Paddy Adenuga: How I NEARLY bought Chevron Netherlands
It was October 2013, two years had passed since I had left the family business in Lagos, Nigeria and moved to London, England to start my own oil trading company. My time in the family business, as a director in the telecoms division and upstream oil & gas company was challenging to say the least but engaging and ultimately rewarding. However, I have never felt comfortable with sitting back and getting a golden pass through life. Whilst the easy thing to do was to be a “good boy and good son” and enjoy all the luxuries of being in a family business – I decided that striking it out on my own once again was the best course of action.
I’ve always loved the oil & gas business, like many other Nigerians. However, what I love about the business, particularly the exploration and production (upstream) side, was the mixture of strategy, operational capability, technical know-how, politics and business acumen which all had to be married with a gambling spirit and sheer luck to be successful. In my decision to move to London, I decided I would only be in the oil & gas business as long as it didn’t pose a direct conflict to the family’s interests. There is striking it out on your own and then there is just being plain foolish. Luckily for me, I had stopped being foolish by then.
The modus operandi of my oil trading business was simple. I kept an office in Lagos with a small team of five to run operations and logistics. I converted one of the bedrooms in my townhouse in London into a study. My team in Lagos under my guidance would get oil trading contracts and I, sitting in London, would either market these contracts to the global oil trading houses to execute in Nigeria on a joint venture (JV) basis or in some instances, I would find the capital to execute the contract from end to end. This formula proved effective and it was good enough to pay my bills and afford me an above modest lifestyle.
One of the traits I took from my parents is that I am highly ambitious and find it hard to sit still. There always has to be a new conquest, a new mountain to climb, or, as is the case most times, a new business to go after. Oil trading was my day job but was never exciting to me except for when I got paid. After days and weeks in London plotting my next move, I came up with an idea and a plan. In the world of upstream oil & gas, especially in Africa, companies that were operators, actively producing oil & gas in commercial quantities that wanted to invest or participate in the oil business were the darlings of the industry. They were like the prettiest girl in high school and every guy wanted her to come to the prom with him.
Most of the oil producing nations in sub-Saharan Africa such as Nigeria, Angola, and Equatorial Guinea would always require any investor into oil & gas assets in their country to either be an oil & gas operator with production on stream or be partnered with an operator, deemed a “technical partner”. This logic makes sense. If you are going to buy prized national assets, you should have the know how to develop and operate them or at least be partnered with an entity that does. I decided that I was going to use a Trojan Horse strategy. I had read ancient Greek literature when I’d attended military academy in Texas and it served as inspiration. I would acquire an oil & gas operating company in Europe (the Trojan Horse), where the political barriers and costs to entry in comparison to Africa would be significantly lower. I would then use this newly acquired company, which would now be of Afro-European in heritage, to become a technical partner to many local and international investors in the upstream oil & gas business in Africa. This company would be the first of its kind and likely the most sought-after oil & gas company on the African continent because of its unique DNA and ownership. After thinking of this idea, I took myself out to a bar a few blocks from my house and ordered myself a nice strong drink. I felt like a genius.
I registered a new upstream oil & gas investment company offshore and called it, The Catalan Corporation. The name didn’t really have a meaning, it just sounded nice and had a confident, stately demeanour to it. To keep costs at a minimum, I decided to put together an advisory board that consisted of Vance Querio, the COO of Addax Petroleum at the time and an industry professional and my mentor (who will remain nameless for good reason), one of Africa’s biggest business giants. Vance was all too happy to join and signed on quickly. I called my mentor and before signing on, he wanted a face to face meeting for me to explain my plan and ambitions for Catalan. He asked me to meet him in the early spring of 2014 at a health spa in a small Swiss village outside of Zurich. I have to admit the drive from Zurich to this little village tucked within the Swiss mountains still remains one of the most beautiful sights I have ever seen. The spring sun had begun to melt the snow on the mountains and in the distance; you could see the melting snow turn into giant waterfalls pouring off the mountains. It was like an oil painting come to life.
I eventually met with my mentor and after explaining my idea to him and that him being on my advisory board would not only give my burgeoning company credibility but help us raise cash, he agreed in totality and went further to tell me that I should tell anyone and everyone that he was not only on board but was going to give our company his full support. We drank some tea together and the next morning I was off back to London. My little plan for Africa oil & gas was coming together, finally put into action by two African men in a Swiss village. You couldn’t make this stuff up.
