Divestment: Concern as Nigerian firms scramble for Shell’s $5bn oil fields

Royal_Dutch_ShellLast week, oil and gas major, Shell, said it was close to selling some of its Nigerian oilfields for about $5 billion to domestic buyers.

The Nigerian asset sales are part of a wider plan by the company to dispose of about $15 billion of assets this year and next, in order to cut down soaring costs.

Shell is putting up for sale its 30 percent shares in four oil blocks in the Niger Delta , Oil Mining Licence (OML) 18, 24, 25, 29 , as well as a key pipeline, the Nembe Creek Trunk Line.

The level of interest shown for these assets by the Nigerian indigenous oil industry has continued to generate mixed reactions among industry watchers.

On the divestment, Petroleum Resources Minister Mrs. Diezani Alison-Madueke assured that the trend actually provides opportunity for indigenous oil and gas companies to become active players in the upstream sub-sector of the industry.

She maintained that rather than lead to crisis in the industry, the divestment by the majors is changing the onshore corporate landscape and creating material brown field opportunities for players looking to enter the Nigerian upstream space.

In March, Nigerian firms, Taleveras and Aiteo, were reported to have made the highest bid of $2.85 billion for the biggest of the four oil fields, OML 29.

Confirming further, Shell’s chief financial officer Simon Henry was quoted by Reuters during a conference call with investors late April saying: “We’ve had over 20 serious bidders mostly in consortium, with a Nigerian operator often with overseas operational financial or operational backing,”

The Nigerian companies and their backers

Financial Times reported last week, quoting people familiar with the Shell deal, that Nigerian oil firm, Pan Ocean Oil Corporation, has been selected for OML 24 for $900 million. The Nigerian oil firm is backed by its Chairman and Managing Director, Dr. Festus A. Fadeyi.

Oil traders-cum-producers, Aiteo and Taleveras, believed to have offered $2.85 billion for OML 29, the largest oilfield, are backed by Nigerian businessmen, Benedict Peters and Igho Sanomi, respectively.

For OML18, Midwestern/Mart/Notore, and Sahara Consortium for Vertex/ Seplat/Maurel&Prom/VP Global, Glencore/Neconde, Transcorp are gunning for the asset. Midwestern/Mart/Notore is backed by Jide Omokore and Wade Chewenko while Tonye Cole, Tope Shonubi and Ade Odunsi are behind Sahara Consortium, Transcorp has Tony Elumelu.

For OML 25 Lekoil, Crestar, GreenAcres/CCC/Signet petroleum, NDPR/SAPETRO and Essar are the contenders. Lekoil has Lekan Akinyanmi and some other Nigerians as promoters; Greenacres, Basil Omiyi.

The right buyer or highest bidder

Selecting the right buyer, rather than the highest bidder, can be crucial to the entire Shell sales as political influence, legal disputes or financial problems can decide or mar transactions.

Shell is said to be holding out on Taleveras, Aiteo bid for OML 29 as it tries to persuade them to team up with Seplat, an existing indigenous operator.

However, reports have it that Taleveras is resisting because it wants the block for itself, not in partnership with Seplat.

The dilemma Shell faces, according to reports, is whether to force a partnership between Seplat and the other two, or dispose of the block and face the criticism that it did not do so to a proper operator.

The divestment programme has in recent years generated a lot of controversies. Most of these transactions in this part of the world are fraught with pitfalls. U.S. energy company Chevron is said to be embroiled in a legal battle over its own sale of three Niger Delta blocks.

Chevron’s plan to sell three blocks had been stalled in a legal battle, following allegation that it planned to sideline the highest bidder. Brittania-U said it emerged as the highest bidder, offering $1.015 billion, while Seplat and its partners came second with about $900 million offer.

The alleged moves by Chevron Nigeria and its parent company, Chevron USA Incorporated, to ignore the result of the competitive bid conducted for the sale of Chevron’s 40 per cent interest in the three oil blocks, prompted Brittania-U to head to court.

Again, the antecedents of the bidding firms should also be a source of concern for Shell. Is it enough that these Nigerian consortia have submitted high bids? Analysts say their track record in oil exploration and technical know-how is equally important.

Furthermore, Shell should be concerned about the track record of the individuals backing these firms. One area that cannot be overlooked is the sources of funds of bidders and the eventual owners of these assets.

As a major player in business field, Shell cannot afford to be indifferent to the global war on corruption.

Ministerial blessings

Reports have it that buyers for the four Shell blocks have been selected, but two bidders are still negotiating their contracts. A deal is expected in the next few weeks, but then all potential buyers will require government approval.

The assent of Nigeria’s Minister of Petroleum Resources is another hurdle to be crossed before the complete acquisition of oil and gas assets in Nigeria, without which the transaction will not be consummated.

The minister came under heavy criticism some time ago following allegations that the $1.55 billion acquisition of Conoco’s Nigerian assets by Oando was threatened by her delay to consent to the deal.

The deal has since been concluded though it took over one year of prolonged delay in seeking approval.
“What is slightly more challenging and difficult to predict is how we can get the overall approvals across the whole of the stakeholder environment including the government, because in previous transactions that has taken … up to a year.”  Shell chief financial officer (CFO) Simon Henry expressed similar worry in a conference call with investors in April.

Ministerial consent is the mandatory final approval of all oil and gas acquisitions by the Minister of Petroleum Resources as required by the Petroleum Act of 1969, which states that, “prior consent of the Minister of Petroleum Resources is obtained before the assignment of any right, power or interest in an oil prospecting licence or oil mining lease.”

The act stipulates that the Federal Ministry of Petroleum Resources must conduct due diligence to ensure ownership is being transferred to a company that is of good reputation, has sufficient knowledge, experience and financial resources to work the licence or lease and in all other respects is acceptable to the federal government. Consent of the minister may only be granted where the minister is satisfied that the above conditions have been fully met.

[Daily Trust]

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