Marginal Fields Bid Rounds & Transfer of Shares under Incorporated SPVs

Introduction

In May 2020, the Nigerian Government announced the commencement of the Marginal Fields Bid Rounds through the issuance of bid guidelines. This bid rounds came to a climax on 31 May 2021 through the issuance of Award Letters to Awardees. In Q1 of 2021, the Department of Petroleum Resources (DPR) issued letters to potential Awardees by which they were informed of the amount of Signature Bonus required to be paid to the Nigerian Government. In addition, the DPR advised potential Awardees of the use of Special Purpose Vehicles (SPV) as the Operating Structure upon final award. The DPR through the Award Letters to Awardees on the said 31 May 2021, mandated Awardees to operate the relevant field through SPVs which shall be a Nigerian company jointly incorporated by the Awardees based on their respective equity interests in the field. The said Award Letters also mandated the Awardees to enter into three agreements which are: (i) an agreement to incorporate the SPV; (ii) SPV Shareholders’ Agreement; and (iii) SPV Operating Agreement.

The DPR also provided as appendices to the Award Letters, template of the above-mentioned agreements which is expected to serve as a guide for the Awardees. In this briefing note, we examine the provisions of the template Shareholders Agreement with regards to transfer of shares by the Awardee of the SPV for the purpose of raising capital vis-à-vis any conceivable legal hurdle contemplated by law and the template agreement.

Transfer of shares under Nigerian law and restriction of share transfer as contemplated under the template SPV Shareholders’ Agreement

Section 22(2) of the Companies and Allied Matters Act 2020 provides that a private company may (i.e. without compulsion) restrict the transfer of its shares to a non-member where such share transfer has not been first offered to existing shareholders. Therefore, a company can decide not to put in place pre-emption rights with respect to transfer of its shares under the provisions of its Articles of Association.

Clause 3 of the template Shareholders’ Agreement however mandates a transferring shareholder of an SPV to first give notice to the DPR and the other shareholder(s) of its intention to dispose of its shares, identifying: the number of the shares to be disposed; the proposed purchase price per share; and the name of the proposed purchaser. It further mandates a selling shareholder to attach an exact copy of the offer received by such shareholder. 

The foregoing provisions makes it clear that pre-emption provisions/rights are applicable and compulsory for incorporated SPVs. While the pre-emption rights will strictly apply to parties to the SPV Shareholders, the rationale for the inclusion of the obligation to notify the DPR under the template Shareholders’ Agreement is not founded on pre-emption rights (as this will have no legal basis due to the fact that the DPR is not a shareholder in the SPV) but on regulatory oversight of the DPR with regards to transfer of interests in oil and gas assets. This notwithstanding, we find it hard to justify the need to include the DPR notification under the template Shareholders’ Agreement, bearing in mind that the Petroleum Act and the DPR Guidelines and Procedures for Obtaining Minister’s Consent to the Assignment of Interest in an Oil and Gas Asset already contemplates notification of the Minister/DPR in the event of a transfer of interest.

Another point to note is that the template SPV Shareholders’ Agreement seems to be incomplete as it does not provide for actions that will follow notification of intention to dispose shares by a selling shareholder to a non-selling shareholder. Typical shareholders’ agreement usually provides for actions to be taken upon notice of intention to sell. Such actions include: (i) time within which a non-selling shareholder is to make an offer; (ii) the terms of the acceptance of such offer; and (iii) consequence of failure to exercise pre-emption rights.