On the plane flying back to London from Zurich, even though I had just gotten my mentor on board, I felt that there was someone missing. A few years prior I was the spearhead of my family’s acquisition drive for OML 30 (this is another whole story in itself), one of Shell Nigeria’s most lucrative oil blocks that was up for sale, I met a brilliant English banker named Edgar. Edgar had more than 30 years of oil & gas operations and finance experience. He was respected by the industry on a global basis and having him on board would be the final piece in the puzzle, the icing on the cake. I called Edgar immediately I landed and asked if we could meet for lunch, my treat as always.
I pitched Catalan to Edgar and how if we pulled this off it would be the grandest of coups. Edgar was highly intrigued but stated that he wanted hard cash upfront from the onset. Whilst the others were all too eager to come on board and make their money via sweat equity or cash incentives when we had a target company in our sights, Edgar wanted to be paid money and a substantial amount before putting pen to paper. I was confused by his behaviour. I told him who the others were that were on Catalan’s advisory board but he wasn’t having it, either he would be paid his princely sum to attach his name to Catalan or no deal. I was 29 at the time and was still head-strong and prideful. How could this guy develop such an attitude? I thought we were friends. I suppose Edgar knew his value and wasn’t going to mortgage it on a promise of monies at a later date. As much as he liked my Trojan Horse idea, he just happened to like money more. I balked at his request in annoyance. I paid for lunch, told him no way, and stormed off home. This was a big mistake on my part that would rear its ugly head later.
I appointed two of my most trusted confidants as directors in Catalan and with that the company was set to go. I designed the logo for Catalan – a coat of arms with a cross in the middle. I am after all a devout Catholic and a strong believer in God, so why not have my faith represented on my company logo? I then called my friend Nicolas Lavrov, a web and graphics designer and over the course of a week we put together a sleek and polished company profile which me, my directors and advisory board began emailing out to interested parties. A few weeks later, I got an email from Richard Kent of Jeffries. Jeffries are an investment bank that work closely with multi-national oil companies (the majors) on the acquisition or divestment of oil & gas assets on a worldwide basis. Richard had gotten a copy of my company profile and wanted to have a meeting. I wore one of my finest suits and hopped into a taxi to his offices in London City.
Richard and I talked extensively about my background and my ambitions for Catalan. I explained to him the type of company we were looking to acquire, ideally an oil & gas company in Europe, preferably operating out of the North Sea with a strong daily production and enough reserves to warrant further investment in development. I also told Richard how much we would be ready to spend for the first acquisition – between USD 50 million and USD 100 million. We would finance our acquisition via reserve based lending and would likely raise cash equity of thirty percent of our purchase price with a Bank raising debt of seventy percent to help the balance of the purchase price. I had described the “goldilocks” company Catalan needed to acquire. With that said, Richard told me to give him some time to find the best deal for Catalan.
A few weeks later Richard called me, “I have the perfect deal for you Paddy!” US oil giant, Chevron, had decided to sell their entire upstream, exploration and production business in the Netherlands and had appointed Jeffries to manage a bid process for the sale of Chevron Netherlands. The sale included their production platforms in the North Sea off the Dutch coast, their office buildings, around a thousand or so native Dutch staff, and their crude and gas pipeline evacuation infrastructure. Even the Chevron coffee and tea mugs were part of the sale. Richard was right, this deal was perfect and the ideal Trojan Horse with which to enter the Africa oil & gas terrain with from Europe. He informed me that this would be a competitive bid against other companies to acquire Chevron but thought that Catalan and I stood a good chance. I told him I was interested and that he should send all the necessary paperwork over. Something within me believed I was going to win this bid and with that in mind I was going to throw everything at it. If I won this bid, I thought, there would be stories written about me for a long time to come.
Chevron are by nature, prudently selective with which companies they invite to bid. So the fact that Catalan was chosen was a big deal to me. I felt like for once in my 29 years, I wasn’t being judged solely by my last name but for my skill, merits and ability. I got the first bits of information from Chevron on their Netherlands assets and I began putting together a team of hired hands to act as my management team for Catalan’s bid. I appointed Dutch law firm DeBrauw as my lawyers, Canadian firm Canaccord Genuity as my finance managers, RPS Energy as my technical managers, and Moore Stephens as my accountants. I informed Chevron of my management team and they asked for a few weeks to open the data room and kick off the bid.
