The continued divestments by International Oil Companies (IOCs) from their Nigerian operations have been a source of concern. In the latest development, the Nigerian National Petroleum Corporation (NNPC), now NNPC Limited, has secured an injunction from the Federal High Court in Abuja restraining the sale of shares of ExxonMobil’s Nigerian unit to any third parties, which in this case is Seplat Energy Plc.
The order granted on July 6 restrains Mobil Producing Nigeria Ltd and Mobil Development Nigeria Plc from selling, trading, allocating, transferring, or disposing off their shares in their interests covered by or connected to the Joint Operating Agreement between Mobil and the NNPC. The order restrains the sale of assets covered in Oil Mining Lease (OMLs) 68,69,70 and Oil Prospecting Licence 94, to any entity pending the determination of the claimant/applicant’s motion filed on the 5th of July.
In February, Seplat Energy Plc had agreed to buy the entire onshore and shallow-water assets of ExxonMobil in Nigeria. The acquisition would give Seplat additional production of about 95,000 barrels of oil equivalent a day from shallow-water assets that Exxon operated in a joint venture with NNPC. Seplat, on its part, insists its deal with Exxon remains valid, as the company has no business with the NNPC lawsuit. Mele Kyari, group managing director of NNPC, had said IOCs that divest from Nigeria’s upstream sector fail to address issues of abandonment and decommissioning of oil assets. Decommissioning is the general term for returning an oil production site to its pre-lease condition at the end of the useful life of the oil asset. Many fields abandoned in Nigeria are not decommissioned largely because of the local companies who acquire them.
The NNPC’s objection was also because as a joint venture (JV) partner with Exxon’s Nigerian units, it had preemptive rights over any sale of the assets of the company. According to the terms of the JV contract, the NNPC, which holds a 60% share in Mobil Producing Nigeria Unlimited (MPNU) JV, has the right of first refusal in any asset sale agreement. This gives the NNPC the right to match the best (financial) terms for any such acquisition and acquire the asset.
However, Mobil Oil Producing has said the deal was not an asset sale but merely a sale of its shares to another entity, an argument the NNPC has refused to accept. The protection of minority investors and enforcement of contracts are key components in the measurement of the ease of doing business. Hence, we expect the government and its Ministries, Departments and Agencies to ensure agreements in contracts are adhered to, given the present dire need for foreign investment inflows.
An order from a Nigerian court had also forced Shell Plc to place on hold its plans to sell off its remaining onshore permits in Nigeria. For over a decade, international oil companies (IOCs) have divested their assets to local oil companies due to operational difficulties, crude oil theft, climate targets, non-passage of the PIB, etc. It is no news that the lack of investment in deep water petroleum exploration is threatening Nigeria’s reserves.
Though the government has previously noted that such divestments are an opportunity for the indigenous oil firms to thrive, we are of the view, that the problems leading to the current spate of divestments, if not addressed, will affect the productivity of the new indigenous owners.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
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