NIGERIA: Easing Oil, Gas Acquisitions with Prompt Ministerial Consent

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In recent years, indigenous companies have embarked on ambitious acquisition of upstream assets, which used to be the exclusive preserve of the multinational oil majors. Ejiofor Alike writes that the prompt manner these acquisitions received the approval of the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke has no doubt eased the closing of the various deals aimed at building indigenous capacity and capability

A landmark provision of the Petroleum Act of 1969, as amended, is the requirement for local and indigenous operators to seek ministerial consent for acquisitions of oil and gas assets.
Ministerial consent is the mandatory final approval of all oil and gas acquisitions by the Minister of Petroleum Resources as required by the Petroleum Act, which states that “prior consent of the Minister of Petroleum Resources is obtained before the assignment of any right, power or interest in an oil prospecting license or oil mining lease.”

This provision, which is in line with government’s aspiration to tighten its grip on the oil and gas business in Nigeria, is also aimed at ensuring that government conducts due diligence on the potential buyers to ensure that the assets are not sold to investors with questionable history.

The Act stipulates that the federal Ministry of Petroleum Resources must conduct due diligence to ensure ownership is being transferred to a company that is of good reputation, and has sufficient knowledge, experience and financial resources to work the license or lease and in all other respects, is acceptable to the Federal Government.

According to the Act, the consent of the Minister may only be granted where the Minister is satisfied that the above conditions have been fully met.
Under Paragraphs 14, 15 and 16 of the First Schedule to the Petroleum Act, the minister reserves the right to impose a fee or premium or both before granting consent.

However, a worrisome development in the recent acquisitions is that in some cases, the divesting parties apply to the minister for consent after the transaction has been consummated, thereby giving the federal government a “fait accompli.”
By failing to obtain the consent of the minister before the consummation of the deal as required by law, the divesting parties flagrantly contravene the provisions of the Act.
But despite alleged failure of some of the divesting parties to obtain the consent of the minister before the consummation of the deals, the minister has continued to grant her consent to genuine transactions, as part of her efforts to boost the capacity and capability of indigenous players that acquire these assets in line with the Nigerian Content Act of 2010, which she also championed.

Her prompt approval of these transactions have no doubt helped to ensure speedy closing of these deals, thus relieving the indigenous players of financial burden associated with protracted acquisitions.

Speaking to THISDAY on this issue, the Managing Director of Shell Petroleum Development Company (SPDC) and Country Chair of Shell Companies in Nigeria, Mr. Mutiu Sunmonu stated that his company obtained the consent of the minister for the sale of the eight oil blocks that had been concluded.
“We have always obtained approval of the minister in all our transactions. No buyer will put his money down if we do not have the approval of the minister and it is given in stages,” he said.

Sunmonu, however, stated that the sale of additional four oil blocks is ongoing.
The Managing Director of one of the Nigerian independent companies, who spoke on condition of anonymity, also told THISDAY that the way and manner the minister had granted speedy approval for the previous deals helped to ease the financial burden of the indigenous companies that acquired the blocks.

“These acquisitions involved a lot of money. The buyers borrowed money from local and foreign banks to fund the acquisitions. This money attracts a lot of interest. So, the quicker the transactions are completed for the buyers to take over the assets, the better for the indigenous buyers. If the minister delays her consent and the transaction is prolonged, it will impose huge financial burden for the buyers because they will continue to pay huge interest on the borrowed funds,” he explained.
With the minister’s continued encouragement of local capacity building, Nigerian independent companies are increasingly proving their mettle by demonstrating capability to compete with the multinational companies in the upstream sector.

Oando – ConocoPhillips Deal
Oando Plc, an indigenous energy group listed on both the Nigerian and Johannesburg Stock Exchange, recently confirmed receipt of ministerial consent for its acquisition of ConocoPhillips (COP) Nigerian assets, a transaction worth $1.65 billion.

Confirming the receipt of the approval, Oando said with the due completion of the game-changing acquisition, it would be positioned as the largest indigenous oil producer in Nigeria.
Oando noted that with the new assets, it would now produce circa 50,000 barrels of oil equivalent per day from six producing fields.

This will also significantly impact its near immediate upstream strategy and operations, and optimise its value across the energy chain.
In December 2012, Oando, through its Exploration and Production subsidiary Oando Energy Resources (OER), entered into an agreement with COP to acquire its Nigerian businesses.

Though Oando successfully raised the funds required to complete its acquisition of the assets, the closure of the ConocoPhillips acquisition was subject to meeting certain conditions, including government and regulatory approval, and the consent of the Minister of Petroleum Resources.

Group Chief Executive Officer, Oando Plc, Mr. Wale Tinubu, said he was delighted to receive the approval of the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, for the completion of the acquisition.

