All articles in the Farm in, Farm Out Section:

By The Editorial Board of Africa Oil+Gas Report

In the week of January 24, 2022, speculations emerged that NNPC had exercised its right of pre-emption of the ongoing divestment of ExxonMobil’s Joint Venture assets, located in the south east shallow offshore Nigeria.

On the heels of those speculations came the news that the state hydrocarbon firm had received a $5Billion corporate finance commitment from the African Export Import (Afrexim) Bank to fund major investments in the country’s Upstream sector.

If NNPC’s plans for the money includes pre-empting the sale of ExxonMobil’s and /or Shell’s JV assets to other parties, then it would be deeply concerning.

Two sentences in the press release announcing the Afreximbank transaction give us pause. One allows that NNPC would be raising between $3.5Billion and $5Billion as corporate finance to fund major upstream investments. The other avers that the state hydrocarbon firm “plans to take over ownership from non-investing partner through acquisition of pre-emption rights in the sample Joint Venture”.

What ‘sample’ Joint Venture? Do these statements “confirm” the speculations that NNPC was exercising its right of pre-emption on the ongoing divestment of ExxonMobil JV assets? If they do, we should all be worried by this proclivity of NNPC to grab and grab. For one, the Nigerian state is in dire need of investors taking interest in any sector of its economy. The hydrocarbon opportunity is still one of the main drawing cards to the Nigerian concert party. In the ExxonMobil divestment process, the preferred bidder is the dual listed Seplat Energy, Africa’s largest homegrown independent, which ran with Trident Energy, a London based explorer, backed with funding from Warburg Pincus, a leading global growth investor. The reserved bidder is a consortium involving a new Nigerian independent and a London listed explorer Cairn Energy, who made the first commercial oil find in Senegal and has invested over $400Million in the last 12 months acquiring Shell’s brownfield assets in Egypt. What this means is that the divestment from majors attracts the cream of global investors.

NNPC just concluded pre-empting the sale of Chevron operated Oil Mining Leases (OMLs) 86 and 88 to Conoil Producing. If it swoops on ExxonMobil, it will draw a pattern. It would mean that it would do the same for Shell. And what does that mean? Nationalisation?

Soon, investors around the world will mark Nigeria as a no-go area. For how do you spend over $4Million in a bidding process only to get to a pre-emption sign at the end?

After the bungled Marginal Field Bid Round, an exercise that turned out to be the least transparent licence offering anywhere on the continent, the last thing Nigeria needs is to be seen as a jurisdiction in which a company, from anywhere, is not welcome to bid for asset.

What’s particularly noteworthy about its penchant for grabbing is that NNPC is not using them to build any capacity.

It would not manage the assets, so any excuse about “this being taken over in the interest of the state” is untrue. In the last three years, it has implemented Finance and Technical Service Agreements (FTSAs), with companies that it chooses to work the assets. Its choice of “partners” for the assets it grabs points more to cronyism than the quest to help build an industrial economy. So NNPC takes an asset that should have gone to Conoil, a proven operator of oilfields in the last 30 years, and turns around to “sell” the asset to MRS, a far downstream player. This time it plans to, if the speculations are confirmed, snatch victory from the jaws of Seplat, a 12 year old technically honed operator with 80,000BOPD operated production capacity and then “sell” it, through an  FTSA arrangement, to a company that participated in the ExxonMobil bid but lost out?

And who says we shouldn’t challenge these pre-emptions?

Why are people so unwilling to challenge these matters in court?

One recurring argument in the statement on the Afreximbank funding commitment was that NNPC was seeking to take advantage of the opportunity provided by the new law: Petroleum Industry Act. Our question is: What more does it want? As we’ve noted here in an earlier piece, NNPC is in joint venture in acreages that produce 45% of the country’s crude, and will continue to be. It is also the Concessionaire in the Production Sharing Contract (PSC) arrangements, which deliver over 39% of the crude, according to the 2018 Oil and Gas Industry annual report by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

And there is the matter of NPDC, the operating subsidiary of NNPC, which has been gifted joint venture participation in 10 Oil Mining Leases (OMLs), all of them producing.

In 2019 alone, the Nigerian Government added more to the cart: It approved the transfer of OMLs 11, 24 and 98, including the operatorship of OML 116, from Federation’s interest (NNPC) to NPDC.

NPDC is also the sole stakeholder in three producing OMLs and two non-producing OMLs (i.e. no Joint Venture with any company, no PSC relationship, just NPDC held).

So, what does it want: to take over the entire concession map?

Winners of the Nigerian marginal field bid round who haven’t paid the stipulated Signature Bonus have forfeited the awards, the government has said.

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) says that “the forty-five (45) calendar days allowed for payment of the requisite Signature Bonus by all recipients of the Letter of Notification of Potential Awardee Status in the 2020 Marginal Field Bid Round (MFBR) has since lapsed”.

Accordingly, the regulator notes, in line with the rules and guidelines governing the 2020 Marginal Field Bid Round and the Notification of Potential Award Letters, “all offers made to potential awardees who have failed to pay the Signature Bonus for their respective equity participation have expired by operation of law, and such interests have reverted to the bid basket due to effluxion of time for payment of the applicable Signature Bonus”.

The letter, signed by Gbenga Komolafe, Commission Chief Executive (CCE) of the NUPRC, says “the Commission accepts no responsibility or liability in respect of any action or activity by any such potential awardee, their partners, associates, representatives or privies in further pursuit of any consideration or award under the said MFBR”.

