Global oil giant, Shell, operating in Nigeria as Shell Petroleum Development Company (SPDC), on Tuesday, January 16, 2024, announced the sale of its US$1.3 billion onshore oilfields and gas assets to Renaissance—a consortium of five companies.
This is happening after close to a century of operation by Shell in Nigeria, thus joining the bandwagon of other international oil companies (IOCs) seeking to withdraw from the country’s restive Niger Delta.
Specifically, The Royal Dutch/Shell Group established Shell D’Arcy, the first Shell Company in Nigeria in 1936, and secured an exploration license for oil throughout Nigeria in 1938. Eighty-five years ago!
According to Zoë Yujnovich, Shell’s integrated gas and upstream director, in a statement: “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.”
The acquiring consortium—Renaissance, includes Switzerland-based Petrolin and four Nigerian oil producers, ND Western, Aradel Holdings, First E&P and Waltersmith. Although some of the consortium members have been operating in the Niger Delta for 20 years, the companies have little profile outside of Nigeria.
In the ongoing divestment deal, the 88-year-old Shell Petroleum Development Company (SPDC) of Nigeria will be acquired by the consortium for at least US$1.3billion. SPDC’s departure from Nigeria follows ExxonMobil of the US, Italy’s Eni, Norway’s Equinor and China’s Addax, which have all announced deals to sell onshore assets in Nigeria in the past two years or so.
Each of them had attributed their exit to overlapping and persistent problems of oil theft, assets vandalism, violence and environmental damage, among others.
Although Shell is not leaving Nigeria entirely, the planned sale marks an end of an era for the company, which has been at the centre of the country’s oil industry for almost 100 years—dogged by controversies and ding-dong with host communities.
The group said it would continue to invest in Nigeria, focusing on its deep-water oil operations and integrated gas business. However, Shell has been seeking to leave its onshore business in Nigeria for the past three years. It was forced to halt the process in 2022 after a Nigerian court ordered Shell to suspend its divestment initiative pending the result of a court case related to compensation for environmental damage in the Niger Delta.
Nigeria’s Supreme Court upheld the company’s appeal against this ruling earlier this month, allowing the sales process to resume. However, the sale to Renaissance still requires approval from the Nigerian regulatory authorities. If approved eventually, the SPDC transaction would fulfill Shell’s long-term goal of getting out from a challenging operating environment in the Niger Delta region, where its flag would remain hoisted in the offshore and deep offshore.
Shell was granted its first exploration license to prospect for oil onshore in Nigeria in 1938 and drilled the country’s first successful well in 1956 in Oloibiri, Bayelsa state.
Although oil production (in the Niger Delta) over the years generated billions of dollars in revenues for the IOCs and the government of Nigeria, it has been getting increasingly difficult and costly for the international operators. In the oil business, SPDC controls 30 per cent of the so-called SPDC Joint Venture (JV) in partnership with the state-owned Nigerian National Petroleum Corporation (NNPC) which controls 55 per cent. TotalEnergies and Agip own 10 percent and five percent, respectively. The joint venture controls 18 oil production licenses and is operated by SPDC.
Under the terms of the sales deal, SPDC, which is the pioneer and one the best-known companies in Nigeria’s oil industry, will remain intact and continue to operate the JV, Shell said. SPDC and its new owners will also be responsible for the company’s ongoing contribution to the remediation of past environmental damage, it said.
Thus, according to Zoe Yujnovich: “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,” he said.
However, the exit of major oil companies from Nigeria, including Shell, ExxonMobil, and others really presents a complex scenario with both potential challenges and opportunities.
On the negative side is that Shell’s exit at this point (no matter how explained) projects a bad image of the country to the rest of the world. For Shell to be leaving now that a number of other multinational companies are also exiting (or have just left) gives credence to the perception of Nigeria as becoming an increasingly choking business environment.
Particularly, the exit of Shell and others could be perceived as a signal of declining stability and attractiveness of the Nigerian oil and gas sector. This would obviously deter other foreign investors, further negatively impacting the economy and government revenue.
The exodus of these IOCs would also appear to negate the expected gains from the Petroleum Industry Act (PIA)—which is to massively attract investment into the hydrocarbon industry in Nigeria. These exits of the ‘oil majors’ would also question the dexterity and mastery of the critical oil and gas business by Mr President who is also the substantive minister of petroleum resources.
Although Shell’s oilfields and assets are being transferred to a (local) consortium, the deal will certainly lead to loss of technical knowhow and expertise that Shell had gained in several decades in the Niger Delta. In truth, IOCs possess significant expertise and technology in exploration, production, and environmental management. Their exit could mean a loss of this expertise and hinder knowledge transfer to local companies, impacting the long-term sustainability of the sector.
Without a doubt, the exit of Shell and other IOCs would lead to some loss of government revenue. Oil is the mainstay of the Nigerian economy; and a major source of revenue for the Nigerian government, through taxes and royalties. The decline in production and exports associated with the IOCs leaving could lead to a significant drop in government income, impacting public services and infrastructure development. Already, Nigeria has been facing a crisis of paucity of foreign exchange—a situation that has seen the crash of the value of the local currency—Naira, in the foreign exchange market.
From all indications, the consortium—Renaissance—is not Shell, and cannot operate like it; the new owners must have to grapple with turning itself into a functional business entity. It will contend with disparate peoples and corporate cultures seeking for harmony and common goals. It is also not unlikely that many staff of Shell (including experienced hands) would lose their jobs—as the ‘new Shell’ emerges.
On a wider scale, the IOCs employ thousands of Nigerians directly and indirectly. Their exit could lead to significant job losses across the oil and gas sector, as well as related industries like services and logistics.
As Shell and others are leaving, the sale of their oil assets could imply divestment of aging infrastructure. This can leave behind a burden of managing and potentially decommissioning outdated equipment, which can be costly and require significant expertise. And this is what the acquiring consortium (Renaissance) would have to contend with sooner than later.
As the new owners of Shell’s assets (and liabilities), Renaissance would certainly ‘inherit’ huge environmental regulations and clean-up costs. It must step into Shell’s ‘big shoes’. This is because there are always concerns about environmental protection in the oil and gas sector; and the shoddy handling often leads to increased pollution and ecological damage.
On the flipside, however, the exit of Shell (onshore) from Nigeria could be a shot in the arm in pursuit of the ‘Nigerianization’ or ‘localization’ of the hydrocarbon business. Obviously, the exit of multinationals could create space for local companies to grow and enter the oil and gas sector. This could lead to increased local ownership and control of resources, and potentially boost long-term economic development.
Also, the ‘decline’ of the oil industry could incentivize Nigeria to explore alternative energy sources and effectively diversify its economy. This could lead to investments in renewable energy, agriculture, and other sectors, promoting long-term sustainability and resilience.
The overall impact of the exit of major oil companies from Nigeria will depend on how effectively the government and other stakeholders manage the transition. Addressing the challenges and capitalizing on the opportunities will require careful planning, investment in local capacity building, diversification of the economy, and a commitment to environmental and social sustainability.
However, given the place of Shell as the pioneer, pathfinder and biggest partner in the JV for decades, its exit from Nigeria could serve as a pointer to not a few more multinationals and blue chips. This is because over the years, Shell has been an exemplar not only in Nigeria but globally in the entire energy business chain.
***Okeke is a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc.