Avoiding pitfalls in oil and gas acquisitions

Upstream oil and gas acquisitions are clearly on the increase in Nigeria. It is estimated that about 300,000 barrels of oil per day worth of equity in onshore and shallow water producing asset have been sold and acquisition activities are to remain strong throughout the year.

By the end of 2014, the cumulative deal value is estimated to reach 11.5 billion US dollars, with about 22 oil blocks traded. 

As the International Oil Companies (IOCs) divest from these upstream oil assets, as a result of threats to production efforts, global capital re allocation and the cloud of uncertainty surrounding the Petroleum Industry Bill(PIB), the indigenous oil concerns are fast tapping into this huge opportunity for growth.

However, there are growing concerns for the the avoidance of pitfalls and creation of necessary transparence and protection in these emerging upstream acquisitions.

Upstream oil and gas assets  acquisition experience reveal that there has been delayed and protracted closure, difficulties in raising funds, operators  not moving with assets sold and the key issue of the appropriate application of “Ministerial consent”.

Analysts hold strongly that one of the grey areas in these emerging acquisitions is the issue of maintaining a balance between the entrepreneurial objectives of the investors and the development aspirations of host governments. This balance can be properly struck through a well crafted contract within the context of a national petroleum industry legislation.

The petroleum law should clearly state the authorities or agencies with mandates to implement policies and regulate affairs. This law will clarify licensee rights and tax regimes.

Well thought-out and implemented petroleum legislation creates conditions for mutual trust between all parties and players in the petroleum industry, creates stability and enhances value for both investors and governments. 

We believe that the PIB when passed will be the overall institutional and regulatory framework for regulating the petroleum sector and ensuring that the interests of all parties are properly protected.

In ensuring equitable transfer of assets or acquisition transactions, analysts believe that proper due diligence on the part of the buyer is necessary. Sellers should be vigilant about the status and capacity of bidders, and negotiating process.

We continue to call on relevant authorities and institutions to speed up the passage of the PIB to ensure a transparent, productive and stable petroleum industry.