Nigerian Oando’s acquisition of Eni’s NAOC sparks concern

Italian oil and gas major Eni has finalized the sale of its wholly owned subsidiary NAOC to Nigeria’s Oando for a total consideration of $783 million including consideration for the asset and reimbursement.

The indigenous energy company acquisition is a significant milestone in Oando’s long-term strategy to expand its upstream operations and strengthen its position in the Nigerian oil and gas sector.

Oando acquired a 20 percent participating interest held by NAOC in the NEPL/NAOC/Oando Joint Venture in Nigeria through the transaction, which received the approval of all relevant authorities.

However a 5% participating interest in Shell Production Development Company Joint Venture is not included in the transaction, as it will be retained in Eni’s portfolio.

“Eni will continue to be present in the country through investment in deepwater projects and Nigeria LNG, while also exploring new opportunities related to agri-feedstock sector,” said a statement.

African Export-Import Bank (Afreximbank) said in a statement that the bank successfully arranged a senior $500 million and a junior $150 million reserve-based lending facility for Oando to finance these deals.

Haytham Elmaayergi, Afreximbank’s Executive Vice President of Global Trade Bank, commented on the transaction, saying that the facility marked a critical step in advancing the bank’s strategy for promoting local content in Africa’s oil and gas sector.

“By supporting the acquisition of key energy assets by an indigenous company like Oando, the bank is fostering economic empowerment, enhancing regional trade, and contributing to the sustainable development of Africa’s natural resources,” he said.

Wale Tinubu, Group Chief Executive of Oando, noted that the transaction is a win for the oil and gas company and every indigenous energy player. “With our assumption of the role of operator, our immediate focus is on optimising the assets’ immense potential, advancing production and contributing to our strategic objectives.

“This we will do while prioritising responsible practices and sustainable development in ensuring a balanced approach to our host communities, and environmental stewardship as we complement the nation’s plan to boost production output,” he added.

Nigerian energy transition

Rinret Best, Head of Compliance, Sustainability and Energy Research at Meyana Energy, told Gas Outlook that the transaction implies enhanced operational control regarding decision-making from the management side and enables Oando to be in a strategic position via-a-vis implementation of joint ventures.

She said it will also improve operational efficiency, increase revenue and profit share, and align the company to be a key player in the Nigerian energy transition process as declared in the decade of gas.

“For the community people, especially the Niger Delta region where NAOC operates majorly, this acquisition brings with it benefits and challenges. Some of the benefits include: job opportunities, improved socio-economic conditions, infrastructural and community development. However, with oil companies, there are environmental concerns especially as it relates to environmental degradation.”

Etulan Adu, a production engineer at Eni, an Italian multinational oil and gas company noted that the acquisition comes with economic gains for the local community. He told Gas Outlook that the local communities where NAOC operates may see economic benefits because of the acquisition.

“The presence of Oando may result in more economic opportunities, skills development, and job creation for locals. This may help promote socioeconomic empowerment and reduce poverty. Moreover, Oando’s involvement in the local community is essential to developing trust, creating a good rapport, and advancing sustainable development.

Adu said that Oando’s operations must accord top priority to conservation, environmental sustainability, and regulatory compliance. “To mitigate potential environmental impacts and promote community well-being, it is imperative to implement best practices for environmental management, reduce carbon emissions, and conserve natural resources.”

Addressing environmental concerns

Best noted that with every expansion plan and strategy, some risks and uncertainties always threaten it. She said some operational challenges may arise from integrating NAOC’s operations into its current operations.

“The Niger Delta region has in the past suffered from environmental degradation that has affected their sources of livelihoods and affected their healths. Concerns with the environment as it relates to oil spills and gas flaring must be properly managed and addressed effectively to avoid community unrest and legal liabilities for Oando,” she said.

Gas Outlook has previously reported on how gas flaring, routinely carried out by companies producing oil in Nigeria, poses a significant hazard to the health of those exposed to it, especially children.

“Another challenge is its positioning in the international oil and gas market, this is arising from the fact that new regulations around carbon emissions and shifts in energy demand will directly impact Oando’s revenue stream and ability to service the debt in the near future,” she added.

Adu further said that environmental issues are critical amidst global concerns over climate change, therefore Oando is required to follow strict environmental rules and adopt sustainable practices.

“To manage risks and uncertainties, in-depth risk assessments and scenario planning are essential. These involve predicting changes in project parameters, environmental issues, and global variables.

“Communication with advisers, specialists, and stakeholders is crucial. Strong risk management plans and monitoring systems are necessary. A transparent, accountable, and flexible project team culture is also essential,” he added.

Diversification into clean energy

Adu further noted that global trends are pushing the energy sector to diversify, with a primary emphasis on renewable energy. He said by making investments in energy-efficient projects and renewable energy sources, Oando is embracing these developments.

“By diversifying, Oando hopes to lower risk, satisfy customer needs, and maintain its competitiveness in the renewable energy industry. In order to satisfy regulatory requirements and diversify its energy portfolio, Oando is taking advantage of the rising demand for renewable energy solutions.

“By lowering Oando’s carbon emissions and improving environmental stewardship, this targeted action supports its sustainability goals. Consequently, by making an investment in renewable energy, Oando may be future-proof against changes in regulations and market volatility. It can also innovate, set itself apart from competitors, and take advantage of emerging technology.”

Best also said that integrating and implementing sustainable projects will enable Oando to position itself for long-term growth and resilience during and after the energy transition process.

“Oando can invest in renewable energy projects around the renewable energy resources abundant in Africa. They can also invest in energy efficiency and carbon reduction initiatives centered around the carbon market, especially leveraging on digitalisation to foster the African energy transition process.”

“Oando will need to ensure they leverage on the window period which is in a few years time to explore their reserves to avoid the problem of stranded assets in the future. While they are expanding the oil and gas space, to align with future global trends, the management will need to be strategic in investing and being a key player in the clean energy space to help with the smooth transition,” she concluded.