“It has been a long journey, wherein we kept faith with our strategy and executed every milestone diligently. This acquisition satisfies our criteria for assets in production, as well as excellent appraisal and exploration prospects. We will work hand in hand with the management team of ConocoPhillips to immediately complete the acquisition,” he said.

Encouraging Indigenous Players in Crude Oil Contracts
Apart from speedy approval of acquisition of oil and gas assets by indigenous investors, the Minister of Petroleum Resources has since 2010 embarked on deliberate efforts to boost local capacity through the award of crude oil lifting contracts to Nigerian companies.

It was in line with her commitment to provide unprecedented support to indigenous companies that the Nigerian National Petroleum Corporation (NNPC) downsized crude oil lifting contracts awarded to international oil traders in 2012/2013 and awarded nearly half of the deals to Nigerian companies.
Before 2010, foreign traders such as Glencore, Trafigura, Vitol, Arcadia, Addax and Glencore dominated crude contracts.

But in a deliberate move to promote local content, more Nigerian companies have been getting large chunks of lifting contracts since 2010.
Major operators, such as Sahara Energy Ltd, Oando Plc, Aiteo, Ontario Petroleum and Taleveras have been awarded lifting contracts side by side foreign traders.
In one of the previous documents obtained exclusively by THISDAY, the number of companies selected to lift Nigeria’s crude oil in 2008 was 28, including bilateral and government-to-government contracts.

In 2009, the number fell to 24 but rose to 38 in 2010, and almost doubled to 57 in 2011, shortly after the minister assumed office at the ministry.
Before she came on board, international traders such as Acardia, Addax, Trafigura, Glencore, Gunvor Trade International had the highest allocation of 60,000 bpd in each of the crude contract lists between 2008 and 2011, d
Sahara Energy was the only Nigerian firm with the same allocation that consistently featured on the lists between 2008 and 2011.

Some of the major local players that made it in 2011 were Eterna, SPOG Petrochemical, Oando, Masters Energy and a host of others.
Caligeria Oil, SPOG Petrochemical, Tacoma Oil Ltd, Sullum Voe and Tempo Energy got allocations of 30,000 bpd each in 2011.

The tender result of 2012/2013 showed that around 45 per cent of the allocated oil was earmarked for companies either based in Nigeria or owned by Nigerian companies, including NNPC subsidiary, Duke Oil, which doubled the size of its contract from 2011/2012 to 60,000 bpd.

According to agency reports, Global oil traders, Glencore, Vitol and Trafigura, firms that have traditionally had a strong presence in the country and in 2011 won the biggest contracts, had their supplies halved to 30,000 bpd in 2012.
In 2011, Vitol, Trafigura, Sahara and Glencore received the highest allocations of 60,000bpd.
The value of contracts for Swiss-based traders Gunvor and Mercuria stayed unchanged from 2011 at 30,000 bpd.

Also the provisional names of companies that were awarded contracts to lift crude oil from June 1, 2014 to May 31, 2015 also revealed a paradigm shift to indigenous companies as against previous preference for foreign companies.
The list, which was obtained exclusively by THISDAY, comprises 21 indigenous companies; eight international oil traders; two foreign refineries; two subsidiaries of the NNPC and three countries, represented by their state-owned National Oil Companies (NOCs).

According to the document, 21 indigenous companies were awarded contracts to lift a total of 630,000 barrels per day of crude oil during the one-year period, representing 57 per cent of the 1,179,000 barrels per day awarded to the 38 beneficiaries.

The list also showed that eight international oil traders got an allocation of 240,000 barrels per day, representing 20.5per cent of the whole allocations, while two foreign refineries got 60,000 barrels per day, or 5.1per cent of the allocations.
Reiterating her commitment to boost building of local capacity, the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke said recently that the government deliberately favoured indigenous companies as part of the efforts to encourage local participation in the oil and gas industry.

She confirmed that over 60 percent of the 2014 to 2015 annual term contracts for the lifting of Nigeria’s crude oil were awarded to local firms.
“When we unveiled the Nigerian content law a few years back, the overriding principle was to grow indigenous capacity in an aggressive manner and I am happy to report that today, in the oil and gas sector, Nigerian content has been placed on the path of irreversible progress,” she said.

An energy expert who wants anonymity, also praised the deliberate emphasis on indigenous companies stating that ‘‘Increasingly, local Nigerian companies have become more assertive more ambitious, more resilient and aggressive in their business preposition.

“No where is this more  evident than the oil and gas sector and more recently, the power sector which have seen local indigenous companies in partnerships with foreign companies bid big and win big. It is essentially a sign of the growing assertiveness of the young entrepreneurial Nigerians that are clearly unafraid to take risk. And more than that, the opportunities the local content law has opened Nigerian companies to are unparalleled.  Nigerians are rising,’’ he stated

He added the federal government, especially the Petroleum Minister deserve commendation for this bold initiative. It is important that we appreciate what the Minister has done, by empowering local players to build capacity for even higher undertaking, he declared.

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