Shell’s $2.4bn asset sale spotlights local firms

The decision by Shell, a global energy giant, to exit its onshore business in Nigeria has sent shockwaves through the country’s oil and gas industry, casting a spotlight on local firms and raising questions about the future of the industry. On Tuesday, Shell announced that it had agreed to sell its Nigerian onshore subsidiary for up to $2.4 billion, making good on a promise to exit what was for decades one of its most dependable cash cows in Nigeria but, in recent years, has become a big drag on its reputation.

Shell will sell The Shell Petroleum Development Company of Nigeria Limited (SPDC) for a consideration of $1.3 billion, it said in a statement, adding that the buyers will make an additional payment of up to $1.1 billion relating to prior receivables at completion. BusinessDay’s findings showed that SPDC operates and has a 30 percent stake in the SPDC joint venture that holds 18 onshore and shallow water mining leases. Shell’s resources in SPDC reached around 458 million barrels of oil equivalent by the end of 2022.

“This agreement marks an important milestone for Shell in Nigeria, aligning with our previously announced intent to exit onshore oil production in the Niger Delta, simplifying our portfolio, and focusing future disciplined investment in Nigeria on our deepwater and integrated gas positions,” Shell’s head of upstream, Zoë Yujnovich, said.

However, Shell said the completion of the transaction is subject to approvals by the Federal Government of Nigeria and other conditions. In a statement on its website on Tuesday, it was disclosed that the transaction has been designed to preserve the full range of SPDC’s operating capabilities following the change of ownership. This, it said, “includes the technical expertise, management systems, and processes that SPDC implements on behalf of all the companies in the SPDC Joint Venture (SPDC JV)”.

The statement added that SPDC’s staff will continue to be employed by the company as it transitions to new ownership. “We do not expect a loss of employment. SPDC’s staff will continue to be employed by the company as it transitions to new ownership,” Shell said on X.

The buyer is a consortium, Renaissance, which comprises ND Western, Aradel Energy, First E&P, Waltersmith, and Petrolin. BusinessDay findings showed the sale involves Shell’s 30 percent stake in Oil Mining Leases (OMLs) 20, 21, 22, 23, 25, 27, 28, 31, 32, 33, 35, 36, 43, 45, and 46, all onshore, and OMLs 74, 77, and 79, all in shallow water.

On Tuesday, Aradel Holdings Plc confirmed its acquisition through Aradel Energy Limited of an equity interest in SPDC. “This acquisition marks a significant milestone for Aradel, which will bring enormous benefits to its shareholders, further strengthen its financial outlook, and consolidate its strategic positioning in the Nigerian energy market,” Aradel said.

The company added: “Aradel is committed to working in partnership with all the stakeholders in Renaissance and the SPDC Joint Venture to ensure a smooth transition and drive continued growth and success in Nigeria and beyond.” For the local operators, the sale presents an opportunity. “This is a golden opportunity for indigenous companies,” Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said. “The assets being sold are highly profitable, and with the right financing and expertise, they can be the foundation for building strong, sustainable Nigerian energy companies.”

A journal on African politics and business by Africa Report said four Nigerian companies (Seplat, Heirs Oil & Gas, Sahara Energy, and NDWestern) were in the running as of the end of 2021 when Shell asked parties interested to put in firm bids by mid-January 2022. “As of June 2023, only two entities—the Rennaisance Consortium and the Heirs Oil & Gas/Tullow Oil Consortium—remained in contention. The latter had dropped out of the race by October 2023, but Shell had been reticent about the dealmaking,” the Africa Report said. Analysts said the rise of indigenous players would not only diversify the industry but also create jobs and boost the local economy.

“It would also send a strong message that Nigeria is serious about developing its energy resources,” Niyi Fagbemle, senior project manager at Sofidam Capital, said. However, challenges remain. Experts said access to financing, competition from international oil companies, and the need for skilled personnel are just some of the hurdles that local firms will need to overcome. “Additionally, concerns about transparency and regulatory hurdles in the Nigerian oil and gas sector could deter some potential investors,” Fagbemle said.