Since oil exploration began in Nigeria, major International Oil Companies (IOCs) have dominated the oil and gas sector in Nigeria due to their technological and financial advantages, alongside a lack of proper regulation in the past.
This has meant that local content development has been lacking due to the isolated bubble which the IOCs operated in and a critical lack of infrastructure to support processing and refining locally.
For example, prior to 2010, nearly US$380 billion and 2 million jobs were estimated to have been lost as the majority of construction, engineering and procurement undertaken by the IOCs was carried out overseas.
To correct the anomaly, the Nigerian Oil and Gas Industry Content Development (Local Content Act) 2010 was enacted to promote the indigeneous participation in the Nigeria’s oil and gas industry for the purpose of improving the economic and social well being of those engaged in operating in the oil and gas industry.
The Act provides for the development of Nigerian content in the Nigerian oil and gas industry, Nigerian content plan, supervision, coordination, monitoring, and implementation of the Nigerian content.
The Act stated the requirement of any company or organisation that intends to operate in the Oil and Gas Industry in Section 2 of the Local Content Act, which states that “all regulatory authorities, operators, contractors, subcontractors, alliance partners and other entities involved in any project, operation, activity or transaction in the Nigerian oil and gas industry shall consider Nigerian content as an important element of their overall project development and management philosophy for project execution”.
The Act defines Nigerian content in Section 106 as “the quantum of composite value added to or created in Nigeria through the utilization of Nigerian resources and services in the petroleum industry resulting in the development of indigenous capability without compromising quality, health, safety, and environmental standards”.
The sole purpose of the Local Content is to increase Nigerian participation in the oil and gas industry by prescribing minimum thresholds for the use of local services and materials for the promotion of technology and skill to the Nigerian labour in the oil and gas industry.
The Local Content Act is a vital instrument that empowers Nigerian Companies to contribute tremendously towards the development of the Nigerian economy by encouraging value addition, job opportunities, and furthermore the award of different oil contracts and undertakings. In fulfilling this objective, Section 4 of the Local Content Act established The Nigerian Content Development and Monitoring Board (hereinafter referred to as ‘the Board’ or ‘NCDMB’), which is vested with the responsibility “to make a procedure that will guide, monitor compliance by operators, coordinate and implement the provisions of the Act within the industry. The Local Content Board is empowered to execute its duties under the Act to ensure that all provisions contained in the Act are complied with.
For the purpose of the Local Content Act, Nigerian Company was defined in Section 106 of the Act as “a company formed and registered in Nigeria in accordance with the provisions of the Companies and Allied Matters Act with not less than 51 per cent equity shares by Nigerians”
The general obligations applicable to operators, participants, and activities taking place in the oil and gas industry are contained in Sections 3, 7, and 11 of the Local Content Act. While the Local Content policy objectives imposed on transaction and projects are set out in Section 3 of the Local Content Act which provides that “(1) Nigerian independent operators will be given first consideration in the award of oil blocks, oil field license, oil lifting license and all project for which contract are to be awarded in the Nigerian oil and gas industry”.
(2) There shall be exclusive consideration to Nigerian indigenous service companies that demonstrate ownership of equipment, Nigerian personnel, and capacity to execute such work to bid on land and swamp operating areas of the Nigerian oil and gas industry for contracts and services contained in the Schedule to this Act.
(3) Compliance with the provisions of this Act and promotion of Nigerian content development shall be a major criterion for the award of licenses, permits, and any other interest in bidding for Oil exploration, production, transportation, and development, or any other operations in Nigerian Oil and Gas industry.
For the purpose of clarity, operators in the oil and gas industry in respect of this Act are defined as the “Nigeria National Petroleum Company (NNPC), its subsidiaries and joint venture partners and any Nigerian, foreign or international oil and Gas Company operating in the Nigerian oil and gas industry under any petroleum arrangement”.
The unambiguously states that any consideration and transaction in the industry should first consider indigenous interest.
Last year, the industry was excited when Seplat Energy announced its acquisition of oil assets belonging to Mobil Producing Nigeria Unlimited (MPNU), in the face of global resistance to fossil fuels, explaining that it would require returns from fossil fuel investments to push its plan for renewable energy.
