its bulk divestment for self and partners in the country’s biggest JV and Chevron continuously shedding JV assets in pairs, the regulator has the urgent responsibility to assist new investors with clear guidelines and parameters for acquisition transactions.