Abuja-based public affairs analyst, Hassan Abubakar writes on the Nigerian Local Content Act using a recent court ruling as a case study to forewarn Nigerian entrepreneurs in the oil and gas industry about the dangers of certain partnerships.
The Federal Government of Nigeria, under the leadership of former President Goodluck Ebele Jonathan, in March 2010 signed into law the Nigerian Local Content Act which aimed at promoting industrialization of the nation’s oil and gas industries and thereby improving the economic and social well being of citizens engaged in the industries.
The Nigerian local content act is a policy tool geared towards adding value to the Nigerian economy. One of its advantages was its focus on producing a skilled workforce needed to implement aspects of the law to the benefit of Nigeria and the oil and gas industry.
The purpose of the Act was to create the framework for the growth of Nigerian content in respect of all operations and transactions in Nigeria’s oil and gas sector. The Act provides that subject to fulfilment of the conditions that may be specified, Nigerian operators and indigenous service companies shall be given first consideration in the award of oil blocks, licenses and works in the sector.
Whether this has been followed thoroughly by the operators in the sector is a debate for another day, At the moment, a registered shareholder of Exoro Energy Holdings Limited (‘Exoro Energy’); a company registered in Mauritius and a corporate minority shareholder in Seven Energy International Limited (‘Seven Energy’), Mr. Ohis Ola, has instituted a derivative action before the Federal High Court sitting in Lagos state, Nigeria for and on behalf of Exoro Energy.
Seven Energy is the leading Nigerian gas production and distribution business supplying gas for the production of electricity, cement and petrochemicals, benefitting over 10 million Nigerians with reliable energy.
The action seeks to set aside Seven Energy and Savannah Petroleum’s move to sell and transfer all the primary assets ($2billion) and cash-generating businesses of Seven Energy to Savannah despite the opposition by the absence of the requisite voting percentages of the shareholders and security holders of Seven Energy at two separate Extra-Ordinary General meetings held in July 9, 2019, and July 19, 2019, respectively.
In 2017, following the removal of the replacement of the Nigerian chairman with a Capital Group shareholder representative director as chairman, with a brief to restructure the company’s debts, Savannah Petroleum of the United Kingdom, (another company where Capital Group was a major shareholder), was selected as the exclusive restructuring counterparty. Savannah Petroleum at the time had only $8million in cash and exploration permits in Niger, yet was selected to restructure the debts of a company with $2bn in assets and $700mn debt. Savannah acquired a portion of Seven Energy’s bonds for 12.6 cents cash on the dollar under this exclusivity period. During a further 2-year sale transaction lock-up agreement with Savannah, the directors of Seven Energy enabled the transfer of $2bn of Seven Energy assets to Savannah for only $188mn bond debt relief under a United Kingdom pre-packed administration. Savannah had paid less than $24mn cash for the bonds relieved. The following day Savannah sold a 20% stake in one of Seven Energy’s assets for $54mn at double the valuation Savannah had paid.
The said action instituted at the Federal High Court, Lagos is intended to protect the investments of Mr Ohis Ola and other shareholders’ direct and indirect interests in Exoro Energy and Seven Energy respectively from complete annihilation as signalled by the unapproved Savannah transaction in dispute. Among other things, the claim at the Federal High Court essentially seeks the following reliefs against Seven Energy, Savannah Petroleum Plc (‘Savannah’), its subsidiaries and Directors (the Defendants in the suit);
i. A Declaration that Seven Energy, Savannah and other Defendants’ ultra vires decision to negotiate and/or conclude negotiations for the transaction is null, unlawful and void by virtue of the clear disapproval from the 1st Defendant’s shareholders which include the Plaintiff, Exoro Energy.
ii. A Declaration that Seven Energy, Savannah and other Defendants’ ultra vires action to negotiate or conclude negotiations for the transaction is null, unlawful and void, since by virtue of an Extra-Ordinary General Meeting (EGM) held on July 9, 2019, the Securityholders of Seven Energy failed to pass the Special Resolution required for Securityholders’ approval of the transaction.
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iii. A Declaration that the Securityholders’ (i.e Seven Energy’s Creditors) purported authorization of Seven Energy, Savannah and other Defendants’ ultra vires decision to negotiate and/or conclude negotiations for the transaction is null, void and unlawful by virtue of the clear disapproval from Seven Energy’s shareholders which includes Exoro Energy.
iv. A Declaration that Seven Energy, Savannah and other Defendants’ ultra vires decision and the transaction in dispute are inequitable, unlawful, null and void acts resulting in potential adverse and prejudicial effects of unlawfully liquidating Exoro Energy’s shareholdings, equity interests and investments in Seven Energy.
v. An Order setting aside the Seven Energy, Savannah and other Defendants’ ultra vires decision to negotiate and/or conclude negotiations for the disputed transaction, and the transaction itself for being overall inequitable, unlawful, null and void acts resulting in potential adverse and prejudicial effects of unlawfully liquidating Exoro Energy’s shareholdings, equity interests and investments in Seven Energy.
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vi. An order setting aside in its entirety the ultra vires transaction for being unfairly prejudicial and void ab initio, having been unlawfully negotiated by Seven Energy, Savannah and other Defendants and pursued by the same Defendants despite disapproval from Seven Energy’s Shareholders and Securityholders.
vii. An order setting aside all Contracts and Agreements and extinguishing all rights and obligations arising from the unlawful transaction.
The Applicant, Mr. Ohis Ola, also seeks;
An Order of Perpetual injunction restraining the defendants from:
1. effecting the sale or acquisition of any assets of Seven Energy or any of its subsidiaries by virtue of the unlawful transaction;
2. appointing a liquidator or administrator to wind up Seven Energy or any of its subsidiaries on account of the setting aside or lack of validity of the unlawful transaction;
3. taking any further steps or action in furtherance of the unlawful transaction;
4. taking any further steps or action regarding the transaction or other related matters, without first informing and obtaining statutorily recognized authorization of the Plaintiffs and other shareholders of Seven Energy.
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On November 18, 2019, the Federal High Court sitting in Lagos, Nigeria ordered that Seven Energy, Savannah and other Defendants cease further steps upon service of the relevant court processes on them and/or pending any further order of the Court. It is noted from Savannah press releases that multiple steps under the asset transfer have subsequently been taken in contravention of the court order preventing such steps.
The defendants have entered legal appearance and are currently challenging the order of the court and the action in its entirety.
Here is hoping that the issues are resolved and the end of this saga is beneficial to the Nigerian oil and gas industry positively.