No Rating Impact For Seplat Despite Exxon-Mobil Deal Issues – Fitch

Fitch Ratings says that the issues surrounding Seplat’s purchase of Mobil Producing Nigeria Unlimited (MPNU) from Exxon Mobil will not have any impact on Seplat’s rating.

The deal is on hold due to arbitration in Nigerian High State Court between Nigerian National Petroleum Company Limited (NNPC) and MPNU

Fitch affirmed Seplat’s rating on 13 April 2022 following the announcement of the acquisition of MNPU’s assets. The transaction, funded by a mixture of debt and cash, was valued at about USD1.3 billion, plus up to USD300 million contingent consideration.

The additional payment is subject to minimum oil price and MNPU’s production levels thresholds between 2022 and 2026. The deal is expected to strengthen Seplat’s business profile through the addition of offshore hydrocarbons producing assets and increase its production to about 146,000 barrels of oil equivalent a day (boe/d) from 50,000 boe/d.

Fitch expects that post-acquisition the company would maintain moderate funds from operations (FFO) net leverage below 1.5x in 2022-2023 and below 2.0x in 2024-2025. However, the rating would still be constrained due to a high concentration of assets in Nigeria.

In the absence of the acquisition Seplat’s business profile would remain in line with its ‘B’ rating. Furthermore, the company has strong liquidity of USD350 million as of June 2022 and can reduce FFO net leverage materially below 1.0x in 2022 and 2023 assuming no incremental dividends compared to the acquisition case. If higher dividends were paid Fitch expects that Seplat would maintain conservative leverage of 1.5x-2.0x and remain within our rating sensitivities.

Fitch believes that the sales and purchase agreement as well as all financing for the acquisition remain in place and that the transaction can be concluded as soon as the arbitration process concludes. If the transaction is cancelled, we assume that Seplat will be reimbursed USD128 million paid as a deposit in 1Q22.

THE SEPLAT SALE DEAL

ExxonMobil entered into a landmark Sale and Purchase Agreement with Seplat Energy to acquire the entire share capital of Mobil Producing Nigeria Unlimited from Exxon Mobil Corporation, Mobil Development Nigeria Inc, and Mobil Exploration Nigeria Inc. earlier this year.

The transaction suffered a setback after the state-owned Nigerian National Petroleum Corporation Limited asserted a right of first refusal on the deal. As a joint venture partner, NNPC argued it retained the right to be allowed to buy oil blocks sold by ExxonMobil ahead of any competitor or private firm.

Seplat Energy in July said NNPC Ltd. won a court decision to block its quest to purchase the entire oil assets of Mobil Producing Nigeria Unlimited (MPNU), a local unit of oil major ExxonMobil.

The court decision on July 6 was temporary and forbade MPNU and the defendants from consummating any asset disposal in MPNU, not excluding the share sale and purchase deal it struck with Seplat in February.

NNPC had prayed the court, State High Court of the Federal Capital Territory, to declare that a conflict happened between the state-owned oil company and MPNU over the “interpretation of preemption rights under their Joint Operating Agreement (“JOA”) and order NNPC and MPNU to arbitration as required by the JOA.”

Seplat Energy said neither itself nor Seplat Energy Offshore Limited was a party in the lawsuit, and insisted the share purchase agreement remained valid. The asset purchase would enable Seplat Energy to scale up production by 95,000 barrels of oil a day from assets in a joint venture ExxonMobil runs with NNPC.