Nigerian oil and gas company Seplat has set records and may seriously boost Nigeria’s energy industry after being listed in London and Lagos, in an attempt to raise much-needed capital. The move proved extremely lucrative for the firm, which is hard-pressed to buy up oil fields in the Niger Delta as international firms flee the sabotage-prone area. For Seplat, the IPO brought in more than $500m, valuing the group at $1.9bn. It was the largest IPO in London in years, and its success suggests that African firms looking for capital should venture outside of the continent’s stock exchanges, which still lack significant liquidity. In this respect, Seplat’s young story could be one of great fortune.
Founded in 2009 by two Nigerian businessmen – ABC Orjiako and Austin Avuru – the company conducts independent oil and gas exploration and production in Nigeria, having acquired a 45 percent participating interest in three on-shore producing oil and gas leases, located in the western Niger Delta basin of Edo and the Delta states, which include the Oben, Ovhor, Sapele, Okporhuru and Amukpe fields.
The area is particularly lucrative for firms to gain access to, as some two million barrels of oil a day are extracted in the Niger Delta, with an estimated 35 billion barrels of crude still residing under the delta. It is this area that has helped make Nigeria the biggest producer of petroleum in West Africa (see Fig. 1). With Seplat becoming the first indigenous oil company to acquire such assets and be awarded operatorship of the fields, the company has increased oil and gas production year-on-year and revenues and net profit continue to grow as a result.
Seplat’s young story could be one of great fortune
Boosting capital
In order to build on this, Seplat was looking to raise $500m by selling new shares, giving it a market capitalisation of more than $2bn, which it would use to further expand in the delta and pay down its million-dollar net debt. Upon listing, the IPO ranked as the largest for a sub-Saharan company since Kenya-based telecom group Safaricom’s in 2008, and the flotation is also the second largest for a Nigerian company, after the $550m of Starcomms six years ago.
“Despite a challenging market for oil and gas stocks, the response has been excellent and demonstrates strong demand in both London and at home for leading Nigerian indigenous E&P players,” said Seplat’s Chairman ABC Orjiako, in a statement at the time. The move to list on both the Lagos and London stock exchanges is not a surprising one, an analyst in the Nigerian oil industry told World Finance. IPOs on the NSE have been few and slow, with the primary market section experiencing the strongest initial public offering activity between 2006 and 2008.
“Since the financial crisis, listing activity on the Nigerian Stock Exchange has dropped dramatically, and aside from Seplat, the exchange has only seen one other listing so far this year. The NSE doesn’t offer the same potential for capitalisation as established exchanges”, the analyst said. “Seplat is still a relatively new firm and they started out with limited capital and have had to refinance since. They obviously needed to increase their capital in order to buy more oil fields and develop their current ones, and decided that an IPO would be the best way to go. When it comes to IPOs, there is no place like London and it has opened the firm up to a lot more investors and money than would have been the case had they only listed in Lagos,” the analyst, who prefers to remain anonymous, said.
Seplat pumps about 60,000 barrels a day from its three crucial fields in the Niger Delta, which it bought from a Royal Dutch Shell-led consortium in July 2010. Eager to please its major shareholders Maurel et Prom – the French oil group, and Mercuria, the Swiss-based commodities trading house – Seplat has been working hard to develop its current oil fields and acquire some of the other lucrative areas within the delta. Recently, Nigerian authorities have improved the company’s chances of dominating the local oil sector, as new laws have made it considerably harder for foreign firms to gain access to Nigerian resources.
Nigeria is the world’s 12th-largest oil producer, but major energy firms such as Shell, Total and Eni are retreating from the region by selling their Niger Delta oil fields. Despite oil in Nigeria being of a high quality and relatively easy to drill, widespread sabotage and oil theft, as well as a government drive to increase local ownership, has hampered the profitability of business for international players. Earlier this year, Shell said that it had lost around $1bn because of theft and other disruption to its Nigerian operations last year. Now Shell is actively looking for buyers to take over its oil fields.
The cash Seplat has raised in the IPO will put it in a stronger position to compete for the oil giants’ disposals because foreign companies must partner with Nigerian businesses to bid. The company is therefore considered one of the lead bidders for Shell’s Nigerian oilfields worth an estimated $2bn to $3bn, according to several media reports, and more fields could be available soon as other firms are leaving to concentrate on less problematic offshore operations.
Local oil boom
Seplat is not the only Nigerian firm to realise the potential for growth that lies in major corporations leaving the Niger Delta. Other local oil companies such as Oando and Shoreline Natural Resources have bought fields from the likes of Shell, ConocoPhilips and Chevron. The home- grown Nigerian oil industry has experienced dramatic growth over the past five years, buying assets worth $5bn. This has prompted industry analysts to suggest that other local Nigerian oil and gas companies are likely to seek a listing in established stock exchanges such as London and Johannesburg in the next year or two.
Despite this, Seplat’s founders are not positive that everyone will benefit from the Nigerian oil boom. There’s a reason why multinationals have dominated the local industry said Avuru at Ernst & Young’s World Entrepreneur of the year 2014 awards in Monte Carlo. “For 50 years the oil and gas industry in Nigeria was dominated by oil and gas multinationals. If it were that easy, it wouldn’t have been a 50-year dominance.
“In the past 20 years there have been several regulatory attempts to introduce indigenous participation. It didn’t work. It looks easy because we walked in, did a landmark transaction, led the way and raised half a billion dollars. It looks easy because we did it right. One of the most difficult industries to operate in is the oil and gas industry. Oil is an international commodity and you have no control over the price and you have to build a business that will survive in good times and in bad times,” the chief executive explained.
Nevertheless, Seplat’s successful listing is an indication that Nigeria’s policy of indigenisation of the oil sector might be working. The company, which is the first pure upstream player in the Nigerian Stock Exchange, sold its shares to over 300 institutional investors with Nigerian shareholders consisting of over 48 percent, and will have a combined free float of over 42 percent of its shares on the NSE and LSE. With the country’s first dual listing receiving such unprecedented interest from investors, analysts suggest that the Nigerian oil boom may only just be starting and as such, more local oil and gas companies are expected to list on the NSE.
“The Exchange made a commitment to facilitate durable wealth creation by listing and nurturing the next group of African champions. That is, companies with over $1bn in market capitalisation with operations across the continent,” said Oscar Onyema, CEO of the NSE, when speaking to the press during the Nigerian listing of Seplat. “We applaud the board and management of Seplat for their determination to be identified as a Nigerian success story. The listing of Seplat now creates a benchmark for others,” he said. It will be interesting to see whether other local resource firms will be able to follow Seplat’s strong capitalisation and enter the bidding war for key oil fields. At the moment, US oil giant Chevron is keen to divest assets in the Niger Delta, and Seplat is again considered a prime contender for what could be one of the most lucrative oil deals this year.