Whilst Catalan and its hired management team waited on Chevron, I decided to be pro-active. From previous my experience with OML 30, not engaging government regulators enough could prove to be unwise. I decided that I needed to meet with the government body in the Netherlands responsible for managing their oil & gas affairs. After all I was a young Nigerian man, trying to buy prized, national Dutch assets. I, more than anyone, needed to be ten steps ahead at any given time. My lawyers put me in touch with Jan-Dirk Bokhoven, the managing director at the time of the Dutch state-owned oil company, EBN. Jan-Dirk and I spoke on the phone and agreed a date to meet at EBN’s head office in Utrecht, a one-hour drive or so outside of Amsterdam.
I had never been to the Netherlands before. I took the first flight from London to Amsterdam and arrived a little after 7am. The hotel sent a car to pick me and on my ride into Amsterdam the most fascinating thing I saw was that the Dutch rode bicycles everywhere. When parents take their kids to school, they pop them onto the back of a bike and ride on. I had never seen an entire city on bicycles. It was like something out of the twilight zone. A few hours later I changed and drove to Utrecht on a warm and sunny morning. The ride to Utrecht was stunning. The skies were a picturesque baby blue and there wasn’t a cloud in sight. On either side of the motorway there were golden fields of farm land and further beyond, wind turbines spun in synchronicity. The view was so special to me that I asked the driver to stop on the side of the motorway so that I could get out and appreciate the scenery for fifteen minutes or so. The driver thought I was odd.
I finally met Jan-Dirk at his offices with his head of operations, Thijs. I could see in both their faces, looks of confusion and reverence at the same time. How could a 29-year-old Nigerian have found himself in a position to buy Chevron’s business in the Netherlands? I told Jan-Dirk and Thijs of my intentions and that I took this bid seriously and wanted to make sure that I did everything right in the eyes of not only Chevron but the Dutch government. They both assured me that I was on the right track and that if there was any issue, they would let me know. I spent a few more days in Amsterdam, met up with a few friends, and enjoyed the Dutch nightlife and hospitality. I flew back to London.
Chevron finally opened the data room for the bid and provided all information needed for all companies to put in a bid. I put my team, my directors, and Vance Querio on the task of reviewing all the documents with a request that we have a bid review meeting in a few weeks. Tarica Mpinga of Canaccord Genuity served as the lead of the management team. Tarica called me that the team was ready to present their findings and proposal on the way forward. I went over to Canaccord’s offices and for once saw my team assembled in front of me. Here I was, in my late twenties, in a massive boardroom, with a management team of fifteen people presenting to me. I felt like I had arrived.
While acquiring Chevron Netherlands was mostly for an Africa oil & gas play, Catalan had to deal with the reality of the company’s books, resources, and liabilities. Chevron Netherlands by production was attractive, producing 9000 boepd broken down into 8000 barrels of gas per day and 1000 barrels of crude. The off-shore production facilities were top class, the gas reserves were attractive with ample room for development to increase production numbers, the management team of Chevron Netherlands were the best the industry could employ, and the crude and gas evacuation infrastructure and sales contracts were solid. The Catalan management team presented me the bad news. The oil reserves were seen as weak and having very little production life even if new wells were drilled. The biggest problem however was the abandonment liability which had been projected at first glance to be in the USD 300 million region. This became the thorn in the flesh of entire bid process. Essentially the Dutch government required all operators to restore their areas of operation back to how nature intended – which meant all infrastructure had to be removed at the end of production. The cost of this is what is termed “abandonment liability” or “abandex”. Catalan’s management team felt that because the abandex was so high, it negated an aggressive bid price and moreover Catalan would struggle to raise cash to pay for Chevron Netherlands.
Unperturbed, I corralled my management team on a road show. We would meet with as many Banks, investors, and oil trading companies as possible to pitch Catalan’s bid and Africa strategy for Chevron Netherlands. The team and I spent countless hours in meeting after meeting but to no avail. The abandex amount and weak oil reserves of Chevron Netherlands were too significant that it blinded people from the Africa strategy entirely. Alas it was clear that this would have to be a cash deal with no bank debt or oil trading dollars. Despondent, I called my mentor for a way forward. We spoke extensively and as I expected, he was the only one that saw how important Chevron Netherlands would be as a technical partner-operator in Africa. We agreed that between myself as a small cash contributor, himself, and a few other investors we could raise cash of USD 50 million as a maximum bid price. That night I went back to that bar not far from my house and ordered an even stronger drink. This bid could not slip away from me.
