‘Inefficiency In Deal Approvals, Disincentive To Domestic Energy Players’

The perplexing processes in giving approvals for indigenous companies acquiring in-country foreign energy assets, is raising serious concerns among key stakeholders in the oil and gas industry.

The African Energy Chamber (AEC) has observed the negative consequences of approval delays, ranging from many months to two-plus years, include forfeited revenue from lost royalties and taxes, production shortfalls, investor discouragement, and safety issues that arise while maintenance is put on hold.

A document published by the chamber noted that, the government approval process has stymied several of these potential deals over the past couple of years and adds that the Nigerian Government needs to step up its game regarding approvals

These puzzling delays raise questions about why they are happening, as well as how serious officials are about increasing energy production to help Nigeria’s economy and its people.

The chamber noted that there is a crying need for a new level of efficiency, timeliness, and openness in the approval process to give a fair shake to domestic energy players. Without it, the country’s economy and its citizens have the most to lose.

The government, it said, can and must do better than this to keep its oil industry competitive, profitable, and safe.

Recall that in July 2024 TotalEnergies EP Nigeria sold to Chappal Energies its 10 per cent interest in the SPDC JV licences in Nigeria for 860 million USD. These assets produce a lot of beautiful low carbon from gas from OML 23, OML 28 and OML 77.

In late 2023, Norway’s state-owned Equinor agreed to sell its Nigerian business, Nigeria Energy Company (ENEC), to Nigerian homegrown firm, Chappal Energies

The sale includes the unitised 20.21 per cent interest Chevron operates in the country’s deepwater Agbami oil field, which has produced over 1 billion barrels of oil for Equinor since 1992.

Equinor has said it expects Chappal Energies will continue development of its long-held assets in Nigeria, to the betterment of the country’s economy. Chappal is optimistic, too, with its managing director, Ufoma Immanuel, expecting positive effects on both the environment and the community.

Chappal has just the sort of attitude and drive Nigeria needs in its indigenous petroleum businesses, having stated that it is intent on ‘unlocking latent value in Nigeria’s and Africa’s oil and gas resources.

The sale can only close after specified conditions and all regulatory and contractual approvals are finished and these are still pending. In the early fall of 2023, in line with the Eni 2023-2026 Plan, Italian supermajor Eni agreed to sell Nigerian Agip Oil Company Ltd (NAOC) to Oando, a Nigerian stock exchange-listed provider of energy solutions.

Eni’s plan includes an effort to divest itself of resources that offer value and opportunity to other owners. NAOC concentrates on producing onshore Nigerian oil and gas and on generating power.

Its Nigerian holdings include interests in four onshore blocks, two power plants, and two onshore exploration leases. Besides these assets in the Niger River Delta, the deal includes an interest in the Brass River oil terminal.

Overall, the agreement means that Oando can double its interest in NAOC JV, the partnership it has with the state, to 40 per cent and increase its reserves to over 1 billion barrels of oil equivalent (boe).

Oando’s CEO, Wale Tinubu, sees the purchase as being ‘in alignment’ with his company’s strategy of “acquiring, enhancing, appraising, and efficiently developing reserves.’

Closing the sale depends on authorisation of all the relevant local and regulatory authorities, a process that is still ongoing nearly a year after the agreement was reached. There has been some talk of an approval set to happen soon.

Also, in January 2024, Shell agreed to sell Shell Petroleum Development Co. of Nigeria Limited (SPDC), its Nigerian onshore subsidiary, to Renaissance, an association made up of five Nigerian exploration and production companies (ND Western Limited, Aradel Holdings Plc, FIRST Exploration and Petroleum Development Company Limited, and The Waltersmith Group) plus an international energy group (Petrolin Limited). The firms agreed to a sales price of $1.3 billion.

All of SPDC’s operating capabilities and staff are to be maintained in the transaction, including technical expertise, management systems, and processes.

Describing Renaissance as ‘an experienced, ambitious Nigerian-led consortium,’ Shell says, the sale is part of its plan to concentrate its own Nigerian investment in deepwater and integrated gas.

With the bulk of Nigeria’s liquefied natural gas (LNG) feed gas coming from SPDC, it is important that Shell has agreed to play a supportive role after the sale so that all goes smoothly. The sale cannot close until approvals from Nigeria’s federal government and other conditions are met.

There is, fortunately, one slow-moving approval story that has recently been resolved. On June 14, 2024, it was reported that NNPC had withdrawn its Court case objecting to the ExxonMobil/Seplat deal, clearing a path for ExxonMobil to sell its entire interest in Mobil Producing Nigeria Unlimited to Seplat Energy.

President Bola Tinubu had met with Liam Mallon, head of ExxonMobil, and members of the Ministers of Petroleum two months earlier, asking that officials remove barriers to approval.

The $1.28 billion deal was first greenlighted over two years ago by the parties, but politics and legalities hindered the sale from closing. The deal will turn over the U.S. company’s shallow-water OMLs 67, 68, 70, and 104 to Seplat and allow it to benefit from stakes in the Bonny River and Qua Iboe terminals and natural gas liquids recovery plants.

All of ExxonMobil’s offshore shallow-water operations are included in the agreement, the effect of which is to create a major independent Nigerian energy company.

The upshot is that the sale is a very significant opportunity for the country to increase its daily crude production by 700,000 or more barrels.

The approvals process became gridlocked just months after the agreement was made when the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) cited an “overriding national interest,” and state-owned NNPC sued ExxonMobil.

Earlier this year, NUPRC tried to hasten regulatory approval for the sale, when NUPRC’s chief executive, Gbenga Komolafe, revisited a list of conditions that must be met for divestment.

Komolafe invited the parties involved to a May meeting and stated that, hinting on the results of the meeting, approval might be given within two weeks.

A signed settlement agreement resulted, with Komolafe, emphasising the issues of decommissioning, host community development, and environmental remediation.

The terms of the agreement include increasing NNPC’s interest in the four OMLs from 60 per cent to 70 per cent, decreasing Seplat’s interest from 40 per cent to 30 per cent, while Seplat will gain a 10 per cent interest in UTM Offshore’s floating LNG project.

Komolafe stated his unwillingness that Nigeria carry financial burdens resulting from divesting entities continuing to operate assets in the country.

Other issues that have been raised is that while waiting on approvals, divestors naturally don’t want to further invest further in these assets while production can decline while approvals are stalled.

Tinubu has asked ExxonMobil for suggestions on improving Nigeria’s oil and gas investment environment.

President Tinubu’s efforts to bring together various parties around the ideas of stability, transparency, and an even playing field hold much promise for the role of Nigerian oil companies in increasing domestic production.