Commodity trading houses Glencore and Mercuria are among the shortlisted consortiums expected to make final bids on Nigerian energy assets worth around $3 billion that three oil majors are selling, sources close to the process say.
Trading houses have been marketing Nigeria’s crude oil and importing fuel there for decades. New upstream acquisitions would help cement their relationship with Africa’s biggest oil producer, a key supplier to Europe and India.
Shell is selling its 30 percent stake in four oil blocks, with France’s Total and Italy’s Eni also set to profit from their 10 percent and 5 percent shares. The Nigerian National Petroleum Corporation (NNPC) owns the remaining 55 percent.
Shell is also selling the 97-km (60-mile) Nembe Creek oil pipeline, which has been regularly attacked by oil thieves.
Final bids for the stakes in the blocks are due on Feb. 18, the sources said.
Total, Eni and Shell declined to comment. Bidders are bound by a confidentiality agreement and all firms as well as other parties mentioned in this story either declined to comment or did not respond.
Shell has already made $1.8 billion from asset sales in Nigeria since 2010 as several oil majors choose to cash in on onshore fields in the Niger Delta, where divestment is increasingly popular due to oil theft and a government drive to increase local ownership.
Oil majors are still keen to keep the largest and most profitable Niger Delta fields and infrastructure, and want to expand in Nigeria’s deep offshore areas.
There is high demand for assets in the Niger Delta, which holds a large portion of Nigeria’s 37 billion barrels of oil reserves. The oil is high-quality, relatively easy to drill, and some Nigerian companies have said they can better handle the security challenges faced by oil majors.
Shell has kept the specifics of the assets it is selling secret, but information from a confidential company document and from sources involved in the process reveals new details.
The consensus of five sources is that the combined 45 percent stake in blocks OML 18, 24, 25 and 29 is worth around $3 billion but could fetch even more due to inflated values put on assets in a country with an increasingly wealthy elite.
The blocks’ combined output averaged 90,000 barrels of oil and 60 million standard cubic feet of gas per day (scf/d) in 2012 and they hold reserves of 4.6 billion barrels of oil equivalent, the Shell report seen by Reuters said.
A 30-year lease on these blocks was renewed in 1993, the document said. Shell has held a stake in them for decades longer and it is unclear how much the firm originally paid.
OML 29 is the most coveted asset, producing a peak of 62,000 barrels per day (bpd) of oil and 40 scf/d of gas and holds reserves of 2.2 billion barrels of oil equivalent (boe), the report said.
The 45 percent stake in this block could earn $1.5 billion to $2 billion, the sources said.
OML 24 holds 803 million boe, OML 18 has reserves of 1.5 billion boe, although most of this is gas, while the smallest asset, OML 25, holds 157 million boe, the Shell report said.
The Nigerian sales are part of a wider plan by Shell to dispose of $15 billion of assets this year and next to streamline operations after a profit warning.
Due to Nigerian government policy to increase local oil and gas ownership, any foreign companies wanting to buy divested assets needs to partner in consortiums with Nigerian firms.
Glencore is preparing to bid in a consortium, which if successful would be its first inroad into Nigeria’s upstream sector. Seplat, a Nigerian firm in which Swiss oil trader Mercuria and French explorer Maurel and Prom hold minor stakes, is among the shortlisted bidders, sources said.
Africa’s richest man, Aliko Dangote, is part of a shortlisted consortium, two of the sources said. Dangote is seeking to expand his vast business empire into the energy sector. He has pledged to build a $9 billion refinery in Nigeria and needs oil reserves to run it.
Nigerian firm Greenacres, whose chairman is former Shell Nigeria boss Basil Omiyi, has partnered with Canadian company Oracle Energy to bid on the blocks, the sources said.
Firms that have done deals on Shell blocks previously are also in the mix, they said. These include London-listed Heritage Oil, which will bid with the Bayelsa Oil Company in their new joint venture, Petrobay. Eland Oil and Gas is shortlisted too, the sources said.
Nigeria’s First E&P, Sahara Energy, South Atlantic Petroleum and conglomerate Transnational Corp are separately bidding as is a consortium involving rapidly growing local oil trading firms Taleveras and Aiteo, the sources said.
Choosing the right buyer, rather than the highest bidder, can be crucial to securing sales, in a country where political influence can decide deals and legal disputes can scupper them.
U.S. energy company Chevron is embroiled in a legal battle over its own sale of three Niger Delta blocks. ConocoPhillips has been trying to close a $1.79 billion deal for over a year as Nigerian buyer Oando struggled to raise the cash, although Oando said this month it had secured financing.
The Niger Delta has had a host of security challenges since oil production began there more than 50 years ago. In 2006, militants claiming to be fighting for a fairer share of oil revenues cut out a third of Nigeria’s production by sabotaging pipelines. Now, widespread oil theft can shut in as much as 400,000 bpd of the country’s 2.5 million bpd capacity.
Whichever company buys Shell’s blocks will have tricky negotiations with NNPC over who operates the fields. The state firm wants its producing arm NPDC to operate more reserves but oil companies would prefer to have control over the work.