The delay to, or possible cancellation of, Seplat Energy Plc’s (B/Stable) acquisition of Mobil Producing Nigeria Unlimited (MPNU) from Exxon Mobil will not have any impact on Seplat’s rating, Fitch Ratings says. The deal is on hold due to arbitration in Nigerian High State Court between Nigerian National Petroleum Company Limited (NNPC) and MPNU.
 
Fitch affirmed Seplat’s rating on 13 April 2022 following the announcement of the acquisition of MNPU’s assets. The transaction, funded by a mixture of debt and cash, was valued at about USD1.3 billion, plus up to USD300 million contingent consideration. The additional payment is subject to minimum oil price and MNPU’s production levels thresholds between 2022 and 2026. The deal is expected to strengthen Seplat’s business profile through the addition of offshore hydrocarbons producing assets and increase in its production to about 146,000 barrels of oil equivalent a day (boe/d) from 50,000 boe/d.
 
Fitch expects that post-acquisition the company would maintain moderate funds from operations (FFO) net leverage below 1.5x in 2022-2023 and below 2.0x in 2024-2025. However, the rating would still be constrained due to a high concentration of assets in Nigeria (B/Stable; Country Ceiling: ‘B’).
 
In the absence of the acquisition Seplat’s business profile would remain in line with its ‘B’ rating. Furthermore, the company has strong liquidity of USD350 million as of June 2022 and can reduce FFO net leverage materially below 1.0x in 2022 and 2023 assuming no incremental dividends compared to the acquisition case. If higher dividends were paid Fitch expects that Seplat would maintain conservative leverage of 1.5x-2.0x and remain within our rating sensitivities.
 
Fitch believes that sales and purchase agreement as well as all financing for the acquisition remain in place and that the transaction can be concluded as soon as the arbitration process concludes. If the transaction is cancelled, we assume that Seplat will be reimbursed USD128 million paid as a deposit in 1Q22.
 
The request for arbitration between NNPC and MPNU was made public on 11 July 2022 and is linked to a dispute over interpretation of pre-emption rights under a joint operating agreement between the parties. Although Seplat is not a party to the suit, the Nigerian State High Court ordered an injunction preventing completion of the acquisition until the court proceedings end.
 
It is difficult to estimate how long the proceedings may last but approval of the MNPU assets sale by Nigerian President and Oil Minister Muhammadu Buhari granted on 8 August may support quicker resolution of the arbitration process.