-By Fred Ojiegbe
Ownership of some of Nigeria’s oil blocs will soon change hands, as Shell has started the process to divest all operated joint venture licenses held by the Shell Petroleum Development Co. (SPDC) in Nigeria.
This is coming at a time the sub-Saharan Africa’s largest producers in Nigeria and Angola are said to face declining crude oil and condensate production from this year onwards, according to GlobalData, with only a small number of new projects set to come online in the next five years.
The divestment has to do with SPDC’s 30 per cent interest in 19 oil mining leases (OMLs). The company’s operations are focused on the Niger Delta and adjacent shallow-water areas, and include more than 1,000 producing wells. These are responsible for 39 per cent of Nigeria’s production.
The Research Director with Wood Mackenzie’s Sub-Sahara Africa Upstream team, Gail Anderson, reckons bidders will carefully evaluate the joint venture assets.
“There is considerable value upside across the joint venture assets, which bidders will need to carefully evaluate and quantify.”
However, the consultant considers only 20 per cent of the joint venture resources to be commercial at present due to a lack of investment, crude thefts, insecurity, and gas market constraints.
“As a result, our current valuation of Shell’s 30 per cent in the joint venture, which does not include the export pipelines and terminals, is $2.3 billion. But this is based on the current sub-optimal, business-as-usual investment profile, under existing fiscal terms. A competent buyer/operator, giving priority to the assets, could commercialise much more than 20 per cent of the resource base. The recently passed Petroleum Industry Bill (PIB), which has been signed into law, will offer materially lower royalties and taxes for oil,” Anderson stated.
Wood Mackenzie, the analytical and research consulting group, had stated that Shell’s JV assets in Nigeria are valued at $2.3 billion.
“There could be as much as four billion barrels of oil equivalent (boe) – 30 per cent net – across the JV. However, we consider only 20 per cent to be commercial due to a lack of investment, crude theft, insecurity and gas market constraints. Five of the OMLs are undeveloped. Our valuation of Shell’s 30 per cent in the JV (excluding export pipelines and terminals) is US$2.3 billion, (NPV10, January 2021, US$50 long-term oil price). But this is based on the current sub-optimal, business-as-usual investment profile.
“A competent buyer/operator, giving priority to the assets, could commercialise much more than 20 per cent of the resource base, although the availability of funding for the JV partners will, as ever, dictate how much. The recently passed PIB overhauls the fiscal regime offering materially lower oil royalties and taxes. Hence, there is much more upside than downside to our base case, which bidders will need to carefully quantify,” the group said.
Last May, Royal Dutch Shell had said it was involved in discussions with the Federal Government to sell its onshore oil assets in Nigeria.
The Chief Executive Officer of Shell, Ben van Beurden, said that the oil giant can no longer be exposed to the risk of theft and sabotage in the Niger Delta.
It would be recalled that the SPDC had agreed to pay the N45.9 billion awarded to the Ogoni people of Rivers State as compensation for oil spills in their communities. This was coming 11 years after a court judgment.
Meanwhile, Sub-Saharan Africa’s largest producers in Nigeria and Angola face declining crude oil and condensate production from this year onwards, according to GlobalData, with only a small number of new projects set to come online in the next five years.
According to an oil and gas analyst, Conor Ward, a few reasons are why Sub-Saharn African, with huge potentials, may not overtake Europe.
“Sub-Saharan Africa has so much potential. It could easily overtake Europe in regional oil and gas production, if utilised properly. However, companies have been more cautious than ever over their investments. Some of the huge discoveries made over the past decade have seen significant delays with no final investment decision (FID) in sight: as is the case with Shell’s Bonga Southwest/Aparo, which was discovered over 20 years ago,” Ward said.
It was learnt that, as the European majors seek to reduce their carbon emissions, they are moving capital away from oil-heavy developments to more gas-intensive, lower-carbon projects.
According to GlobalData, sub-Saharan Africa’s gas production, which currently accounts for 22 per cent of the region’s total output, is expected to grow by around 30 per cent by 2025, and start to outstrip crude oil and condensate.
However, this forecast is based on multiple project developments that have not yet reached final investment decision (FID).
“Sub-Saharan Africa is seeing a shift of investment away from the more developed countries in the region, most notably, Nigeria, and more towards frontier countries such as Mauritania, Senegal, Mozambique, and Uganda as the fiscal terms offered by the host countries are far more appealing and have a large untapped resource base. If Nigeria wishes to continue to attract investment and achieve a plateau in production, it will need to tackle the above ground risks which companies face,” Ward added.