All posts tagged farm in-farm out

By Lukman Abolade, Senior Correspondent, Lagos

A multi-phase proposal by President Bola Ahmed Tinubu’s Policy Advisory committee, anticipates the sell down of NNPC Ltd’s stakes in over 50 acreages in the Niger Delta, to pull in close to $34Billion into the Nigerian treasury over five -six years, “if the transaction is properly and professionally managed”.

This estimated value is for upstream assets only. It “excludes challenging-to-value assets such as refineries, refined products infrastructure, and pipelines”, the committee explains.

The value estimates are based on precedent transaction multiples and the focus is on asset-level deals in Nigeria, according to the report entitled ‘Enabling growth in Nigeria’s Energy & Natural resources sectors: sector challenges and proposed interventions, dated May 2023.

NNPC holds between 55% and 60% in Joint Ventures in assets that deliver over 80% of Nigerian production. The plan is to sell in such a way that NNPC becomes a less than 50% partner in each of those acreages.  The state hydrocarbon company’s commercial relationships with its partners in these assets have been fraught over the years; where it is the passive partner, it has struggled to pay its cash calls. And its “senior partnership” status has been the reason, critics argue, for the underperformance of these assets, and the ruinously long contracting cycle, of over four years on average, for projects.

The plan to sell down equity of the NNPC Ltd has been on the table for decades.  The agenda has also always included NNPC’s non performing refineries and the company’s suboptimal midstream and downstream infrastructure; including product pipelines, tank farms,

The reasons adduced by the promoters of the sale are to raise funds for country’s national budget, enlist partners to high grade the value of the properties and minimise the corporation’s cash call obligations.

In the last seven years, the plan showed up vigorously in the 2017 and 2018 draft National budget plans championed by Udoma Udo Udoma and Kemi Adeosun, former Ministers of National Planning and Finance respectively, in (former) President Muhamadu Buhari’s First term in office.  But the idea never made it to approval, let alone implementation. By the time Buhari arrived for his second term in 2019, the notion had been altogether scuttled. With the benefit of hindsight, if the sale had sailed through at the time, the proceeds would have been swallowed in the large deficit hole ($10.7Billion) “lost annually to PMS subsidy and inefficiencies associated with the purchase, distribution, and sale of PMS”, the Committee says in the report.

In the budget plan for 2020, the then Finance Minister Zainab Ahmed, who had now absorbed the planning portfolio into her schedule, clearly confirmed that the nation’s oil assets were not for sale.

The President Tinubu Policy Advisory Committee’s proposal chose its words carefully to explain the raison d’etre for the sale this time around: “to foster private sector participation, attract foreign direct investment, and promote competition and efficiency within the industry”.

In the view of the Committee, the first steps would involve the establishment of a dedicated team to assess the portfolio of upstream, midstream, and downstream assets held by NNPC.

This team will conduct a thorough valuation exercise and analyse the potential range of considerations for divestment, will also conduct high-level decision analysis to ensure a well-informed approach.

In order to facilitate the divestment process, the Committee advises that in the first 100 days, the new administration should engage external experts, including investment bankers, legal advisors, and financial advisors. The experts would assist in identifying suitable buyers and test transaction principles with key stakeholders.

Additionally, the experts will be responsible for establishing a robust transaction process, determining an appropriate execution timeframe, and assessing market conditions to maximize the value of the divestment.

To attract potential buyers and financiers, the Committee recommends the preparation of an Investment Memorandum (IM) and Management Presentation. These documents will provide detailed insights into the assets available for sale and highlight the potential benefits of investment. Potential bidders will be identified, and non-disclosure agreements (NDAs) will be signed to facilitate the sharing of confidential information.

Once potential buyers are identified, a data room will be set up, and a shortlist of candidates will be selected for due diligence. The Committee advises engaging in bidding and negotiation processes to ensure favourable pricing and contract terms. A Sales and Purchase Agreement (SPA) will be drafted, and upon its signing, preparations for the transfer of operations will begin.

The Committee’s recommendations extend to three distinct phases. In the short term of 18 months ending in December 2024, the Committee proposes the sale of some NNPC stakes in shallow water assets operated by the international oil companies. The estimated value of these initial divestments is up to $4.5Billion.
For the longer term, the Committee proposes sale of some NNPC stakes in the shallow water Joint Venture with Nigerian independents. These divestments for the second phase are projected to reach a total value of up to $12. 9Billion.

In the long term, beyond May 2027, the Committee advises concluding the sale of JV assets planned for divestment or currently undergoing divestment in the Onshore East and West regions. This is projected to be up to $16.4Billion. These upstream sales will therefor total  $33.7Billion.

