A Review of the Nigerian Energy Industry

Seplat’s IPO: A Forerunner to IOCs Listing on NSE?

Austin-Avuru, MD, Seplat
Austin Avuru, MD, Seplat

19 March 2014, Lagos – With an average asset value of $89.4 billion, 23 of the 96 companies currently active in Nigeria’s upstream oil and gas sector are listed on foreign exchanges. However, Seplat Petroleum has planned a $500 million IPO and listing on the Nigerian Stock Exchange (NSE) in April this year. Eromosele Abiodun wonders if the move will open the way for more oil and gas firms to list on the Nigerian bourse

The Nigerian Stock Exchange (NSE) was established in 1960, but actually started operating in June 1961, the same year it was listed on the London Stock Exchange (LSE) on behalf of the colonial masters.

From then on, it listed government stocks (not individual companies) until the indigenisation and privatisation programme in 1977. The NSE now has almost 300 securities, 190 of which are equities (companies) while the rest are government stocks (federal and states).

In the last 20 years, the growth recorded by the NSE could largely be ascribed to federal government policies, like the Nigerian Enterprise Promotion Decree, and the Central Bank of Nigeria (CBN) induced consolidation in the banking sector in 2005.

However, the NSE has recorded several achievements of its own. For example, the Exchange has since 1997 met the 30 conditions of the World Federation of Exchange (WFE).

Some of the conditions are that developed stock exchanges should do a T+3 and emerging markets T+5. The NSE is ahead of other emerging markets by operating a T+3. The T+3 mean transaction day plus three working days. The Exchange started the T+3 in April 2000 after a T+5 from1997 to 1999.

The NSE started its computerisation in 1985, while in 1997 it established a central depository and electronic clearing and settlement.

It is also on record that a total of 36 banks raised over N506.6 billion on the market between July 2004 and December 2005, the 18-month period in which they were required to raise their capitalisation to a minimum of N25 billion.

Despite these achievements, the bid by the NSE to get multinational oil companies (IOCs) and telecommunications companies operating in the country to list on the Exchange has never yielded any reasonable fruit.

Most of these companies often cite illiquidity and the Exchange’s listing rules as reasons for not listing on the Nigerian Exchange. It is worthy to not that even oil and gas companies promoted by Nigerians prefer to list on Exchanges in Europe. For example, Afren Nigeria Limited, an oil and gas exploration and production company sponsored by Nigerians is now quoted on the LSE.

PIC as Villain of the Piece
Two weeks ago, officials of South Africa’s Public Investment Corporation (PIC), the government-owned fund manager, were in a celebratory mood in Johannesburg after their $270 million investment in CAMAC Energy Inc. became profitable. The excitement followed CAMAC’s (an explorer with mostly Nigerian operations) debut trading on the Johannesburg Stock Exchange (JSE).

After the listing, Chief Investment Officer of PIC, Dan Matjila, was quoted to have said: “We are in the money already.” The PIC has $137 billion in assets under management.

Analysts have blamed lack of strategic thinking by Nigerian officials – from regulators to legislators and the finance ministry as the reason why foreigners are becoming the major beneficiaries of Nigeria’s wealth.

The PIC, which invests on behalf of South Africa had bought a 30 per cent stake in CAMAC, which issued 376.8 million shares to the PIC at R7.77 per share. In its first day of trading on the JSE the stock gained about R31.5 to close at R10.95, representing a 41 per cent gain for shareholders.

THISDAY findings revealed that 96 companies are currently active in Nigeria’s upstream oil and gas sector in the form of exploration and production. Twenty-three of them (24 per cent) are listed on foreign stock exchanges. Oando Plc, through its stake in Toronto-listed Oando Energy Resources (OER), is the only company trading on the NSE, while the rest remain unlisted.

Out of the 23 companies listed offshore, Afren Plc; Centrica; Eland Oil and Gas; Essar Energy; Heritage Oil; Lekoil Limited; and Royal Dutch Shell are listed on LSE.

