Shell’s recent approval of the $1.3 billion sale of its onshore Nigerian assets to Renaissance Africa signals an era of improved local participation in oil production, even as more oil majors are angling to shed their onshore assets
For decades, oil majors operating in Nigeria, Africa’s largest oil exporter, have been retreating from onshore operations hampered by theft and sabotage, opting to focus future investments on newer and more lucrative deep offshore fields.
Nigeria, on Wednesday, approved a $1.3 billion deal that would see a group of local companies buy Shell Plc’s onshore assets in Africa’s biggest crude producer.
The Shell assets hold a combined estimated volume of 6.73 billion barrels of oil and condensate and 56.27 trillion cubic feet of associated and non-associated gas.
This deal marks one of the most significant asset divestitures in Shell’s recent history and could have wide-ranging consequences for Nigeria’s energy sector, economy, and environmental landscape.
Read also: Renaissance secures ministerial consent for Shell $1.3bn divestment deal
Impact for Government’s Earnings
Once this transaction is wrapped up, Renaissance will be the second biggest indigenous oil and gas company in Nigeria after Seplat.
If local operators like Renaissance Africa made up of titans such as ND Western Ltd., Aradel Holdings Plc, Petrolin Group, FIRS Exploration and Petroleum Development Co. and Waltersmith Group are able to scale up these assets and make them profitable by operating them, the government’s earnings will rise as petrodollars constitute half of the nation’s revenues.
“Dollar revenues earned by indigenous producers feed into the local banking system through savings and loan repayments,” said Luqman Agboola, head of energy and infrastructure at Sofidam Capital.
Nigerian banks find the oil and gas businesses attractive because of their huge capital outlays, large intraday cash flows (in the case of downstream companies), sizable foreign currency inflows (in the case of upstream and midstream companies).
Boost for Indigenous Players
Other experts say that Renaissance’s latest move will force local Nigerian oil companies to substantially improve their capacities and become more active in the sector.
It will help them to scale production capacity and flex financial muscles when necessary.
This move aligns with the Nigerian government’s push for greater local participation and ownership in the industry.
Renaissance, a relatively new player, made up of ND Western Ltd., Aradel Holdings Plc, Petrolin Group, FIRS Exploration and Petroleum Development Co. and Waltersmith Group, now has the opportunity to harness these assets to boost production and revenue, provided it can effectively manage community relations and operational complexities.
“As more indigenous players take up prominent roles in the industry, they will need to secure key partnerships in critical areas for efficiency and sustainability,” Babafemi Onasanya, sub-surface general manager, Oando, said at the recently concluded Society of Petroleum Engineers (SPE) 2024’s Nigeria Annual International Conference and Exhibition (NAICE) held in Lagos.
He described the current spate of divestments as an inevitable reality that indigenous companies have been actively preparing for.
According to Akinbambo Ibidapo-Obe, general manager, commercial at Oando Energy Resources, “Where we are now is a confluence of opportunity and preparation. The government has been deliberate about ensuring the transfer of knowledge from the IOCs to the indigenous companies over the years.
“Oando, along with other indigenous companies, has also proven its technical abilities to operate and manage these assets through the marginal fields program and earlier divestments.
“It is now time for indigenous companies to step up, prove themselves on this global stage, and drive significant growth and innovation in the industry.”
In September 2023, Oando disclosed that it had signed a deal to acquire Eni’s subsidiary, Nigerian Agip Oil Company Limited (NAOC).
Local Content
Tunde Adigun, a senior energy analyst at Verve Capital, said more participation of local players in upstream exploration would produce economic benefits from ancillary services set up to serve their needs.
These services are offered by construction engineers, health and safety organisations, training and consulting firms, lawyers, and a host of other dependent industries.
“The local content policy amplified this dependency and created far-reaching skills development as well as job opportunities for the Nigerian people,” he said.
Read also: $1bn investment: Dangote Refinery refutes NNPCL’s liquidity crisis claim
Assets at Stake for Divestment
Shell said it has structured the deal to maintain Shell Petroleum Development Company of Nigeria Limited (SPDC) operational capabilities to support the SPDC Joint Venture (SPDC JV).
Data sourced from Shell Nigeria’s Briefing Notes 2023 show the operating assets of SPDC JV include: 250 producing oil wells (189 West assets and 61 East assets); 37 producing gas wells (4 West assets and 33 East assets); four gas plants and two onshore oil export terminals.
Other partners in the SPDC JV include: the NNPC (55 percent), Total Exploration and Production Nigeria (10 percent) and Nigeria Agip Oil Company (5 percent).
As part of the transition, SPDC’s employees will remain with the company under the new ownership.
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