While the committee did not put the estimated value of NNPC owned refineries; its 19 petroleum product depots all over the country and its product pipeline network, there are back- of- the- envelope estimates by analysts that put the value at around $6Billion.

“By reducing NNPC’s stakes, the government aims to increase efficiency and unlock the sector’s potential for sustainable economic development in a country battling multi-dimensional poverty and dwindling income.

“President Tinubu’s Policy Committee believes that the sale of NNPC stakes in the oil and gas sector will contribute significantly to Nigeria’s overall growth and position the country as an attractive investment destination in the global energy landscape”.

By Toyin Akinosho

Africa Oil Corp, which marketed Kenya’s opportunities to the world and brought in Tullow Oil, has elected to withdraw from the country’s only upstream development project.

The Canadian junior says it has submitted withdrawal notices to its joint venture partners on Blocks 10BB, 13T and 10BA in Kenya, to unconditionally and irrevocably, withdraw from the entirety of the joint operating agreements (JOAs) and Production Sharing Contracts (PSCs) for these concessions. The Company has concurrently submitted notices to Ministry of Energy and Petroleum, requesting the government’s consent to transfer all of its rights and obligations under the PSCs to its remaining joint venture partner.

Africa Oil Corp has determined that “the carrying value of the Kenya intangible exploration assets was written down to $58.6Million at December 31, 2022, and the Company intends to further impair this value to zero”.

“Our strategy has shifted to focus on production and high potential exploration opportunities”, declares Keith Hill, the company’s President and CEO. Those opportunities include “our Orange Basin portfolio where we are now appraising the exciting Venus discovery, offshore Namibia”.

The production opportunity refers to the company’s stake in Prime Energy, which receives dividends from proceeds in Agbami, Akpo and Egina fields in Nigeria.

Africa Oil Corp. came into the consciousness of the global oil and gas community in the late 2000s, when it was vigorously marketing the Kenyan and Ethiopian opportunities, distributing printed regional maps and seismic sections from tiny booths at conferences focused on African oil and gas. These were the years immediately after the commercial discovery of oil in Uganda.

One company which took more than a cursory glance at those maps was Tullow Oil, which went ahead to farm in to acreages held by Africa Oil, took charge as operator and proceeded on a seismic and drilling campaign. In March 2012, Tullow announced a commercial discovery at Ngamia -1, in Block 10BB, placing Kenya on the hydrocarbon map of the planet. The South Lokichar basin development grew on the back of the Ngamia-1 discovery and the string of finds that came after it.

The latest field development plan calls for seven fields to contribute to a 130,000Barrels of Oil Per Day central processing facility from which the crude is evacuated into a 20 inch, 823 kilometre long, heated pipeline, which ferries the commodity to the country’s port town of Mombassa on the edge of the Indian Ocean.

AOC says, in its release, that it is proud to have played a central role in discovering the oil fields in Kenya’s South Lokichar Basin.

“We continue to believe these discoveries will form the basis of a significant oil producing province in the coming years with strategic value for the country. We have also had the privilege of working with our host communities on our social-focused programs and we are grateful to them for welcoming us to their midst. We thank the government of Kenya, our host communities and our joint venture partners for their support over the years and we wish them the best in taking the project forward to the next stage.”

Savannah Energy Plc has sold a quarter of its 41% stake in Cameroon Oil Transportation Company S.A. (COTCo).

The British junior reports that its wholly owned subsidiary, Savannah Midstream Investment Limited (SMIL), has signed a Share Purchase Agreement (SPA) with the national oil company of Cameroon, Société Nationale Des Hydrocarbures (SNH), relating to the sale by SMIL and purchase by SNH of 10% of the issued share capital in Cameroon Oil Transportation Company S.A. (COTCo).

COTCo owns and operates the 903km Cameroon section of the Chad-Cameroon export pipeline, the Kome Kribi 1 floating storage and offloading facility and related infrastructure. The pipeline has a 250,000Barrels Per Day (BPD) nameplate capacity and is the only international export route for oil production in Chad. “During 2022, COTCo transported an average of 124,000BPD of crude oil valued at an estimated $4.6bBillon at the prevailing Brent crude oil prices”, Savannah declares in a press statement.

“In consideration for the sale of the Shares, SNH will pay a cash consideration of $44.9Million to SMIL”. Savnnah says in a release. The Consideration, when received, will be used by the Savannah group for part repayment of existing debt facilities.

