BusinessSeplat: Travails of Indigenous Firm With Uncommon Energy

Seplat: Travails of Indigenous Firm With Uncommon Energy

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July 17, (THEWILL) – When Dr A.B.C. Orjiako, the immediate past Chairman of Seplat Energy Plc, addressed the shareholders of the firm at its 9th Annual General Meeting (AGM) on May 18, 2022, he expressed optimism about the company’s prospects during the year. His tough-minded confidence hinged on the exponential growth that Seplat was going to witness, following the assets acquisition deal with ExxonMobil announced earlier in the year.

Seplat Energy Plc announced in February that it had agreed to acquire some of ExxonMobil Corporation’s assets in the country for at least $1.28 billion. The acquisition which would almost triple Seplat’s production volumes by adding about 95,000 barrels of oil equivalent a day, was adjudged the largest of such transactions in Nigeria’s oil and gas industry.

Orjiako said that the year 2022, marked a major turning point for Seplat Energy and would usher in a new Governance era, following the retirement of the founding CEO, Mr. Austin Avuru, two years earlier and his own retirement as the founding Chairman from the Board after the AGM.

“It is also the year in which Seplat Energy is set to complete the transformational corporate acquisition of the entire share capital of Mobil Producing Nigeria Unlimited (“MPNU”) from Exxon Mobil Corporation, Delaware (“ExxonMobil”) (“Transaction”), having been adjudged preferred bidder in a competitive process.

“The Transaction, which is subject to Ministerial Consent and other required regulatory approvals, encompasses the acquisition of the entire offshore shallow water business of ExxonMobil in Nigeria, which is an established, high-quality operation with a highly skilled local operating team and a track record of safe operations, producing 95 kboepd (W.I.) in 2020 (92 per cent liquids).”

Orjiako noted that upon completion of the acquisition process, the deal will create one of the largest independent energy companies on both the Nigerian and London Stock Exchanges, and bolster Seplat Energy’s ability to drive increased growth, profitability and overall stakeholder prosperity.

Elaborating further, the retiring pioneer chairman of Nigeria’s largest independent oil firm said: “This will be a transformational acquisition for Seplat Energy, increasing our production by 186 percent and 2P oil reserves by 170 percent (based on 2020 numbers). The acquisition will also provide significant undeveloped gas potential of 2.9 Tscf, which could pave the way for the Company to expand domestic production and export opportunities.”

“It will also provide Seplat Energy with dedicated and secured export routes which would further reduce the risk profile of our business. Seplat Energy is fully committed to working with the Nigerian Government to bring these strategically important national assets fully into Nigerian ownership alongside the NNPC.”

Chief Executive Officer, Seplat Energy Plc, Mr. Roger Brown, added a voice of good hope to the retiring chairman’s message. While reviewing the company’s unaudited results for the three months ended 31 March 2022, Brown said the parties were still awaiting the government’s next line of action as this is a condition precedent for the parties to move ahead with the deal.

“We are still awaiting the necessary approvals from government and regulators,” Brown said, adding that the “proposed acquisition of MPNU remains on course,” and that the deal is expected to be completed in the second half of 2022.

“The effective date of January 1, 2021 means we will benefit from higher recent oil prices and as we have previously reported, the addition of MPNU will nearly treble our production and double our reserves on a pro forma 2020 basis.

“The acquisition will reinforce our leadership of Nigeria’s indigenous energy sector and enable us to generate strong future cash flows that will underpin our investment in Nigeria’s energy transition and improve our overall stakeholder returns. It will also bring a significant undeveloped gas resource base which, alongside our ANOH gas project development, will underpin Nigeria’s energy transition and drive domestic and export revenues when developed,” he said.

Unfortunately, the transaction failed to sail through. The anticipated ministerial consent needed to conclude the deal was not granted by the authorities.

The Nigerian National Petroleum Company Ltd later opted to exercise its right of first refusal as contained in the Joint Operating Agreement (JOA) of the JV + details of NNPC’s position on the planned sale of ExxonMobil shares to SEPLAT Energy Plc. The NNPC consequently notified Mobil Producing Nigeria Unlimited of its intention to exercise a Right of Pre-emption on ExxonMobil’s planned sale of its entire asset in Nigeria’s onshore and shallow waters.

NNPC’s decision effectively means the sales agreement between SEPLAT and ExxonMobil has hit the rocks, at least for now. The right of pre-emption is a legal right to parties in a joint venture to be the first to be considered for any planned sale or takeover of assets in the JVs if either party chooses to trade them off.

In a letter signed by Group Managing Director, Mele Kyari and addressed to ExxonMobil, the NNPC reiterated its resolve to take over ExxonMobil’s share of the assets. The NNPC would be required by terms of the joint venture JOA, to fully match the offer of the winning bid.

This means that the state-owned oil firm must not, based on its exercise of the right of first refusal, pay below the $1.583 billion mark. The NNPC also reiterated in the letter that it had transformed from being a corporation to being a profit-driven company and that it now has the capacity to buy over the share of ExxonMobil in Joint ventures.

