Creating a Mega Downstream Company from NIPCO, ExxonMobil Deal

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With NIPCO’s recent acquisition of ExxonMobil’s 60 per cent stake in Mobil Oil Nigeria Plc, Ejiofor Alike writes that the mega deal has the potential to create a Nigerian Vitol or Trafigura, despite the challenges in the operating environment

For over 50 years, Nigeria has operated in the downstream segment of the oil and gas sector, with several companies importing and marketing petroleum products.

In March 1988, the Nigerian National Petroleum Corporation (NNPC) was reorganised and one of the subsidiaries created was the Pipelines and Product Marketing Company (PPMC) to source for petroleum products and distribute across the country.

After the international oil companies (IOCs) commenced exploration and production of crude oil in Nigeria, some of them like –Chevron, Total, Agip and ExxonMobil set up downstream subsidiaries to market and distribute refined products.

The history of Chevron Oil Nigeria Plc, now MRS Oil Nigeria Plc, dates back to 1913 when the company started marketing of petroleum products under the Texaco brand name, exclusively by CFAO a French multinational retail company.
Texaco Africa limited started aviation and bunkering business as well as direct marketing of Texaco products in 1964.

Chevron Corporation had maintained a strong presence in the downstream segment until 2009.
The history of Mobil Oil Nigeria plc (MON) dates back to 1907 when Socony Vacuum Oil Company began marketing operations in Nigeria, through the sale of sunflower kerosene.
Total Nigeria Plc has an extensive distribution network of over 500 service stations nationwide and a wide range of top quality energy products and services.

It was incorporated as a private company on June 1, 1956 to market petroleum products and in September 11, 2001, the company had a successful merger with Elf Oil Nigeria Limited, which paved way for sustainable growth and continuous development.
Nigerian Agip Oil Company (NAOC), a subsidiary of Italy’s ENI had also maintained a strong presence in the downstream sector under the “Agip Nigeria” brand until 2002.

Weak downstream entities

Apart from the downstream subsidiaries set up by the deep-pocket multinational companies, the NNPC and over 100 Nigerian private entities also operate in the sector as major and independent marketers, as well as independent importers.
However, despite Nigeria’s enviable position in the global energy market, the downstream subsidiary of the NNPC and other private oil marketing companies in the country still depend on third party Swiss oil traders to import products from foreign refineries.

The existence of several oil marketing companies and the massive importation and consumption of petroleum products in Nigeria have not translated to the creation of mega company in the likes of Swiss Vitol or Trafigura, which can go direct to the international market to bring in products into the country.

PPMC and the private oil marketing companies in Nigeria simply lack the required financial capacity to compete with the Swiss traders in international oil market.
So, for these Nigerian companies to import petroleum products, they go through third party Swiss oil traders.

NIPCO’s recent feat

In a mega deal that has the potential to create a mega company in the downstream segment of Nigeria’s oil and gas industry, indigenous downstream company, NIPCO Plc recently acquired a 60 per cent stake in Mobil Oil Nigeria (MON) Plc from United States oil giant, ExxonMobil.
The transaction was seen by market watchers as a continuation of the divestment strategy by international oil companies (IOCs) operating in the country.
With the signing of Sales and Purchase Agreement (SPA) with ExxonMobil, NIPCO is set to initiate the process of obtaining regulatory approval from the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE).
The deal was the biggest in the downstream sector in recent years after MRS’s acquisition of Chevron Oil in 2009.

Another special feature of the transaction was that unlike in the previous divestments of assets by the other IOCs where the highest bidder usually emerged as the preferred bidder, ExxonMobil did not use the highest bidder to determine the preferred bidder in the sale of Mobil Oil to NIPCO Plc.

An ExxonMobil source told THISDAY that the company was more interested in the integrity, value system, ethics and control system of the bidders than the value of the bids submitted.
“We shortlisted those we wanted to buy the assets and conducted due diligence on their business integrity, value system, ethics and control systems and NIPCO came top. It was not about the highest bidder but a company that can successfully manage Mobil Oil and maintain the integrity and business ethics for which ExxonMobil is known globally,” he explained.

A source at NIPCO also corroborated this claim, stressing that “ExxonMobil did not shortlist based on deep pocket but a company with high integrity and safety consciousness that will manage and sustain the integrity of the Mobil brand”.

“At a point during the process, we did not know who was the seller or the buyer because ExxonMobil was conducting due diligence on us as if they were the one buying our assets. We were the one who was supposed to do due diligence on the asset we wanted to buy but ExxonMobil was the one doing due diligence on us. They did not want to hand over the asset just to any company,” he added.
US energy giant, Chevron Corporation had in early 2009 divested of its majority stake in Chevron Oil Nigeria Plc to another Nigerian indigenous downstream player, MRS Group.

