NIPCO DOWNSTREAM SECTOR ATTRACT MEGA DEALS
….. as Mobil Oil sells its 60% stake to NIPCO
…. Nipco to maintain Mobil brand both in fuel, lubes businesses
There are indications that the positive outlook in the downstream sector in Nigeria is attracting mega deals. The latest is the Exxon Mobil Oil Corporation sell off its shares representing 60 percent of Mobil Oil Nigeria to Nipco Investments Limited, a wholly owned subsidiary of Nipco Plc. The deal , worth about N40.2 billion, based on the market value of Mobil Nigeria Plc, as at yesterday, is subject to regulatory approval. NIPCO Investment is a vehicle owned by NIPCO plc (formerly called IPMAN Petroleum Marketing Company Limited (IPMCL). Nipco Plc was incorporated by members of the Independent Marketers Association of Nigeria (IPMAN) as a Private Limited Liability Company, to participate in the distribution of the white Petroleum Products business across Nigeria. The company reported a turnover of N114 billion in 2015 and net profit of N1.4 billion. 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 allow ExxonMobil focus on its core area of operations.
The companies reached a deal that will allow for a transitional management of both parties for the time being. In effect NIPCO will take-over in a year’s time. Informed sources say there will not be mass firing of staff. Furthermore, the building where Mobil is, now is owned by Mobil Oil, meaning that Mobil Producing will have a new landlord.
In furtherance of the value addition from the deal, 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 Exxon Mobil. After over 100years of operations in the downstream of the petroleum industry, Mobil Oil finally exits it operations in the downstream of the petroleum industry. The value of the 60 percent equity divestment was not disclosed, Venkataraman Venkatapathy, the managing director of NIPCO said they are under a strict confidentiality clause which prohibits them from disclosing the sum of money involved.
Venkatapathy said the divestment of the company from the downstream operation was not as result of financial problems , but because Mobil felt the downstream was meant for “small-boys” and wants to concentrate on the upstream. He also said the divestment is not as result of lack of confidence in the economy by Mobil Oil but rather to promote indigenous operators in the downstream. The divestment is for technical reason and in this regards, we are still doing partnership with Mobil in respect of their lubes and brand which is mutually beneficial to both companies. NIPCO would continue the Mobil brand both in fuel and lubes businesses, he said.
The fund was raised through loans and equity, while the transition would take sixth months, even though the two companies would be managed differently, the NIPCO bass said. He said there would no job losses. The acquisition was agreed with the execution of a Sale And Purchase Agreement with Exxon Mobil. With the signing, the company will start the transition period and initiate the process of obtaining regulatory approvals from the requisite regulators – SEC and NSE.
The transition period will also enable Nipco plc to effectively manage a smooth and successful completion of the transaction Nipco considers this acquisition aan important synergy. It is part of our strategic move to support Nipco 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, said Venkatapathy.
Dolapo Oni, head of energy research at Ecobank, believes these deals signal a good omen for the downstream sector, noting that it may even propel other major oil producers into their own alignments to take advantage of Nigeria’s bourgeoning downstream sector. It shows that there is a positive outlook for the sector and we may yet see more of such deals, Oni said.
On May 11, Ibe Kachikwu, minister of state for petroleum resources, announced an increased in the pump price of Premium Motor Spirit ( petrol) to N145 per litre from N86.50. Oil marketers were urged to source foreign exchange to meet local demand for refined products. We share the pain of Nigerians but, as we have constantly said, the inherited difficulties of the past and challenges of the current times imply that we must take difficult decisions on the sort of critical national issues. We believe in the long term, that improved supply and competition will drive down prices, kachikwu had said on the occasion.
From our own viewpoint, the outlook for the downstream sector is largely positive and now with the policies in place, you have to be really ready to compete if you want to stay in that market, Oni of Ecobank told Business Day by telephone. I think a cogent explanation for this kind of deal is portfolio rationalization, because of the fall in the crude oil prices, a lot of operators are trying to focus on their competencies, said Chijioke Mama, an energy analyst.
Current alignment and deals in the sector seem to validate this decision. Last month, Heyden Petroleum Limited announced the acquisition of 40 new petrol stations at the cost N10billion increasing the company’s retail outlets to 50.
An upgrade of the newly acquired stations will be due in a couple of months. Also, Oando Marketing Limited, in a bid restrategise and maintain relevance, changed the company’s name to OVH Energy Marketing Limited (OVH) and increased its capacity to distribute two billion litres of petroleum products yearly. These initiatives signal positive developments for the petroleum downstream sector as industry operators say these deals will enhance competition and encourage stakeholders to get creative to meet customers needs, despite the constraints of foreign exchange.
Crude oil prices now hover around $50 per barrel, almost 50 percent less than it sold in 2014 due largely to supply glut by oil producers, Iran emerging from sanctions and Saudi Arabia turned on the taps to maintain their market share and US shale oil producers pumped oil like it was going out of fashion. The strategy is lowering your cost and concentrating on areas of your core strength is a proven way to face the challenges of a low oil price environment, said Mama.
Confirming the deal, Ode Udeagba, manager, media and communications, Mobil Producing Nigeria Unlimited, said that Exxon Mobil has reached an agreement with the Nigerian Independent Petroleum Company for the sale of its 60 percent share in its downstream Mobil Oil Nigeria affiliate. We have also reached accompanying agreements for the continued import, blending and distribution of Mobil- branded fuel. Subject to regulatory approval, change-in-control is anticipated by mid 2017, he said.