In a worsening turn of events, the NNP recently secured a court decision temporarily blocking ExxonMobil Corporation from selling its assets in Nigeria to Seplat Energy Plc. An Abuja High Court granted NNPC an “order of interim injunction” on July 6, 2022, barring Exxon “from completing any divestment” in a unit that ultimately operates four licenses in Nigeria. It was reported that NNPC wished to block the transaction and to take over the permits itself.

Bloomberg reported that NNPC had sued Mobil Producing Nigeria Unlimited on July 5, 2022, asking the Federal High Court either to order that a dispute had occurred between the parties over preemption rights, or to order them to take the matter to arbitration. Seplat, which was not party to the lawsuit, was reported as saying that its deal with Exxon was “still valid” and the company “remains confident that the matter will be brought to a proper conclusion in accordance with the law.”

Rebounding, Resilience

Notwithstanding, Seplat maintains a robust presence in Nigeria’s energy sector, especially in the production and supply of gas with activities that underline corporate sustainability in line with its corporate mission: “To deliver sustainable energy solutions for society.”

The company stated as its corporate purpose that Nigeria’s large and growing population is hampered by its relatively poor access to energy, especially in rural areas beyond the reach of its gas infrastructure. It said that the country’s dependence on imported diesel creates a drain on economic resources as hard-earned currency leaves Nigeria to fund an expensive, inefficient and polluting fuel. “By providing accessible, reliable and sustainable energy, fuelled by Nigeria’s abundant gas and renewable resources, we will drive Nigeria’s social and economic prosperity now and in the future”.

Seplat is significantly leading the transformation into a new gas era by expanding in its gas production and supply to the growing local market, on a retail and industrial scale. Certainly, with gas assets of more than 200 trillion cubic feet (tcf), Nigeria is the eighth-­largest natural-gas reserve on the planet, coming just after the United Arab Emirates’ 215tcf.

“That is the paradox this administration decided to confront when we declared the ‘Decade of Gas’ in Nigeria,” announced President Muhammadu Buhari in March 2022. He said that gas development and utilisation “should be a national priority to stimulate economic growth, further improve Nigeria’s energy mix, drive investment and provide the much-needed jobs for our citizens.”

Hands on Plough

This new policy landscape has encouraged local companies to seize the opportunity. The most aggressive of them is Seplat, which raised $535m in equity financing at its 2014 initial public offering and has invested $1.9bn in capital expenditure since then. Seplat is positioning itself as the frontrunner in any race to purchase assets divested by exiting international oil companies. And it is also taking a more long-term view of the changing financing available globally for oil production.

Among its major gas projects are the Assa North-Ohaji (ANOH) South Gas processing project, Oben Gas Plant and Sapele Gas Plant. Their contribution to national development, GDP growth, employment, technology transfer, local content enrichment and development of host communities is immeasurable.

In the capital market, Seplat is currently the seventh most valuable stock on the Nigerian Exchange (NGX) with a market capitalization of NGN 765 billion, which is about 2.75 percent of the Nigerian Stock Exchange equity market.

Seplat began the year with a share price of N650 and has since gained 100 percent on that price valuation, ranking eighth on the NGX in terms of year-to-date performance. The current share price of Seplat Petroleum Development (SEPLAT) is NGN 1,300.50 SEPLAT closed its last trading day (Friday, July 15, 2022) at 1,300.50 NGN per share on the Nigerian Stock Exchange (NGX).

Seplat is the 90th most traded stock on the Nigerian Stock Exchange over the past three months (Apr 6 – Jul 8, 2022). Investigations revealed that it has traded a total volume of 11.8 million shares — in 2,042 deals — valued at N14.3 billion over the period, with an average of 187,340 traded shares per session. A volume high of 1.09 million was achieved on May 16th, and a low of 118 on July 7th, for the same period.

Seplat Energy recorded impressive performance in FY 2021. The firm had a stronger year financially amid higher oil prices despite produced volumes being constrained by outages at its export routes. Profit before tax was $177.3 million against $80.2 million loss in 2020, while profit after tax was $117.2 million compared with $85.3 million loss in the preceding year. The resultant basic earnings per share was $0.24 in 2021, compared to $0.13 basic loss per share in 2020.

An oil and gas expert, Engr. Edwin Bakare, said the hiccup in the Seplat/ExxonMobil Assets acquisition deal was lamentable. According to him, it has slowed down the expansion vigour of the independent energy firm which would have played a huge role in creating employment, boosting the local content and enhancing the nation’s GDP. A financial analyst, Jonah Akor, also expressed concerns over the failed bid which he said would have contributed to raise Nigeria’s bullish stock market to a higher peak. “Despite its travails, Seplat remains strong in the stock market,” Akor told THEWILL by telephone.

About the Author

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Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

Sam Diala, THEWILLhttps://thewillnews.com
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

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