The indigenous oil company was set to buy off oil and gas assets belonging to the International Oil Company (IOC) in a deal that could cost up to $1.2 billion, seen as the first since the signing of the Petroleum Industry Act (PIA) by President Muhammadu Buhari.
In addition, the Sale and Purchase Agreement was meant tonsee the company acquire the entire share capital of MPNU, plus up to $300 million contingent consideration, encompassing the acquisition of the entire offshore shallow water business of ExxonMobil in Nigeria.
Chief Executive Officer of Seplat Energy, Mr Roger Brown, argued that given the pillars upon which the future of the company is hinged, it would require returns from fossil fuel investments to push its plan for renewable energy.
He added that Seplat already set up a subsidiary called Seplat Energy offshore limited that would be acquiring the business of MPNU.
He explained that employees of the selling company as well as all the existing contracts will be maintained, stating that the intention is to continue to run the assets profitably, since, according to him, they are already well managed.
But the Seplat CEO stated that the deal will still have to go through the statutory processes, including the competition commission and the Nigerian Upstream Petroleum Regulatory Agency (NURPC) as well as obtaining the consent of the minister of petroleum.
Unfortunately, the deal was blocked by the Nigerian National Petroleum Company (NNPC) Limited. Regulatory authorities also declined consent to the transaction.
The matter is still inconclusive.
Just on 4th of September, another local oil firm Oando announced it is set to buy Italian Eni’s Nigerian division controlling onshore upstream assets in the Niger Delta including a stake in the country’s Brass River oil terminal.
Eni’s Nigerian Agip Oil Company Ltd (NAOC) holds operating interests in four Nigerian onshore blocks (OML 60, 61, 62, 63), the Okpai 1 and 2 power plants with a total nameplate capacity of 960 MW, and two onshore exploration leases.
Operating as part of the NAOC JV in partnership with the state’s NNPC, and Oando, the deal will see Oando double its stake in NAOC JV to 40 per cent.
The assets include 24 producing fields, 40 identified exploration prospects and leads, 12 production stations, 1,490 km of pipelines, three gas processing plants, and the Brass River oil terminal, Oando said.
Last year, the four onshore blocks produced some 24,000 b/d of oil equivalent net to Eni’s 20 per cent in the NAOC JV, according to the company, with a large part of the gas reserves of the blocks is destined to supply the Nigeria’s NLNG liquefaction plant.
Without giving financial details of the deal, Oando said the deal will almost double its proved total oil and gas reserves which stood at 503 million boe at the end of 2021.
“The synergies created by this acquisition will unlock unparalleled opportunities for us to re-align expectations, enhance efficiency, optimize resource allocation, and significantly increase production. It is in alignment with our strategy of acquiring, enhancing, appraising, and efficiently developing reserves,” Oando CEO Wale Tinubu said in a statement.
Eni said the sale was consistent with its strategic plan to grow its upstream output an average 3 per cent -4 per cent per year over the next three years from about 1.61 million boe/d in 2022.
“The upstream will supplement the core organically-led growth with inorganic high-grading activity, adding resources with incremental value while divesting resources that can offer greater value and opportunities to new owners,” Eni said in a statement.
Eni said the deal does not include NAOC’s 5 per cent participating interest in the Shell Production Development Company Joint Venture in Nigeria.
Following the sale to Oando, Eni said it will also maintain its presence in Nigeria through Nigerian Agip Exploration (NAE) and Agip Energy and Natural Resources (AENR) and continue to operate in the country, focusing on operated offshore activities.
It said its other non-operated states in other Nigeria assets, both onshore and offshore, and Nigeria LNG are not affected by the sale.
Suffocating The Deal
Industry watchers are beginning to see intervention of the NNPCL as turning a deal that is about to be celebrated as local content victory into a somewhat political debacle.
In a quick reaction to the announcement, the Nigerian National Petroleum Company Limited (NNPC) Exploration and Production Limited (NEPL), a subsidiary of the NNPCL raised concerns over the deal.
In a letter addressed to Nigeria Agip Oil Company (NAOC), the NNPC exploration and production unit maintained that it had not been informed that the transaction was being discussed.
