The exit of Shell Petroleum

The announcement by the British energy giant, Shell PLC, that it is selling off its operations in Nigeria’s onshore oil and gas sector to a consortium of mostly Nigerian companies is a welcome opportunity for further indigenization of a sector that had long been dominated by foreigners. The transaction bodes well for the industry because Nigerians’ ownership and operatorship of the oil fields will enable local solutions to be deployed to multiple issues peculiar to the Niger Delta. Opening up production with domestic expertise will have multiplier effects on the economy. In this essay, I will explain the various dimensions of the exit of Shell and how it is good for both the company and the country.

I commend President Bola Tinubu for endorsing the transaction after a long delay due to his predecessor’s refusal to approve it. I congratulate the new Nigerian owners of the oil fields as I look forward to improved relations with the host communities.

Shell is selling off its subsidiary, Shell Petroleum Development Company Ltd (SPDC), which has operated in this country for close to a century, to a consortium of five companies, one foreign and four Nigerian-owned. The four are owned and managed by former Shell managers. The consortium, known as Renaissance Africa Energy Company Ltd (RAEC), is made up of ND Western; Aradel Energy; First E&P; Waltersmith and Petrolin. They are paying $2.4 billion for the acquisition, of which $1.3 billion would be paid immediately, and $1.1 billion, primarily relating to prior receivables and cash balances in the business, at a later date. In simple terms, the $1.3 billion is for the oil blocks, while the $1.1 billion is for the use of Shell’s pipelines and Forcados Terminal as well as the use of Shell’s offices and assets in Warri. The chief executive of Renaissance is Tony Attah, former CEO of Nigeria LNG. He leads a strong team of other shell veterans like Samuel Dossou-Aworet (representing ND Western/Petrolin Group); Abdulrazaq Isa (Waltersmith Group); Ademola Adeyemi-Bero (First E&P) and Gbite Falade (Aradel Energy).

Shell’s exit from onshore operations is driven by persistent issues. Vandalism of oil pipelines, resulting in spills and environmental damage, community unrest, and oil theft have plagued their onshore business. Costly lawsuits and international environmental campaigns compounded Shell’s challenges. The notorious Ogoni 4 and Ogoni 12 incidents, including Ken Saro-wiwa’s hanging in 1995, became a moral and PR disaster. The escalating wave of oil theft led to the decision to exit in 2012, aligning with Shell’s long-term focus on offshore deep-water production.

The beauty of this transaction is that Shell is loaning the Renaissance Consortium $1.2 billion to part-pay the $1.3 billion purchase price, and is also providing the Consortium additional finance of $1.3 billion to continue the development of the HA field – the shallow water oil block off Nembe area of Bayelsa State – which supplies gas to NLNG.

‘’I reckon that Shell’s business strategy is to handover 100% of its onshore shallow-water oil fields, which provide the bulk of the feed gas to NLNG, to tested and trusted hands, and in addition, give them money to operate the oilfields too’’, says Engr. Ani Udott, a retired Shell veteran who is not involved in this transaction, but is quite knowledgeable about Nigeria’s oil industry.

He added matter-of-factly: ‘’When you have built a reputation of competence and the right rapport with the right people at influential positions, this type of favour lands on your lap. It is a good deal for Shell; and a good deal for the Renaissance guys.’’

This deal therefore saves the consortium from the huge headache of sourcing for funds, especially funds of this magnitude, which is one of the major problems indigenous producers continue to confront.