Two reasons Shell’s divestment won’t result in revenue loss to Nigeria – by Ademola Adegbamigbe

After 88 years of its presence in Nigeria, Shell Exploration Company, announced that it was divesting from the country. Will this cause revenue reduction for Nigeria? That is the question on many lips.

The Royal Dutch/Shell Group founded Shell D’Arcy, the first Shell company in Nigeria in 1936. In November 1938, it was granted exploration licence to prospect for oil throughout Nigeria. Then in January 1956, it hit pay dirt at Oloibiri. In other words, Shell D’Arcy had its first successful well drilled that year and till today, that spot, symbolised with what is called the Christmas tree, is a tourist attraction in Bayeslsa State. It later changed its name to Shell-BP Petroleum Development Company of Nigeria Limited.

Two years after the discovery, Shell (in February 1958) made its first shipment of oil from Nigeria. With this, the hope of doing more business was raised higher and, in April 1961, it commissioned its Bonny Terminal. This was followed 10 years later by Shell’s Terminal in Forcados. That is located in Burutu Local Government Area of Delta State.

However, Shell later started having problems with the host communities of Niger Delta. This is because it started behaving like the old carpetbaggers who, in the history of the United States, were the opportunistic Yankees who came to the Southern states after the Civil War, “perceived to be exploiting the local populace for their own financial…gain.”

The environmental devastation and the multiplier effects of Shell’s operations on the livelihoods of the people were captured in a book, Where the Vultures Feast, written by Ike Okonta and the late Oronto Natei Douglas.

As they put it: “On February 22, 1895, a naval force laid siege to Brass, the chief city of the Ijo people of Nembe in Nigeria’s Niger Delta. After severe fighting, the city was razed. More than two thousand people perished in the attack.

A hundred years later, the world was shocked by the murder of Ken Saro-Wiwa—writer, political activist, and leader of the Movement for the Survival of the Ogoni People. Again the people of Nembe were locked in a grim life-and-death struggle to safeguard their livelihood from two forces: a series of corrupt and repressive Nigerian governments and the giant multinational Royal Dutch Shell.

The plunder of the Niger Delta has turned full circle as crude oil has taken the place of palm oil, but the dramatis personae remain the same: a powerful multinational company bent on extracting the last drop of blood from the richly endowed Niger Delta, and a courageous people determined to resist.”

That Shell is leaving was a revelation that sent jitters down the spine of many Nigerians who thought that the oil exploration giant’s exit would result in financial asphyxiation for the country. Not to worry.

First, Shell is only leaving its onshore activities while its offshore drilling will still continue to gush out crude. Second, a consortium is buying Shell’s onshore assets. For these, there is no revenue loss to the Federal Government in any way.

Now, The Renaissance, a consortium of four Nigerian firms and one foreign company is buying Shell’s onshore oil assets for $2.4 billion. A statement from the London office of Shell, on Tuesday, which Thisday quoted, said with the deal, its onshore subsidiary, the Shell Petroleum Development Company of Nigeria (SPDC), will now be operated by ND Western, Aradel Energy, First E&P, Waltersmith, and Petrolin, a Swiss firm. However, Shell stated that the completion of the deal was still subject to approval by the federal government.

Shell, which has operated in Nigeria for over six decades, noted that its offshore and deep-water operations will, according to the report, continue in the country.

Shell continued that the transaction would “also preserve the full range of SPDC’s operating capabilities, including its management and staff” and that it was “divesting SPDC for $1.3 billion and expected to receive additional payments of as much as $1.1 billion. This would total N2.4 billion.”

If the deal succeeds, the report had it further, “it would rank as the first landmark asset sale and purchase transaction to be recorded in the Nigerian oil and gas exploration and production sector in 2024 and one of the biggest under the Petroleum Industry Act (PIA).

The SPDC JV is an unincorporated joint venture comprising SPDC Limited (30 per cent), Nigerian National Petroleum Company Limited (55 per cent), TotalEnergies Exploration and Production Nigeria Limited (10 per cent), and Nigeria Agip Oil Company Limited (five per cent).