Before MRS acquired Chevron Oil, Ocean and Oil Holdings in 2000 acquired the federal’s government 30 per cent stake in Unipetrol, and increased its stake in Unipetrol to 42 per cent in 2001.
In 2002, Unipetrol acquired a 60 per cent stake in Agip Nigeria, and rebranded in 2004 as Oando Plc.
With the sale of ExxonMobil’s stake in Mobil Oil to NIPCO, the French oil major, Total, is the only IOC in Nigeria that operates in the downstream sector with its controlling shares in Total Nigeria Plc.

The IOCs have also embarked on a wave of divestment of upstream assets to Nigerian independents in recent years, citing increasing challenges in the operating environment and the need to encourage the development of local capacity.

One of the beneficiaries of the upstream asset acquisitions by the IOCs is Seplat Petroleum Development Company Plc, which is listed on both the London and Nigerian Stock Exchanges.
The acquisition of the assets by Seplat has helped the company to develop capacity and emerge as the biggest Nigerian independent company in the upstream sector.
Before Shell sold the first set of assets to Seplat in 2009, Nigerian independents were restricted to only marginal assets as marginal field producers, having lacked the financial and technical capacity to operate larger acreages.

But the acquisition of the onshore assets by Seplat and other Nigerian independents changed the face of doing business in the upstream sector as more Nigerian companies have increasingly demonstrated the capacity to compete for deeper acreages, which were the exclusive preserve of the multinationals.

Creating mega downstream company
NIPCO’s acquisition of Mobil Oil has also given another Nigerian company the opportunity to create a mega company in the downstream that is capable of attracting foreign capital to compete with the Vitol and Trafigura of this world.
The recent NIPCO and ExxonMobil mega deal, if effectively managed and synergised, is capable of creating a one-stop solution that will address the persistent supply challenges affecting the downstream sector.

The Managing Director of NIPCO, Mr. Venkataraman Venkatapathy, alluded to this fact when he said in a statement that the acquisition was “part of our strategic move to support Nipco’s continuous growth and expansion of its Nigerian retail footprint”.
“We are confident of adding tremendous value to MON and likewise MON will add a huge value to NIPCO,” he added.

Venkatapathy said with the signing of the SPA, his company would start the transition period and seek the approval of the NSE and SEC.
“The transition period will also enable NIPCO Plc to effectively manage a smooth and successful completion of the transaction. NIPCO considers this acquisition an important synergy.
“It is part of our strategic move to support NIPCO’s continuous growth and expansion of its Nigerian retail footprint. We are confident of adding tremendous value to MON and likewise MON will add huge value to NIPCO.

“In furtherance of this value addition, NIPCO will continue to maintain the Mobil brand on its retail outlets as well as continue to blend and sell the Mobil brand of lubricants under branding licence(s) from ExxonMobil,” Ventakapathy explained.
The NIPCO boss, who did not disclose the value of the deal, however expressed his company’s profound gratitude and appreciation to ExxonMobil for selecting NIPCO as the preferred bidder for the acquisition of MON.

“We wish to give every assurance to ExxonMobil that having entrusted us with this invaluable asset (MON), we will ensure full brand compliance with ExxonMobil’s global standards as well as rigorously sustain and follow ExxonMobil’s code of conduct/ethos and operational excellence,” Ventakatapathy added.

According to him, NIPCO’s expansion reinforces its implicit confidence in Nigeria’s future.
He noted that the Nigerian economy still provides a robust and premium return on investment, adding that his company was privileged to have been given this opportunity by ExxonMobil on its home ground.
“To our shareholders and stakeholders, we say welcome to a new dawn. A new era that will usher in stability, prosperity, sustainability and growth,” Ventakatapathy said.

Labour challenge
One of the greatest challenges facing this kind of mega acquisition is labour unrest due to fear of potential job losses by Mobil Oil workers.
During the acquisition of Chevron Oil by MRS, there was fierce resistance by the Chevron Oil workers, who fought Chevron Corporation to pay them off before handing over the company to the new buyers.

If not carefully handled, labour unrest has the potential to erode the potential gains in this kind of deal.
However, Venkatapathy has assured all employees of job safety, adding that there is no plan for staff redundancies.

He added that in NIPCO’s usual way of attaching premium to staff welfare , the company would respect the terms of all collective agreements with employees and the unions that represent them .
“In addition to giving the employees much needed assurances on their job safety which we did today , our goal is to increase presence and efficiency by expanding MON;s retail footprint to a minimum of 300 by December 2017 and make it a vibrant one .We urged MON personnel to the new roadmaps for growth whilst simultaneous exploring opportunities to provide MON with additional products like LPG . NIPCO’s successful philosophy and track record of supporting and empowering its staff and management team will continue at MON .Staff welfare and comfort will be paramount and receive priority as we forge ahead,” Venkatapathy added.