The NEPL stated that once it was made aware of the agreement between Agip and Oando, it would then know the next steps to take.
The NNPCL in trying to correct the seeming impression that it is blocking the deal quickly denied reports insinuating that it is opposing the sale of the Nigerian Agip Oil Company Limited (NAOC) shares to Oando Plc.
The NNPCL said in a statement that the report in some quarters that it is against the sale is far from the truth.
“This is not correct,” Garba Deen Muhammad, the Chief Corporate Communications Officer, said in a statement.
“It has come to our notice that a routine communication in the form of a letter written by NNPC E&P Limited (NEPL) to its JV Partner, Nigerian Agip Oil Company Limited (NAOC) is being interpreted to suggest that NNPC Ltd. is opposed to the sale of NAOC shares to Oando PLC. This is not correct.
“NNPC Ltd. wishes to state that the letter was sent by NEPL, an NNPC Ltd. subsidiary.
“However, nowhere was opposition or objection to the transaction mentioned in the letter,
“NEPL is only drawing attention to certain important clauses in the Joint Operating Agreement (JOA) between it, NAOC and OOL; which might have been overlooked in error. Adherence to those clauses will protect the transaction, now and in the future,” the NNPC spokesman said.
Discerning minds have recalled that the NNPCL earlier in a similar move objected to the Seplat-Mobil deal, noting that it had the right of first refusal, according to the extant JOA and it is believed that the current case may be headed in the same direction.
In the official communication sent by NEPL signed by the Managing Director of the NNPC exploration company, Muhammed Zarah, the NNPC subsidiary noted that if confirmed true, the deal will be a breach of the existing JOA among the concerned parties.
“Our attention has been drawn to various reports circulating on different media platforms in relation to an alleged divestment of NAOC’s participating interest in OMLs 60, 61, 62 and 63 to Oando Oil Limited.
“A duly signed press statement allegedly emanating from OOL dated 4th September 2023 affirms the fact that NAOC has assigned its entire 20 per cent participating interest in the said OMLs to OOL.
“Whilst we are yet to confirm the authenticity of the said divestment, we would like to note that the purported assignment, if true, would have the following far-reaching contractual/legal implications in relation to the JOA dated July 1991 governing the operations of the NAOC/NEPL/OOL Joint Venture (JV),” NEPL said.
It reiterated that Clause 19.1.1 of the JOA provides that: “The party may assign or transfer its interest or any part thereof without the prior written consent of the other parties, which consent shall not be unreasonably withheld.’’
By virtue of the provision, a party seeking to transfer part or the whole of its participating interest in the JV, Zarah said, is obligated to seek the prior written consent of the other parties.
“In this instance, NAOC did not inform NEPL of any proposed assignment of its participating interest to OOL or any other party neither, did NAOC seek and obtain the mandatory pre-divestment written consent and approval from NEPL in accordance with Clause 19.1.1. of the JOA.
“It is imperative for you to note that failure to obtain NEPL’s prior written consent and approval with regards to the alleged transfer of your interests in the joint assets constitutes a grave breach of the terms of the JOA and NEPL reserves its rights in relation to the said breach, including NEPL’s entitlement to invalidate the purported assignment to OOL.
“Under the terms of the JOA, assignment of interest has implications on the transfer of operatorship. Clause 2.4.1(i)(c) of the JOA provides that the operator shall cease to be operator and shall be removed by the non-operators if the operator assigns or otherwise disposes of, other than to an affiliate, all its participating interest.
“Furthermore, Clause 2.6.1 provides that in the event of cessation of operatorship arising from the above circumstance, the parties shall appoint one of the non-operators as successor operator,” it held.
The NEPL said it had highlighted the above provisions of the JOA to underscore the point that the ‘purported’ assignment, even if valid should by no means translate to transfer of operatorship to Oando.
It explained that if NAOC’s divestment turns out to be valid, it will become incumbent on NEPL and Oando to decide on a successor operator.
“Please note that as holders of 60 per cent participating interest in the NEPL/NAOC/OOL JV, we are indeed concerned that the entire purported assignment was executed without due compliance with the terms of the JOA.
“We expect that all parties to the JOA will observe and comply with the terms of the JOA.