It holds 15 oil mining leases for petroleum operations onshore and three for petroleum operations in shallow water in Nigeria, with total reserve of approximately 458 million barrels of oil equivalent.

The statement added, “Shell has reached an agreement to sell its Nigerian onshore subsidiary, The Shell Petroleum Development Company of Nigeria Limited (SPDC), to Renaissance, a consortium of five companies comprising four exploration and production companies based in Nigeria and an international energy group.

“Completion of the transaction is subject to approvals by the Federal Government of Nigeria and other conditions. Transaction will preserve SPDC’s operating capabilities for benefit of joint venture,”

“This agreement marks an important milestone for Shell in Nigeria, aligning with our previously announced intent to exit onshore oil production in the Niger Delta, simplifying our portfolio and focusing future disciplined investment in Nigeria on our deepwater and integrated gas positions,” Shell’s Integrated Gas and Upstream Director, Zoë Yujnovich, said.

Yujnovich added, “It is a significant moment for SPDC, whose people have built it into a high-quality business over many years. Now, after decades as a pioneer in Nigeria’s energy sector, SPDC will move to its next chapter under the ownership of an experienced, ambitious Nigerian-led consortium.

“Shell sees a bright future in Nigeria with a positive investment outlook for its energy sector. We will continue to support the country’s growing energy needs and export ambitions in areas aligned with our strategy.”

According to the agreement, at closing, Shell will provide secured term loans of up to $1.2 billion, to cover a variety of funding requirements.

Shell noted that it was providing additional financing of up to $1.3 billion over future years to fund SPDC’s share of the development of the SPDC JV’s gas resources to supply feedgas to NLNG, and its share of specific decommissioning and restoration costs.

The multinational said this additional financing will only be drawn down when these costs were approved and incurred by the SPDC JV.

The statement said the net book value of the entity subject to the transaction was at approximately $2.8 billion as at December 31, 2023.

The statement said, “However, Shell will continue to consolidate SPDC until control transfers at completion. Although any amounts will depend on the future financial performance of the business, we expect to recognise impairments in respect of the business up to the date of completion, including to the extent that the net book value of SPDC exceeds the expected consideration at completion.”

The statement further explained that the amounts above will be adjusted to reflect any shareholder distributions, above $200 million, made prior to completion.

Other contingent payments, according to the transaction, including those related to gas supply to the Nigeria Liquefied Natural Gas Limited (NLNG), may become payable depending on business performance and fluctuation of product prices.

In a separate statement announcing the deal with Shell, Renaissance said it had signed a landmark transaction with Shell to enable it acquire the oil major’s entire shareholding in SPDC.

But unlike Shell, the buyer did not mention the worth of the deal in financial terms.

Renaissance said the acquisition marked a significant milestone for it, establishing its strategic position in the Nigerian market. It aligned with Shell that the completion of the transaction was subject to the requisite regulatory approvals.

Renaissance stated, “We are pleased to announce the signing of a landmark transaction with Shell to acquire its entire shareholding in SPDC.

“This acquisition marks a significant milestone for Renaissance, establishing its strategic position in the Nigerian market. We are committed to ensuring a smooth transition and look forward to leveraging our expertise, in partnership with SPDC’s industry-leading staff and working in partnership with all the stakeholders in the SPDC-JV to drive continued growth and success in Nigeria and beyond.”

Commenting on the acquisition, one of the companies that formed Renaissance consortium, Aradel Energy Limited, said in a statement that the acquisition marked a significant milestone for Aradel. It stated that this will bring enormous benefits to its shareholders, further strengthen its financial outlook, and consolidate its strategic positioning in the Nigerian energy market.

Aradel maintained that it was committed to working in partnership with all the stakeholders in Renaissance and SPDC JV to ensure a smooth transition and drive continued growth and success in Nigeria and beyond.

Aradel’s Chief Executive Officer/Managing Director, Mr. Adegbite Falade, said, “This successful acquisition represents a key step in our journey to becoming a leading energy company in Africa and aligns with our long-term strategic growth plans. It also demonstrates our commitment to our ‘3R’ Strategy of Resilience, Robustness, and Redundancy.”

Credit: The News