The real story of NIPCO’s acquisition of 60% Mobil Oil stake

It took an exhaustive year long due diligence on the operations of indigenous companies in the downstream, before ExxonMobil could reach a decision to sell 60 percent of its downstream shares to NIPCO plc which the company adjudged to have met its criteria.

This is a rare feat for an indigenous oil company given how they are often accused by IOC’s of failing to measure up in terms of Health, Safety and Environment (HSE) and corporate governance.

For close to a year, ExxonMobil scrutinised the competing companies using various parameters including internal processes, corporate governance, value system, among others.

  It was also concerned with post sale and transition period, because it wanted to ensure that after it exit there would not be problems that may be linked to its inability to ascertain whether the company it handed over was competent in managing the assets or not.

The making of a deal

The actual process started 24 months ago when NIPCO initially indicated interest to acquire 10 per cent equity of Mobil Oil Nigeria and having one director on the board. But along the line ExxonMobil started showing signs of complete divestment and this made NIPCO to drop the 10 per cent equity interest.

  NIPCO started pursuing the complete take over about 12 months ago with absolute confidentiality by both parties while ExxonMobil began to beam search light NIPCO’s corporate governance.  The deal was so secret that only three people from NIPCO namely the managing director, the company secretary and the executive director of finance were aware of it.

It must be emphasised that the real negotiation was brokered by the chairman of Pure Bond, Ramesh  Kansgara ,whose  outfit owns 60 per cent of NIPCO share and who is also a director in  the  company .  He is the person that has the financial wherewithal to prove effective capital to broker the deal.

  The effective take over date according to industry sources may be at the end of first quarter of 2017 because a lot of meeting have been planned for the smooth transition and regulatory approvals are required.

Fundamental consequences

The deal will result in management changes as NIPCO may end up having a group managing director which would oversee both companies while each of the companies would have a managing director each overseeing their activities.

The acquisition exercise according to industry analysts is going to be good for Mobil Oil Nigeria Plc and NIPCO Plc because both companies have shared values, are in the same business, and may add new business for either one as there are businesses in aviation and lubes which NIPCO is not into but which it would now benefit from immensely now.

  As regards fuel operations such as liquid fuel there could be greater synergy between both of them in bringing a larger part of their operations together to economise and reduce the operating cost.

It is therefore a huge responsibility on NIPCO to justify the confidence repose on indigenous companies through this deal. According Venkataraman Venkatapathy, managing director of NIPCO plc ,the exercise is also an indication of clear confidence in the Nigerian economy by NIPCO despite whatever is being said about the economy.  He said the company has a long term vision and future for the country.

Even though the value was strictly under confidentiality clause, analysts say it could be in the region of 40 billion.

Speaking on managements of the two companies, the NIPCO boss said Mobil is a publicly limited quoted company and by status it is supposed to have independent board and operate independently, saying that the two now have different cultures which would be difficult to mix  presently but they eventually will be amalgamated in the near future.

“During the time of recession when thing are tough it is only the companies that have the vision to see the opportunities in times like  this that would reap the benefits in future when the recession would have been over.  It is a period like this that you know the strength of a company,” he said in response to why the company had to acquire the assets at a period the economy is in recession.

Analysts say the Mobil Oil deal with Nipco Investments Limited may be part of measures to tackle the low oil price environment and dearth of upstream investments, and it will allow ExxonMobil focus on its core area of business.

“It shows that there is a positive outlook for the sector and we may yet see more of such deals,” said Dolapo Oni head of energy research at Ecobank.

On the other hand, some industry sources say it is doubtful if the action of ExxonMobil to exit the downstream is not because of the unfriendly business environment in the sector over the years.

The non passage of the Petroleum Industry Bill which should have led to the complete deregulations of the downstream, foreign exchange challenges, unsettled  government debts, bank loans hanging over the companies, estimated at about N400billion, coupled with the complexity of not getting the required funds for its operations, they say are also some of the  factors that may have influenced the decision of ExxonMobil to totally divest from in the downstream sector of the petroleum industry.

Olusola Bello