“Completion of the transfer of the Shares from SMIL to SNH will result in SMIL shareholding in COTCo reducing from 41.06% to 31.06%. Completion shall occur upon satisfaction of certain conditions precedent related to amendments to the bylaws of COTCo and is expected to occur in H2 2023. SMIL will retain the right to the dividend attaching to the Shares until the date of payment of the Consideration.

“Pursuant to the terms of the SPA, SNH and SMIL have pledged, inter alia, their support of one another as shareholders in COTCo.”

Norwegian junior Panoro Energy has entered into a definitive agreement with Beender Tunisia Petroleum Limited to acquire the latter’s 40% shareholding in Sfax Petroleum Corporation (SPC) for a total consideration of approximately $18.2Million in a mix of cash and shares.

The total acquisition cost of $6 per 2P barrel.

The deal translates to an addition of almost 3Million barrels of oil of 2P reserves and net daily production of 800-900Barrels of Oil Per Day (BOPD). This increases Panoro’s full year 2023 production guidance to 9,500 to 11,500BOPD (from 9,000 to 11,000 BOPD), recognising approximately nine months of production from completion, and increases the 2023 peak target to in excess of 13,000BOPD (previously in excess of 12,500BOPD) around year end SPC, through its subsidiaries, indirectly owns a 49% interest in the producing TPS Assets which comprise five oil field concessions in the region of the city of Sfax, onshore and shallow water offshore Tunisia, including Cercina, Cercina Sud, Rhemoura, El Ain/Gremda and El Hajeb/Guebiba. SPC also holds 87.5% interest in the Sfax Offshore Exploration Permit (SOEP) offshore Tunisia.

Prior to the acquisition, Panoro’s effective ownership of SPC stood at 60% (29.4% interest in the TPS Assets and 52.5% interest in SOEP), which it acquired from OMV in 2018. Post the Acquisition Panoro’s ownership of SPC will increase to 100% (49% interest in the TPS Assets and 87.5% interest in SOEP) and SPC will be a fully owned subsidiary of Panoro.

Panoro says that the taking of Beender’s 40% ownership of SPC equates to a 19.6% interest in the producing TPS Assets and 35% interest in SOEP.

As part of the acquisition, Panoro has assumed approximately $ 4Million of Beender’s share of outstanding Tunisian loan facilities. Panoro has refinanced this Tunisian facility into its principle corporate facility, increasing total facility amounts by $9Million (separately Panoro has made Q1 loan repayments of $ 6Million). Panoro has then also assumed Beender’s share of cash and working capital equivalent to approximately $6.5Million.

The Consideration payable is inclusive of all working capital adjustments with completion expected in April 2023.

Balance sheet as of the completion date will include an additional 40% of asset and liabilities of SPC acquired at fair value and equally the results from the Tunisian operation will be consolidated at 100% Upfront consideration comprises $4.9Million cash and $ 8.3Million (“Share Consideration”) via the allotment and issue of 2,945,035 new Panoro shares at an issue price of NOK 29.18 per share (issue value NOK 85,936,092.12).  Half of the Share Consideration have an agreed lock-up period of six months form the issue date, whereas the remaining 50% are subject to a lock-up of 12 months.

Deferred consideration of  $ 5Million payable in cash by end 2023.

About The TPS Assets.

Italian explorer ENI is making progress as the sole developer of the massive Baleine discovery it made in Block CI-802 offshore Cote d’voire in 2021.

But the company is open to having a partner with good money to farm in and share the costs.

ENI has an 83% stake in Block CI-802, with state-hydrocarbon company Petroci, being carried with 10% equity.

The Italian giant has not openly declared the need for farminee, but the ultimate cost of the deepwater development at over $10Billion naturally calls for a well-heeled, get-along partner, even when the development is a multi-phased activity for which the funding is provided in bits.

ENI is fast tracking the development with first oil targeted for the second quarter of 2023. The first phase envisages a fast-track subsea tieback to the Firenze FPSO, which will produce from three subsea wells in 1200 metres of water, with oil exported by shuttle tanker and gas piped to thermal power stations in the Ivory Coast..

A full-field development will involve many more subsea wells probably tied back to a bigger production facility, perhaps a bigger FPSO or a shallow water fixed platform.

An appraisal cum exploration drilling was successfully delivered in August 2022, boosting reserves, according to the company, by 25% to 2.5Billion barrels of oil and 3.3Trillion cubic feet of gas. It is not clear if these are ultimately recoverable reserves or contingent resources.

A partner choosing to take a 40% equity in the project will be funding up to $5Billion of the project. Analysts put the cost per barrel at a low $4.2 and NPV10 at a $1.2Billion. The 40% farminee will be entitled to at least 300Million barrels of oil and 400Billion cubic feet of gas.