Shell divestment: Gas provides a way in for Nigeria’s local operators

The plans of Royal Dutch Shell Plc to divest from its oil stakes in the Niger Delta to focus more on cleaner energy and offshore production may include about 60 gas wells providing an opportunity for local gas companies to leverage Nigeria’s “Decade of Gas,” policy.

Firms like Aiteo E & P Ltd, Seplat Petroleum Development Company, and at least 50 small to mid-sized Nigerian producers will be looking for opportunities in gas assets after the federal government launched an ambitious decade of gas plan which involves converting from being an oil economy to a gas economy.

For some experts, starting 2021 as a decade of gas is a nice ring but marketing alone will not cut it, without the participation of Nigeria’s indigenous oil firms, especially when there are divestment opportunities in assets previously held by notable International Oil Companies (IOC) like Shell Petroleum Development Company (SPDC).

“Unlike oil blocks which are owned jointly with NNPC, majority of Shell’s gas assets especially in the downstream sector are 100percent owned by the company which makes it easier to do business,” Niyi Awodeyi, CEO at Subterra Energy Resources Limited, said.

SPDC is one of Nigeria’s biggest gas explorers boasting over 60 producing gas wells (11 land, 4 west, and 45 central assets) alongside a growing world-class gas transmission and distribution network of over 138km in Nigeria.

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“The financial approach used by indigenous oil companies will determine their chances in taking advantage,” Awodeyi said.

Shell also operates several distribution systems including Agbara-Ota in Ogun state, the Aba Cluster in Abia State, and the Port Harcourt Cluster in Rivers State. It recently increased its gas distribution capacity by over 150percent ensuring its gas distribution networks are capable of distributing over 150 mmscf/d of dry processed gas to over 300 industrial customers.

“Shell’s downstream assets in the gas value chain is a gold mine for any local investor to tap into,” Awodeyi said.

Adeoluwa Eweje, an international oil, and gas analyst said local players with good corporate governance and a strong financial network will stand a better chance in doing gas deals with Shell Nigeria.

“Local firms will be looking for opportunities in gas fields with lower valuations or fields struggling to produce consistently due to insecurity,” Eweje said.

Recall between 2010 and 2018 a number of indigenous companies including Starcrest Energy, Aiteo, Oando, Seplat, Eroton, First E&P, Neconde, Midwestern, Notore Lekoil, PanOcean, Newcross and Shoreline threw in billion dollars cheques in their scramble for assets divested by major multinational oil firms which have recorded mixed performance.

Other analysts said apart from the associated risk of unrest and insecurity in the Niger Delta, Shell’s growing impatience with the slow passage of the Petroleum Industry Bill (PIB) might be a factor pushing the company to listen to offers.

In a bid to achieve its Decade of gas dream, the Nigerian government is also renegotiating commercial contract terms in its proposed oil reform bill in a move it hopes will keep investment flowing into the sector.

“The PIB is a great opportunity to stimulate investment for gas and I think it is an opportunity really to put in place a governance and fiscal system which really encourages investment both in the midstream and upstream side of the gas market,” the Managing Director, Total upstream companies in Nigeria and the Chairman, Oil Producers Trade Section (OPTS), Mike Sangster said at Nigeria’s International Petroleum Summit (NIPS).

The new PIB currently before Nigeria’s legislative propose the creation of Nigerian National Petroleum Corporation Limited under Section 53 as a successor to the NNPC While Section 64 (d) of the bill gives the new company rights to natural gas under production sharing contracts which were entered into before the bill was passed into law.

Hopes were raised that the PIB would be passed by the parliament by the first quarter of 2021, but this did not materialize.

Sylva said the executive arm of the government was in talks with lawmakers to ensure the passage of the PIB by June this year.

On May 18, Nigerian Vice President Yemi Osinbajo said the PIB was in its third reading, or final stages, after which it would be passed.

“We are trying to make our gas industry more competitive,” he said at the Columbia Global Energy Summit.

Nigeria has the largest gas reserves in Africa and the ninth-largest in the world but only about 25 percent of the reserves are being produced. The country’s total gas reserves stood at 203.16 trillion cubic feet as of January 1, 2020, up from 202Tcf in 2019, according to the Department of Petroleum Resources.

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