A Review of the Nigerian Energy Industry

Shell set to sell four Nigerian oil blocks

14 August 2014, Lagos – Shell has taken a major step towards announcing the multi-billion pound sale of four onshore oilShell logo blocks in Nigeria, after wrapping up key sales and purchase agreements, according to a report by dailymail.co.uk.

Its Nigerian joint venture, Shell Petroleum Development Company, has put pen to paper on two blocks, while the buyers are on the verge of proving that they have the funding, industry sources with knowledge of the deals have said.

That leaves government approval as the only hurdle to clear before the SPDC – a partnership between Shell, Total, Eni and the Federal Government – can formally announce the deals.

Sales and purchase agreements on two more blocks were “imminent,” said one source, without offering any update on the parallel sale of the Nembe Creek pipeline.

The asset disposals set to be worth £2bn, form part of a planned £9bn of sales over two years, as new boss, Ben van Beurden, reins in costs and focuses on the best performing projects.

While Shell sees its Nigerian offshore development as a prized asset, onshore operations have been hampered by spills, hurting both the company’s finances and its reputation.

The spills are mostly caused by thieves tapping into pipelines – known as bunkering – but Shell has struggled to convince critics that it is solving the problem or cleaning up spills fast enough.

Its difficulties have encouraged the company to divest some of its oil blocks in the country.

“We have signed sales and purchase agreements for some of the oil mining leases but not all that we are seeking to divest,” said an SPDC spokesman.

“In the event of a successful completion of the sales process, we shall make a market announcement,” he added.

The company has begun consulting its workers that would be affected by the sales, but stressed that it would “continue to have a significant onshore presence in oil and gas.”

The Federal Government has encouraged greater ownership by indigenous firms, who analysts say are likely to suffer less from bunkering due to their smaller scale and local connections.

This has encouraged a flood of bids from small explorers, with Shell Finance Chief, Simon Henry, saying earlier this year that the firm had received more than 100 early-stage offers.

Nigerian-led oil traders, Aiteo and Taleveras, are thought to have won the race for the largest block, OML 29, beating off competition from fellow local firm, Seplat Petroleum.

Seplat, which listed in London earlier this year, was also outbid on block OML 24 by the United States-based Pan Ocean Energy.

Dangote Group, headed by Africa’s richest man, Aliko Dangote, leads one of the few Nigerian-only consortia with the financial firepower for the auction.

But another source said he was outmuscled on OML 18 by the Canadian firm, Mart Resources.

A Swiss-based commodities firm, Glencore, expressed initial interest in a foray into Nigerian oil but dropped out of the race months ago. Shell owns 30 per cent of the blocks, with its Western partners in the SPDC, Total and Eni, holding 10 per cent and five per cent, respectively. The Federal Government owns a majority 55 per cent stake.

The sale of the four oilfields is expected to raise at least £2bn for the SPDC, amid fierce competition for the assets. A separate source with knowledge of the bidding process said, ‘They [winning bidders] have paid massively over the odds.”

An independent oil analyst, Malcolm Graham-Wood, said local firms managing fewer assets would be better protected from the oil theft epidemic.

– The Punch

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