Nigeria: FG Rejects Shell’s $1.3bn Onshore Asset Sale, Says Renaissance Consortium Unqualified

Contrary to a report that the plan by Shell to sell its onshore oil assets to Renaissance Consortium was in the ‘waiting room’, THISDAY has learnt that the proposed $1.3 billion deal has been roundly rejected by the federal government.

People with deep knowledge of the goings-on in the oil and gas sector, specifically relating to the transaction, told THISDAY that after a thorough appraisal of the proposal made by the consortium, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) found that the group of companies did not have the requisite qualifications to manage the assets.

On January 16 this year, Shell announced that it had 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.

However, it noted that the completion of the sale of its 30 per cent onshore assets was subject to approvals by the Federal Government of Nigeria and other conditions.

Earlier, a report had said that the Shell’s asset sale in the Niger Delta was at a standstill and was still being considered by the authorities.

But THISDAY can authoritatively report that the proposal failed to impress the upstream regulator, which turned down the request by the consortium of five companies.

The key reasons why the NUPRC declined to approve of the deal, it was learnt, had to do with the consortium’s seeming lack of verifiable capacity, having not been able to manage even up to 50 per cent of all the current oil and gas assets under its control.

“The report that the Shell/Renaissance happens to still be in waiting room is not correct. The authorities have taken a decision and this decision has long been communicated to the parties involved in the deal, namely Shell and the Renaissance Group.

“So, contrary to any reports that they have whatever in the waiting room, this decision has been communicated in early August this year. The bid has been rejected, and it was rejected because the consortium did not show that they have enough capacity to manage 18 oil wells.

“For the same capacity issue, the thinking was that if they cannot manage their current four to five assets optimally, it will be difficult for them to oversee even more assets that come with more challenges to manage. So the government is very concerned.

“The truth is that none of them is currently managing up to 50 per cent capacity of their current assets. So, if they are not managing their current assets up to 50 per cent, why would you now give them even more significant volume of asset to manage?” the source who spoke on the condition of anonymity and who was aware of what transpired told THISDAY.

The SPDC JV holds 15 oil mining leases for petroleum operations onshore and three for petroleum operations in shallow water in Nigeria. Renaissance was formed by ND Western, Aradel Energy, First E&P, Waltersmith and Petrolin.

The reserves of the subject of the transaction were approximately 458 MMboe, while the consideration payable to Shell as part of the transaction was to be circa $1.3 billion.

The buyer, if the deal had succeeded, would have made additional cash payments to Shell of up to $1.1 billion, primarily relating to prior receivables and cash balances in the business, with the majority expected to be paid at completion of the transaction.

But the source explained that any further handing over of assets to entities without the required all-round capability would be disastrous for Nigeria.

“The federal government and by extension, Nigeria will be the ultimate loser if the assets are handed over to people who will struggle to manage them, the person said, stressing that as it is, Nigeria cannot afford to waste more time in ramping up its oil and gas production.

“Nigeria could be the loser. Two, another issue is that the seller financing model is not transparent. The seller is also the financiers. It didn’t make sense and it was quite not transparent because it led to a lot of issues in the past,” the reliable industry source stated.

It was further understood on Tuesday night that the upstream regulator had serious reservation over the financial involvement of Shell even after the proposed sale and purchase agreement, having found that there were issues with transparency in the availability of funds.

Aside from questions over management capacity , the seller’s proposal to finance the project as indicated in its January 16 statement, was also not very clear to the regulator, THISDAY was told.

“At closing, Shell will provide secured term loans of up to $1.2 billion, to cover a variety of funding requirements…” the IOC said in the January statement.

The decision by the NUPRC to withhold its approval, it was further gathered, has been officially communicated to the consortium.

Besides, it was learnt that there were questions over the ultimate beneficiaries (Beneficial Ownership) as the firms were registered in tax havens abroad to avoid paying taxes to Nigeria.

“They did not disclose the ultimate beneficiaries of the companies as they were registered as shell companies and all shrouded in tax havens abroad at a time that Nigeria needs all the taxes it can get,” the source added.

In addition, the transaction was said to be attracting protests from over 150 non-governmental organisations as well as host communities, prompting the regulator to order that all pending issues must be resolved.

“And then they have to resolve environmental issues because there have been protests from over 150 NGOs and those oil communities and also failed legal due diligence. So they have to go and cure all those issues,” the person explained to THISDAY.

Almost all the International Oil Companies (IOCs) operating in Nigeria have recently indicated interest to divest from their onshore operations, which they see as more fraught with challenges and less lucrative.

Aside from the Shell/Renaissance transaction, which has now failed, Seplat had also indicated its intention to buy assets belonging to Mobil Producing Nigeria Unlimited (MPNU). That deal is still in the works.

However, the plan by Equinor Nigeria to buy Chappal Energies had recently succeeded after the parties got ministerial consent in August this year.

In addition, the transaction between Nigerian Agip Oil Company (NAOC) and Oando Petroleum and Natural Gas Plc has been approved by the authorities, underscoring Nigeria’s desperate plan to increase its hydrocarbons production.

Generally, the NUPRC, working with external consultants, bases its assessment on technical capacity, financial viability, legal compliance, decommissioning and abandonment, host community trust and environmental remediation.

Also considered are industrial relations and labour issues, as well as data repatriation plans of the parties to the deals.

Emmanuel Addeh

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