Templars advises Eroton on its US$1.2 billion acquisition of 45 percent interest in oil mining lease 18 from Shell, Total and Agip

Templars has advised Eroton Exploration & Production Company Limited (“Eroton”) in connection with their acquisition of a 45 percent participating interest in Nigerian oil mining lease (OML) 18 and related facilities in the Eastern Niger Delta from joint venture partners Shell Petroleum Development Company (30%), Total E&P Nigeria Limited (10%) and Nigerian Agip Oil Company Limited (5%).

OML 18 covers an area of 1,035 square kilometres and includes the Alakiri, Cawthorne Channel, Krakama, and Buguma Creek fields and related facilities. The fields produced on average around 14,000 barrels of oil equivalent per day in 2014, and the related facilities include flow stations together with associated gas infrastructure plus oil and gas pipelines within the OML.

The US$1.2 billion acquisition was part of a series of similar divestments by Shell, Total and Agip following their strategic review of their respective onshore portfolios in Nigeria. The transaction was also in line with the Nigerian Government’s initiative to increase and develop the active participation of Nigerian companies in the country’s upstream oil and gas business.

The acquisition was financed in part by equity and in part by an inspired trade-backed US$663m seven-year syndicated reserve-based lending (SRBL) arranged by Afreximbank, with Shell Western Supply & Trading, the Africa Finance Corporation and five Nigerian banks as lenders.

The financing for the acquisition has won multiple awards including the Trade and Forfaiting Review Deal of the Year 2014 and the Trade and Export Finance journal’s “Most Innovative Commodities Finance Deal of the Year 2014”.

Although the financing was completed in the second half of 2014, the transaction only received final regulatory approvals in 2015.

The financing was innovative in a number of ways including the use of letters of credit rather than cash balances to satisfy escrow requirements pending regulatory approvals, and the use of a bespoke insurance tool to cover the risk of non-renewal of the OML for the last two years of the seven-year facility. The transaction also involved a hedge mechanism put in place through an embedded pricing structure in the off-take arrangements.

The Templars teams on the acquisition and financing work streams were led by Energy partner Oghogho Akpata and Finance partner Chike Obianwu, assisted by senior associates Oladiran Ajayi (Energy) and Temple Uchegbune (Finance), and associates Mojisola Fashola, Frances Emembolu, Osayi Ogbeta, Zion Adeoye, Alex Ezenagu, Ivie Omoregie and Modupe Dabiri.