Shell to Sell 4 Oil Blocks in Niger Delta

Written by This Day Thursday, 29 July 2010 05:22

Oil giant Shell has offered some of its oilfields in the Niger Delta valued at between $150 million to $2 billion for sale, THISDAY investigations have revealed. 
The onshore blocks located in Southern Nigeria, according to sources familiar with the deal, include Oil Mining Leases (OMLs 26, 30, 34, 40 and 42), some of which contain reserves of up to 2 billion barrels.

Also to be sold with oil blocks are the facilities located in that region where the industry has faced repeated militant attacks.
It was gathered that the oil giant has selected a few of the local companies from among the 30 local firms that submitted expression of interest in the deal, which is expected to be completed within weeks.

To qualify, the companies had to prove they had the financial and technical means to implement a development plan for the fields, some of which are shut in.
"The biggest structural challenge is the financing of the deal. The local companies must prove they have the funds to unlock the assets and be acceptable to both the host communities and federal government," a competent source told THISDAY yesterday.
Although the source was silent on names of the qualified companies, THISDAY reliably learnt that Midwestern Oil & Gas, Niger Delta Petroleum Resources and Setplat Petroleum were among the qualified companies.

"This is a private transaction and both Shell and the government want to keep it that way. They don't want the sale becoming a public drama," the  source said.
He, however, disclosed that Shell's partners would have to approve any disposal of assets. Shell Petroleum Development Company (SDPC) is the operator of the joint venture in Nigeria between state-owned Nigerian National Petroleum Corporation (NNPC)  (55percent), Shell (30percent), Total E&P Nigeria Limited 10 per cent, and Nigeria Agip Oil Company (5percent).
Royal Dutch Shell, a major operator in the Nigeria Oil and Gas sector, has suffered a series of setbacks in its Nigerian operations as security and funding challenges have severely cut the company’s onshore production in Nigeria and increased direct costs.

The company’s Chief Executive, Peter Voser, late last year confirmed that the oil giant’s onshore output had dropped to 120,000 barrels per day (bpd), from the about 300,000 bpd being produced before the militancy escalated in the Niger Delta region.
Voser said Shell's onshore production in Nigeria has been “heavily curtailed by violence” in the oil-rich region.
“We have a huge proportion of onshore production shut in at this stage. I think we are now at 120,000 bpd and we used to be close to 300,000,” Reuters had quoted Voser as saying.

Owing to what sources described as tough operating condition, Shell had last year offered three of its oil blocks, OMLs 4, 38 and 41 for sale. Timesonline had reported that the company launched a formal sales process that was being overseen by the immediate past  Head of Shell Nigeria, Ann Pickard.  Most of Shell’s fields are onshore and it was learnt  that the divestment programme is focused primarily on those in the western part of the country.

These include producing fields as well as undeveloped blocks and those still shut in because of the violence in the region.
But explaining the company’s divestment in the three blocks earlier this year, Country Chairman of Shell Nigeria cum Managing Director, Mr. Mutiu Sunmonu, said it was aimed at encouraging local participation in the upstream petroleum industry.
He declared that Shell had no plans to close its operations in Nigeria despite the tough operating conditions.

Sunmonu acknowledged that security and funding challenges have severely cut the company’s onshore production in Nigeria and increased direct costs, but that notwithstanding, the company will continue its onshore and offshore exploration and production activities in Nigeria believing that the country’s Oil and Gas sector will see a better future.
He said Shell has a long standing presence in Nigeria and will continue its exploration and production activities in the country notwithstanding the challenges. He described as untrue reports that the company’s divestment in the three oil blocks; OMLs 4, 38 and 41 was in line with its plans to exit Nigeria, saying the assets represented less than five percent of the company’s assets and were sold to encourage local participation in the upstream sector.

“The assets were sold to encourage local participation in the industry. The Federal Government wants to open up the industry to other players especially local players, in line with the local content policy. Shell is one company that has supported this government initiative. So it is a big boost to the local content”.
He said: “Any suggestion that Shell has divested its assets and is exiting Nigeria is misleading and untrue. We have a long standing presence and commitment to Nigeria , and we will continue our on and offshore exploration and production activities.”
Explaining the rationale for the divestment in OMLs 4, 38 and 41, Sunmonu said: “Shell has a large and diversified global upstream portfolio, which we regularly review to ensure best value for the company.

“We believe that these assets are best developed by a third party and that the divestment provides an opportunity for local companies to materially increase their participation in the hydrocarbon sector, consistent with the objectives of the Federal Government. It may also accelerate the exploration and development of the acreage. The transaction is subject to the approval of the Nigerian National Petroleum Corporation (NNPC) and the Federal Government,” he added.

The non-passage of the Petroleum Industry Bill (PIB) and unresolved issues regarding taxes and royalties had forced Shell and other oil majors to channel investments to other countries in Africa. The delay has crippled virtually oil and gas projects and renewal of some oil block licenses as almost every future project is going to be dependent on the provisions of the PIB.
International Oil Companies (IOCs) have been forced to suspend new investments, especially in deep offshore, where they complain that the PIB imposes stiffer conditions on the operators. Sources in the Petroleum Minister disclosed recently that potential investors have been expressing interests in oil and gas projects, but that no meaningful commitments have been made by them because they are waiting to see whether the provision in the PIB will be favourable to them or not.

Minister of Petroleum Resources, Diezani Alison-Madueke had assured that the bill would be passed latest by August ending, but investigations have revealed that the date may not be feasible because the government and relevant stakeholders are yet to agree on those contentious issues.