CAMAC Energy and Sasol and TSK are listed on JSE, while Mart Resources Inc, Mira Resources, and OER are listed on the Toronto Stock Exchange.

Chevron and Exxon Mobil are on the New York Stock Exchange (NYSE), with Maurel & Prom Nigeria and Total Oil  listed on Euronext-Paris.  CNOOC and Sinopec are Hong Kong (HKE) listed.

Indian Oil and ONGC are NSE-India listed, just as  ENI-Saipem is  Borsa Italiana listed. Statoil and Petrobras are listed in Oslo and Bovespa Brazil respectively.

According to the November 2013 report by investment and research firm CBO Capital Partners and Rystad Energy, the 23 companies collectively own Nigerian oil assets (OMLs) with average asset value of $89.4 billion.

This compares with the NSE, whose total equity market capitalisation was equivalent to $77 billion at the close of trading last Friday.

Seplat Petroleum’s Bold Step
Meanwhile, all that is about to change if Seplat Petroleum Plc’s bold move to to float a global IPO and list on the NSE become successful. The company had Tuesday announced that it is planning a $500 million initial public offering on stock exchanges in London and Nigeria next month. The offer is potentially the largest flotation by an oil exploration and production company in Europe since the global financial crisis.

Seplat, which is hoping to list in mid-April, currently produces around 60,000 barrels of oil a day from three oil blocks it bought from Royal Dutch Shell RDSB.LN -0.35 per cent in 2010.

Seplat plans to use the float proceeds primarily to fund acquisitions, though $48 million would be used to pay off a shareholder loan. The company is one of several Nigerian companies seeking to grow through acquisitions as large international oil companies retreat from their holdings in the country’s onshore oil sector.

Seplat is one of the final bidders for assets Shell is selling in the Niger Delta and has been selected by Chevron Corporation to buy its onshore assets in Nigeria.
It plans to float around 25 per cent of the company, giving it a market value of up to $2 billion. Its Nigerian founders will remain its largest shareholders, along with French energy company Maurel & Prom SA MAU.FR +0.18 per cent. Swiss-based trader Mercuria Energy Group also holds a minority stake in Seplat.

However, experts believe listing for Seplat would go some way to reviving London’s reputation as center for IPOs of emerging-market resource companies. Such flotation has proved controversial in recent years after high-profile corporate governance scandals at mining companies such as Bumi ARMS Plc and Eurasian Natural Resources Corp. PLC.

Regulators in the U.K. had last year tightened its rules for premium listings, which require higher standards of corporate governance for companies looking to float.
A trader at the NSE told THISDAY that Seplat, is not seeking a premium listing as that would force it to move its headquarters to London.

“As a result, Seplat won’t be included in benchmark indexes such as the FTSE 250,” he said.

Seplat’s chairman, Dr. AB Orjiako, had in reaction to the matter said, “We are a Nigerian company and very proud of that fact. We would like to remain a Nigerian company.”

Orjiako however promised that Seplat would voluntarily apply the standards required of a premium listing.

“We are very strongly interested in Shell’s assets: We believe that Seplat is very well positioned to develop them,”said Orjiako.

Analysts View
As the indigenous and independent oil companies in Nigeria increasingly list on foreign bourses, analysts say companies are acting like mercenaries and getting away with anything in Nigeria, because none of the legislators or economic planners is fighting for or thinking about Nigeria’s economic interest.

“Getting oil independents and majors to list on the NSE will clearly help deepen and diversify the local market, avail local investors to gain exposure to the sector and help reduce the quantum of funds being repatriated outside of Nigeria, in form of dividends.

One way to get them listed may include the use of tax incentives. What we need is an enabling environment and incentives which are a more appropriate means of influencing their listing locally,” said Managing Director of Emerging Capital, Chidi Agbapu.

However, it remains for time to tell if other oil and gas firms will follow the steps of Seplat.


 – This Day
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