Royal_Dutch_ShellThe Federal Government last Wednesday broke its silence on the sale of stakes in oil blocks by International Oil Companies in Nigeria. The Nigerian National Petroleum Corporation (NNPC), which represents the government in the ventures dismissed the threat posed by this recent spate of divestments from certain onshore oil blocks by Shell, Chevron and other international oil companies (IOC) to the nation’s oil and gas industry.

 

Economics of oil blocks’ sale

ConocoPhillips, US-based oil group, sold its onshore assets after 46 years of operation in Nigeria to affiliates of Oando plc, realising about $1.7 billion from the sale. This includes two offshore properties consisting of a 95 percent operated interest in OML 131 and 20 percent interest in OPL 214, as well as a 20 percent interest in onshore OMLs 60-63, a 20 percent interest in the Kwale-Okpai Independent power plant and a 17 percent interest in the Brass LNG project.

Royal Dutch Shell plc, the Anglo-Dutch oil giant, was said to have received cash proceeds of over $2 billion from the sale of eight OMLs, which it operated in the Niger Delta, these include OML 30, OML 34, OML 40, OMLs 26, 42, 4, 38 and 41. The divestments started since 2010.

 

And Shell leads the sale

Royal Dutch Shell-led consortium has put up for sale oil blocks in Nigeria, as international companies accelerate a retreat from sub-Saharan Africa’s oldest oil industry amid surging theft of crude and political uncertainty.

The joint venture, which also includes Total of France and Eni of Italy, has circulated documents to prospective buyers of oil licences 18, 24, 25 and 29, according to two people familiar with the situation.

The four oil production areas sit in the heart of the eastern Niger delta, an area particularly hard hit by crude oil theft this year. Shell is also selling the Nembe Creek Trunk Line, a key oil transport artery, which the company has had to shut repeatedly this year, after attacks by thieves.

Two potential bidders said the overall package would fetch between $2bn and $3bn.

Shell announced a strategic review of its eastern delta assets in June. The company declined to confirm which, if any, blocks may be put up for sale, but said: “Nigeria remains an important part of Shell’s portfolio.”

The asset sales represent a dramatic retreat by the international oil and gas majors from the core of Nigeria’s oil industry. All four oil blocks and the NCTL feed the Bonny terminal, Nigeria’s oldest export facility, commissioned by Shell in 1961.

Nigeria’s oil industry is facing its worst crisis since 2009 when an insurgency in the delta brought many operations to a standstill. Thieves stole at least 100,000 barrels of crude oil a day in the first quarter of this year, according to Chatham House.

Shell has had to repeatedly interrupt exports from the Bonny terminal, because of damage to the pipelines that feed it, most recently in September.

Nigeria’s crude output briefly dipped below two million barrels a day this summer, compared with capacity of about 2.4m b/d.

The Shell sales are the latest move by one of the oil and gas majors to reduce their commitment to onshore Nigeria, in the face of security concerns, and long delays to a government bill setting out terms for new exploration.

Chevron is also in the process of selling three onshore oil blocks, while ConocoPhillips agreed to sell its Nigerian operations to Oando, a local company, for $1.8bn last year.

The Shell joint venture has sold a series of blocks since 2010 for more than $2 billion, but the latest sales will represent the largest so far in terms of production.

The four blocks produced 70,000 barrels a day of oil and natural gas liquids last year, roughly 10 per cent of production in blocks operated by the joint venture and 8 per cent of production in Shell operated blocks in Nigeria, according to Wood Mackenzie.

In what is the latest of the disposing of assets by international oil companies (IOCs), Shell plans to sell oil mining licences (OMLs) 18, 24, 25 and 29.

Also, last week, Chevron was said to be considering bids from prospective buyers of three oil blocks with total reserves of around 134 million barrels. Chevron, which is putting up five blocks for sale, recently opted out of the Olokola Liquefied Natural Gas project (OKLNG), one of the biggest proposed LNG projects in the country.

In the past four years, IOCs have divested not a few of their oil assets in Nigeria, Africa’s top oil producer, deriving earnings of over $7 billion from the sales.

Shell Nigeria recently disclosed that it was holding back its planned investment of about $30 billion in two offshore deep water projects.

In 2012, Shell, Total, ConocoPhillips and Agip divested part of their stakes in the oil and gas industry.

 

FG and blocks’ sales

Group Managing Director of the Nigerian National Petroleum Corporation, Andrew Yakubu who said this at the World Energy Congress in Daegu, South Korea, also maintained that the reported divestments are not only healthy for the oil and gas industry in Nigeria but would also go a long way in promoting effective indigenous participation in core upstream activities.

“These are not withdrawals in the real sense of withdrawals. The fact is that a number of these IOCs are moving into more challenging frontiers in the deep offshore and are leaving the onshore blocks which they consider less challenging.”

The NNPC GMD noted that the major players that are divesting have actually been sitting on those acreages and have allowed them to go fallow for years without significant development.

“So it is only fair for them to release these blocks so that others, especially the indigenous operators can have the blocks and grow in the upstream business. This indeed is a good development and I think we are moving in the right direction,” he said.

The GMD hinted that the divestment offers immense opportunities for the nation’s  indigenous flagship upstream operator, the Nigerian Petroleum Development Company (NPDC) to grow its capacity and capability especially as it strives to meet the aggressive target of daily crude production of 250, 000 barrels by 2020.

Yakubu who is leading a team of Nigeria’s oil and gas experts to the global energy meet also submitted that

 

Impacts on Nigeria

The planned sale will alert a host of domestic Nigerian companies that have spent more than $5bn in recent years acquiring onshore fields from the majors. Companies such as Seplat and Shoreline Natural Resources, which have both purchased oil blocks from Shell, have raised production by investing heavily in the blocks, according to Wood Mackenzie.

 

The PIB angle

Last year, Shell, Chevron, ExxonMobil, Total SA and Eni, who pump about 90 percent of Nigeria’s oil through ventures with the NNPC, had said in a joint presentation to the legislature, that the proposed higher taxes in the PIB would make exploration of oil and gas uneconomical. Total, the French giant, sold its 20 percent stake and operating mandate of its Nigerian offshore project to a local unit of China’s Sinopec for $2.5 billion last year.

 

Information from Adeola Yusuf, Daily Independent was used in this report.

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