Royal Dutch Shell, according to multiple sources, has launched substantial disposal of its Nigerian properties, particularly those in shallow water and onshore. Shell is said to have already hired Standard Chartered Bank to sell its Shell Petroleum Development Company of Nigeria Limited (SPDC) subsidiary in what could be one of Africa’s largest-ever oil deals if it goes through.
Despite the fact that sale documents have been released since last week, the transaction is still considered to be in its early stages. Expressions of Interest (EoI) must be submitted by September 10th, 2021, with the vendor requesting non-binding offers in the second round.
Part of the reason for the major divestment is the company’s long history of dealing with oil spills in Nigeria’s Niger Delta region. Vandalism has occurred multiple times in the country, resulting in oil leaks and operational concerns, as well as costly repair operations and high-profile lawsuits.
Shell Nigeria was found guilty of several oil pipeline leaks in the Niger Delta earlier this year by a Dutch court and compelled to pay damages to farmers; the incident prompted Shell’s CEO, Ben van Beurden, to call the company’s onshore Nigerian assets a “headache.”
SPDC, Nigeria’s onshore oil and gas joint venture, is operated by Shell. Over the last decade, the JV has sold around half of its oil assets, with its investment in SPDC giving it 156,000 barrels per day of oil equivalent in 2020, of which 66,000 barrels is oil. It manages the company’s shallow-water and onshore assets through its 30% stake in the SPDC joint venture, which supplies around 10% of Nigeria’s gas consumption.
Shell owns 360 producing oil wells, 60 producing gas wells and a network of 4,000 kilometres of oil and gas pipelines and flowlines.
An official of Shell said: “Discussions with the Nigerian government are ongoing on the next steps for our onshore business in Nigeria. We are in the early stages of reviewing the commercial options.”
Another source said: “Shell is selling the business because it no longer views its activities in the Niger Delta as core to its ongoing strategy, which is driven by the pressure from its investors, as confirmed by its CEO earlier this year.”
“Also, several of the Oil Mining Leases (OMLs) have upcoming development costs, which Shell does not intend to fund, one of the sources added, but noted that the company will still retain its deep-water assets in the country.”
“The business will be worth several billions of dollars and Shell will want full-value offers for the deal but is strategically driven in this disposal and will likely prefer low execution risk to waiting for a knockout offer.”
Another source added: “Alternatively, Shell may sell portions of equity in the whole of SPDC to different consortia of buyers. But either way, buyers will need to have a local Nigerian element, it was understood.”
“Several options were being weighed, because while private equity would struggle with the associated risk and with the expected necessary investment in the portfolio, public-listed entities would struggle to raise equity to execute the deal, given the ESG-derived sentiment for oil and gas in the public markets.”
“Local sponsors may be interested, but this would constitute a very transformational deal, and would need significant lender support, the source said, noting that an international, private group with operating expertise, for example Perenco, or a Chinese player might make most sense.”