“In view of the foregoing, we request NAOC’s confirmation to NEPL, the authenticity or otherwise of the reported divestment to enable us to determine our next steps with regards to the management/operations of the assets,” the document stated.
Instigating Industrial Unrest
At the moment the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has shut down the Brass crude oil export terminal in protest against the plans by Italian energy group, Eni to sell NAOC, its local subsidiary to Oando Plc.
The oil workers, who expressed displeasure over the sale of Agip’s oil, gas and power assets without prior consultation with them, had demanded that Eni put the sale on hold until they have been properly consulted and terms for transfer of services agreed.
The shutdown of the Brass crude terminal and other NAOC assets started last Tuesday, according to PENGASSAN sources.
“NAOC management only told workers about the sale on September 4, the day the deal was made public, having denied plans for any such sale when worker representatives asked at a meeting in July”, PENGASSAN said.
Besides the Brass terminal, the joint venture operates four onshore oil blocks in the Niger delta, two onshore exploration leases, 12 flow stations, three gas processing plants and two power plants. NAOC also has a five per cent interest in the Shell-operated SPDC joint venture in Nigeria, which is not included in the sale.
The Brass terminal received 24,000 barrels of crude on September 4. Receipts averaged 27,000 bpd last month. The last tanker to load there, the Seavision, departed for Italy with a 349,000bl cargo on August 22, Argus Media reported.
Oando acquired its 20 per cent stake in the NAOC joint venture when it bought US firm, ConocoPhillips’ Nigerian business for $1.5 billion in 2014.
Buying NAOC from Eni will lift Oando’s interest in the joint venture to 40 per cent and increase its reserves by 98 per cent.
Oando, which started the process of delisting from the Nigerian and South African stock exchanges in March, said completion of the NAOC deal was pending ministerial consent and regulatory approvals.
The NAOC was quoted to have stated that it remained committed to the health and safety of its employees but declined to comment on the workers’ demands.
African Energy Chamber Backs Deal
Meanwhile, outside Nigeria, the African Energy Chamber has fully endorsed the Oando-Eni Deal, as well as urging swift Government approval.
The African Energy Chamber (AEC), endorses the ground-breaking agreement between Oando PLC and Eni for the acquisition of 100 per cent of the shares of Nigerian Agip Oil Company Limited (NAOC Ltd).
This significant transaction holds immense potential for Nigeria’s energy sector and the wider African energy landscape, it said.
The AEC recognizes that this deal represents a substantial step towards enhancing indigenous participation and control in the energy industry. Oando’s increased stake in OMLs 60, 61, 62, and 63, along with the additional ownership in NEPL/NAOC/OOL joint venture assets and infrastructure, will not only grow the company but also contribute to the development of Nigeria’s hydrocarbon resources.
The Oando-Eni deal marks a significant milestone for Nigeria’s energy sector and underscores the potential for local participation and growth.
This transaction marks a significant step forward for Oando, increasing its ownership and influence across a wide spectrum of energy assets, including production, infrastructure, reserves and exploration. It positions Oando as a major contributor to Nigeria’s energy sector and underscores its commitment to furthering the country’s energy ambitions.
The AEC would like to emphasize the importance of local content and investment in Africa’s energy sector and calls upon the Nigerian government to swiftly grant Ministerial Consent and any other necessary regulatory approvals to facilitate the completion of this transaction. Speedy approval will enable the parties involved to expedite the realization of the deal’s benefits, furthering Nigeria’s energy ambitions and attracting additional investments.
This landmark agreement demonstrates the continued commitment of industry players like Oando and Eni to the sustainable growth and development of Africa’s energy resources. The AEC remains steadfast in its support of initiatives that drive economic prosperity, strengthen local capacity and promote responsible resource management across the continent.
“The Oando-Eni deal marks a significant milestone for Nigeria’s energy sector and underscores the potential for local participation and growth. By increasing Oando’s stake in vital oil and gas assets and infrastructure, this agreement not only strengthens indigenous control but also contributes to increased economic development within the country. As we strive for energy sovereignty and sustainable growth, it is imperative that the Nigerian Government expedites the necessary approvals to realize the full benefits of this transformative transaction,” states NJ Ayuk, Executive Chairman of the AEC.