The Commission explains that “participating interest for Fields where the potential awardees have  failed  to  pay all the required Signature Bonus will be pro-rated and the portion not paid for has automatically reverted to the bid basket and will be offered to Reserve Bidders, in line with paragraph 9(iii) of the MFBR GuideIines”.

This is to ensure “maximum participation of a wide cross section of Nigerians”. The commission allows that “Eligible Reserve Bidders will be contacted shortly to provide proof of funds for payment of the applicable Signature Bonus, as a basis for the issuance of potential award  letters  for  the  equity  participation taken  back  into       the  bid basket”. The letter can be accessed here.

Or is it?

Angola’s just concluded bid round exercise favoured, mainly, the country’s homegrown independents.

Nigerian owned companies are expected to be the primary beneficiaries of the ongoing divestment of 22 oil mining leases (OMLs) by AngloDutch Shell and ExxonMobil.

The Egyptian founded Pico-Cheiron recently finalized the $926Million purchase, along with the London listed Cairn Energy, of Shell’s equity in 13 onshore concessions and the Badr El-Din Petroleum Company (BAPETCO). in Egypt.

On the surface, it would seem the market has been flung open for homegrown African owned independents to grab E&P assets being sold by the state and being divested by the majors.

Believe us when we reiterate: There is a growing number of African born operators who want to put in sweat equity develop the asset and, in the process, build capacity.

But there’s a tendency we also see. The African independent can be more easily taken by the rentier instinct, and skew its work towards extracting enough to keep company owners financially comfortable and the rest of the system: tax to the state, reserves addition, increased output, community improvement, poorer.

For the most part since our founding in November 2001, this trade journal has eulogized the African homegrown independent.

Now we wonder if the concept is not overrated.

We ask you to connect with us as we interrogate this idea in our copies.

The Africa Oil+Gas Report is the primer of the hydrocarbon industry on the continent. It is the market leader in local contextualizing of global developments and policy issues and is the go-to medium for decision makers, whether they be international corporations or local

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Angola’s state hydrocarbon company Sonangol has announced the completion of the sale of its shares in Puma Energy to Transfigura.

Sonangol’s release says:

Sonangol and Pumangol are honoured to announce the completion of the sale process of its shares in Puma Energy to Trafigura and the acquisition of Pumangol, as announced on 16th April, this year. The conclusion of this process followed the procedures and regulatory approvals required and represents Sonangol’s official departure from the shareholding structure of Puma Energy, with which Pumangol and all its assets become wholly and solely owned by Sonangol.

Sonangol’s exit from Puma Energy’s shareholding structure and the acquisition of Pumangol represent the achievement of a strategic objective of Sonangol and a firm step in the company’s Privatization Program, as well as the acquisition of a reinforcement to its core business of a profitable company with valuable assets.

For Pumangol, the conclusion of the acquisition process represents an Angolanization shareholder, leadership and staff. It’s the beginning of a new journey where the legacy of the Puma Energy era, grounded in its experience, will continue to keep Pumangol vigorous and efficient, adding quality and value for its shareholder, and continuing to provide an excellent service and a range of high quality products to its customers.

Savannah Energy’s announcement that it had signed a Share Purchase Agreement (SPA) with ExxonMobil and its affiliates (Mobil Corporation, ExxonMobil International Holdings, Inc., and Esso Exploration Holdings), over their entire upstream and midstream asset portfolios in Chad and Cameroon, confirms the speculations that the American major was divesting from the Chad Republic, as well the associated Chad Cameroon pipeline project.

Savannah will take over these assets.

The UK-listed Savannah had also separately signed an SPA with the Malaysian state firm PETRONAS (E&P) Overseas Ventures SDN. BHD. 

The SPAs both have an economic effective date of 1 January 2021.  

Completion of both agreements with (1) ExxonMobil companies and (2) PETRONAS, would result in Savannah acquiring a 75% controlling interest in the Doba Oil Project and an effective c. 70% indirect controlling interest in the Chad-Cameroon export transportation system. The remaining 25% interest in the Doba Oil Project is held by the national oil company of Chad, SHT Petroleum Chad Company Limited (“SHT”). The remaining 30% interest in the Chad-Cameroon export transportation system is held indirectly by affiliates of SHT together with the Republic of Chad and the national oil company of Cameroon, Société Nationale Des Hydrocarbures. 

In 2020 the Doba Oil Project produced an average gross of 33,700 Barrels of Oil Per Day (BOPD) and the Chad-Cameroon pipeline transported a gross of 129,200BOPD. 

Due to their size and nature, both agreements individually constitute reverse takeover transactions pursuant to AIM Rule 14 and, accordingly will be subject to, inter alia, shareholder approval. Savannah intends to publish the associated AIM Admission Document, which will contain a notice of general meeting, on or around 17 December 2021, following which point the Company would seek restoration to trading on AIM of its ordinary shares. Please refer to the Company’s earlier announcements today at 4:30 p.m. for the respective Schedule Four disclosure for both acquisitions. 

Andrew Knott, Savannah’s Chief Executive Officer, says he is delighted about the signature of SPAs to acquire control of the upstream and midstream assets of Exxon and PETRONAS in Chad and Cameroon. “These assets have generated billions of dollars of critical tax revenues for their host countries and free cash flow to their owners since the onset of first oil production in 2003”, he contends in the release. “Further, under our stewardship, we expect these assets in aggregate to generate positive free cash flow and fiscal revenues for Chad and Cameroon for a further twenty-five plus years. For Savannah, these deals are expected to see our production levels and reserve base more than double. Further, we see strong potential to significantly increase upstream production and midstream throughput volumes from current levels through incremental investments”.