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Oando’s July acquisition makes it the top dog of indigenous producers. Photo©Oando Plc

Oil and Gas: Local firms replace majors in Nigeria's Delta

November 11, 2014

Martin Yeboah in Lagos* [caption id="attachment_14016" align="alignleft" width="480"]Oando’s July acquisition makes it the top dog of indigenous producers. Photo©Oando Plc Oando’s July acquisition makes it the top dog of indigenous producers. Photo©Oando Plc[/caption] As multinationals lose their stomach for the fractious onshore fields in the Niger Delta, indigenous companies are increasing their footprints. International oil companies (IOCs) like Shell and Chevron are selling off many of their onshore joint-venture stakes to Nigerian companies after a divestment programme attracted little interest from abroad, but opinion is divided about whether this will lead to a thriving locally owned oil sector. Antony Goldman, an oil expert and owner of PM Consulting, explains: “The government characterises this divestment programme as a triumph for local content and points to the capacity of Nigerian companies to manage Nigerian assets better than Europeans and even to convince stock markets in London with successful IPOs [initial public offerings], but there are well-placed people in Nigeria who are more sceptical. “They see the IOCs jumping before they are pushed from assets that they regard as marginal or peripheral for prices that appear to be out of step with market value, with speculation over the sourcing of some of the funds that have gone into financing these deals.” Two high-profile Nigerian operators, Oando and Seplat, illustrate some of the elements of the debate about the future of the industry. Oando has gone from producing a few thousand barrels per day (bpd) to more than 50,000bpd following its much delayed July acquisition of the lion’s share of ConocoPhillips’s Nigerian assets. The company claims the largest reserves of any indigenous company and targets 100,000bpd of oil production within five years. Seplat, in contrast, has not yet built on the optimism generated by its $500m IPO on both the London and Nigerian stock exchanges in April. The company led by Austin Avuru has the rights to 30,000bpd produced from onshore assets mostly acquired in 2010 from Shell. They include stakes in oil-mining licences (OMLs) 4, 38 and 41. However, a more recent acquisition holds serious risks for the company. Seplat, along with indigenous companies Amni Petroleum and Belema Oil, agreed in late 2013 to purchase Chevron’s 40% stakes in Niger Delta OMLs 52, 53 and 55 for $800m. The prior frontrunner for the deal, local company Brittania-U, has delayed the deal through litigation, claiming its bid for all three OMLs was unfairly rejected. The delay is problematic given the rationale for Seplat’s IPO: to acquire additional assets and invest after modest debts are paid from the IPO funds. Seplat has also been unsuccessful in its bid for assets Shell is offloading. This time the catch was the hefty price. Shell is set to earn around $5bn from the sale of Niger Delta OMLs 18, 24 and 25 and the jewel in the crown OML 29. Those deals are going ahead following the execution of sales agreements in August. As with Chevron’s Niger Delta assets, indigenous buyers are set to profit – even if industry experts believe the sellers are obtaining top dollar. Multi-billion purchases It is unclear whether Shell and the local bidders will face the delays that Oando and ConocoPhillips experienced in obtaining approval from powerful petroleum minister Diezani Alison-Madueke. Taleveras and Aiteo look set to take OML 29 for around $2.8bn; Mart Resources and Midwestern Oil & Gas are in line to pay $1.2bn for OML 18; and Pan Ocean plans to secure OML 24. The pending Shell and Chevron sales should certainly change the game, where the IOCs account for the vast majority of Nigeria’s more than two million bpd in oil production. The Shell fields produced approximately 90,000bpd in 2012. Estimates suggest that Shell’s OML 29 could produce up to 170,000bpd within five years and as much as 300,000bpd thereafter. This reflects the view that the acquirers will be focused on maximising output rather than being distracted by opportunities elsewhere – a charge levelled at the majors. Where is the expertise? Only a few indigenous producers – including Seplat, Oando and Amni Petroleum – currently produce more than 10,000bpd. A Nigerian joint venture between Shoreline Power Company and Jersey-headquartered Heritage Oil produces around 15,000bpd. It will take additional divestment and production increases from their existing assets for Nigeria’s oil companies to account for 20% of Nigeria’s oil production and 50% of gas production, targets that Seplat’s Avuru says are achievable by 2018. Indigenous production faces a number of unknowns, including the much-questioned expertise of Nigerian stakeholders and operators. Whereas Oando and Seplat, among others, have respectable industry expertise, albeit less offshore, energy-trader bidders like Taleveras have meagre upstream experience. So little, in fact, that oppositionists have suggested Shell’s preference for Taleveras and Aiteo indicates foul play. Continued support from the regulatory authorities and passage of the delayed oil bill remain other wild cards. Although government officials say the Petroleum Industry Bill will increase investment, a number of the IOCs are unhappy at some of its provisions. *Source theafricareport]]>

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