Chevron sent an email to Catalan advising when they expected bids to be received. The Catalan team once again huddled in Canaccord’s offices to work on a bid submission document, which would include Catalan’s offer and bid price. We deliberated for hours and the management team insisted that because of the high abandex amount that no cash should be offered. Essentially Catalan would agree to absorb the entire abandex amount and would pay a notional “$1” for the company. This would be a liability absorbing deal, allowing Chevron to clean out and move on. The team advised that Catalan put in this offer but as a way to play hard to get, we would commit to the gas abandex but stay quiet on the oil abandex. I was convinced at that moment that we would have the winning bid. The team prepared all the necessary paperwork, which I signed, and hand delivered to Jeffries offices to the manager of the bid process. After submitting the bid documents, I went to my church, St. Mary’s. I always like going to church when there is absolutely no one there. I prayed for God’s blessings and good graces.
Jeffries and Chevron confirmed they had received Catalan’s bid and would need two weeks or so to review all bids and come back with an answer. In the meantime, I gave a break to my management team and spent all my free time now on my kung fu training with my master, Shifu Heng-Wei. Kung Fu was not only for my fitness but for my well-being and spiritual balance. It was my greatest stress-relief. On a Tuesday afternoon, whilst Shifu and I were in the middle of an intense kung fu session, my phone rang. I knew it was about Chevron. One of Richard Kent’s deputies was on the line. Chevron had reviewed my bid and were “confused” on my position in respect to the oil abandex and wanted a re-submission clarifying Catalan’s position on both oil and gas abandex. I immediately re-convened my management team at the boardroom and began debating our response to Chevron. I saw this as a second chance opportunity from Chevron to submit a more aggressive bid. My management team argued that I should keep the same bid and state now clearly that Catalan wanted nothing to do with the oil abandex. I countered that we needed to be aggressive and should take the entire abandex and offer cash of USD 50 million so that we could acquire Chevron Netherlands uncontested and plough quickly to our Africa strategy.
The Catalan management team thought I was crazy. Surely, I was 29 and now undeniably stupid. How could I look at that enormity of an abandex amount and now want to offer hard-earned cash on top of that? They believed I was frequenting my local bar too often and having one too many drinks. They pleaded with me that I follow their proposal. We argued further and eventually as a compromise, we agreed that we would take all of Chevron Netherlands oil & gas abandex but would still offer a notional $1 bid price. In my heart of hearts, I felt that a cash offer was needed to win but my management team, for which I had paid a respectable amount for their services, had convinced me otherwise. They were professionals I thought and they had my best interest at heart. The team printed out the documents for which I appended my signature and re-submitted. Again, I went to my church, when there wasn’t a soul in sight and prayed to God for his guidance and blessings.
Chevron confirmed that they had received Catalan’s revised bid document and would need another 2 weeks to come back to me on whether we won the bid or not. One night as I stayed up watching CNN at home, I had another idea. If I was able to find out whom the other bidders were for Chevron Netherlands, I could coerce these bidders to drop their respective bids and join me in a new multi-bidder venture. With this, Chevron would have no choice but to sell Chevron Netherlands to Catalan and the other bidders in a new joint venture (JV) company. This was to be my insurance policy in case Catalan’s solo bid failed. As I said, I am the underdog here by a country mile; I always had to be ten steps ahead of everybody else. I arranged a conference call with my management team and charged them to find out who the other bidders were for Chevron Netherlands. I also pulled out my diary and began making phone calls. At this point I didn’t care what the rules were, this was business – either hunt or be hunted and I believed Catalan led by me, was an apex predator, even if Chevron was one trillion times bigger than Catalan. Fortune favours the bold and I fancied this as David versus Goliath.
One by one, Catalan began finding out who the other bidders were. Mercuria, an oil trading company I had done business were in the running but then pulled out. Dana Petroleum looked at the assets but were also out of the running. Tullow Oil was also out of the bid out of the fear of the abandex costs. I scheduled another call with my team and asked everyone to re-double their efforts to find active bidders. The clock was ticking and I was keen to find the other bidders before Chevron replied to my bid. I was too late however, on a Friday afternoon in early summer of 2014, whilst I was out drinking rose wine with friends at the Arts Club in London, I got an email from Chevron. They had rejected Catalan’s bid and had deemed our bid unsuccessful. I felt like sinking into the ground. I hastily said goodbye to my worried friends and ran home. I couldn’t believe it. How could Chevron say no to me? This bid was destined for me to win. I was meant to be the Alexander the Great of Africa oil & gas and barely into my thirties.