Economy
Seplat, ExxonMobil Deal Positive for Economy—Wood Mackenzie
Seplat Energy Plc on February 25 announced an agreement to acquire the entire share capital of Mobil Producing Nigeria Unlimited (MPNU), a subsidiary of ExxonMobil.
In its recent insight, Wood Mackenzie, a trusted intelligence provider that empowers decision-makers with unique insights on the world’s natural resources said in the energy transition era, both ExxonMobil and Seplat will be pleased with the deal, adding that the deal offers huge upside for oil as well as gas.
Also, Wood Mackenzie, the leading research and consultancy business for the global energy, power and renewable, resurface, chemicals, metals and mining industry, said because this deal is a corporate acquisition, the Nigerian National Petroleum Company (NNPC) Limited has no rights to pre-empt a deal under the Joint Operating Agreement (JOA), which governs the JV, rather than ministerial consent would be the only hurdle remaining, “although nothing can be taken for granted”.
MPNU has a 40 per cent operated interest in a Joint Venture with NNPC (60 per cent). The JV includes OMLs 67, 68, 70, 104, the Qua Iboe oil export terminal. MPNU also has a 51percent interest in the Bonny River NGL Recovery project.
Seplat has agreed to pay $1,283 million, plus contingent consideration of up to $300 million. The effective date is 1 January 2021 and completion is expected in H2 2022, pending ministerial approval. Seplat’s debt financing of $825 million is fully committed by a syndicate of Nigerian and African banks, and energy and commodity traders.
Implications: If it completes, the deal will be transformational for Seplat Energy. It is already the leading indigenous company in Nigeria, but this will triple its working interest production to over 140,000 boe/d. In total, Seplat will operate 15percent of Nigerian oil production.
Crucially, the deal diversifies its operations into shallow water, which is largely devoid of the thefts afflicting its onshore operations. Although this is Seplat’s first offshore acquisition, it will acquire all of MPNU’s Nigerian staff, thus allaying any concerns about its operational capabilities.
Valuation
Our equity-based valuation of MPNU – excluding the Qua Iboe terminal – is $870 million (discounted 10 per cent, January 2021, $50/bbl long-term).
However, at $70/bbl, we value the company at $1.678 billion. In the energy transition era, ExxonMobil will be pleased with this deal. But so will Seplat, as the deal offers huge upside for oil as well as gas.
The portfolio includes a massive 1.3 billion boe of contingent resources, 75 per cent of which is gas. Less than half of its 70 fields have been developed. Although the JV has been in production since the early 1970s, its maturity relates more to the extensive infrastructure than the reservoirs themselves. Yes, many fields are in decline, but they have also been under-invested for over 20 years.
Seplat has built a business turning around the Majors’ unwanted assets, a process it started in 2010. With the acquisition, its portfolio becomes very oil dominated. ExxonMobil refused to be drawn into the high-risk domestic gas market and had no exposure to NLNG. As a result, the acreage has the highest concentration of gas flaring in the country. Seplat, a listed company, will need to tackle this immediately.
Longer-term it will look to develop access into the domestic market in line with government policy, while there is also scope for LNG too. An FLNG project at Yoho on OML 104 was already under discussion before the deal.
That could now accelerate, while long-term supply to NLNG is another option.
There is also a possible upside from the Petroleum Industry Act (PIA) fiscal terms. Our analysis shows the JV portfolio would more than double in value if Seplat converts. However, this is far from certain, since it would have to relinquish up to 60percent of its acreage and much of the resource it has just acquired. A thorough review of its now extensive portfolio to identify the most advantaged barrels will be an urgent priority. The deadline for converting to the new fiscal terms is February 2023.
The deal is not without risks either. Seplat will have to find billions of dollars in the longer term to transform its portfolio and some rationalisation could follow. NNPC will of course be Seplat’s JV partner, and its ability to fund its 60 per cent equity longer term as it transitions to a limited liability company will be just as critical to the success of the deal.
ExxonMobil
ExxonMobil has been planning to sell its JV business for years, and its exit is overdue. The shallow water JV assets have long been non-core and are some of the highest-cost barrels in its global portfolio.
Although emissions were not a key driver for selling, the deal will help with its recently announced net-zero targets for scope 1 and 2 emissions.
The portfolio has an intensity of 48 kgCO2e/boe, more than double its global average.
It can now focus on renegotiating workable fiscal terms for its Nigerian deepwater assets like Erha and Usan. However, if that does not end successfully, a country exit could be on the cards, given its deepwater options in Guyana and Brazil.
No NNPC pre-emption
Because this is a corporate acquisition, NNPC has no right to pre-empt a deal under the Joint Operating Agreement (JOA), which governs the JV. This means that ministerial consent would be the only hurdle remaining, although nothing can be taken for granted.
Shell’s ongoing divestment of its subsidiary SPDC, similarly rules out pre-emption. If NNPC wants to acquire that portfolio, then it will have to out-bid the competition. If successful in raising up to $5 billion with Afrexim Bank it would have the firepower to do just that, and massively strengthen its position in the onshore delta.
By Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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