Shell’s Decision to Sell Nigerian Onshore Oil Business for $2.4 Billion

Shell Petroleum Development Company of Nigeria Limited (SPDC) is preparing to divest its onshore business in Nigeria for a substantial $2.4 billion following an agreement with a consortium of five companies. The decision comes after encountering multiple setbacks in previous attempts to dispose of these assets.

The consortium, known as Renaissance, comprises locally-based energy firms including ND Western, Waltersmith, Aradel Energy, Petrolin, and First E&P. SPDC will receive an initial payment of $1.3 billion, with an additional $1.1 billion expected upon completion of the deal, relating to outstanding receivables and cash balances.

Zoe Yujnovich, Shell’s director of integrated gas and upstream, has stressed the significance of this agreement for the company. He has noted that it will lead to streamlining their portfolio and directing future disciplined investments in Nigeria towards their deepwater and integrated gas positions.

This move is a notable relief for Shell, which has experienced operational challenges stemming from sabotage, theft, and spills, resulting in litigations and environmental liabilities. Nonetheless, the company will retain its offshore business, which is less vulnerable to such operational risks.

CEO Ben van Beurden previously asserted that the spills were mainly caused by theft, emphasizing that the company cannot resolve community issues in the Niger Delta, and that it is ultimately the responsibility of the Nigerian government to address these matters.

The divestment process was not without its challenges, as Shell received inquiries from various Nigerian-based energy companies expressing interest in acquiring the business. Discussions came to a halt in June 2022 after a court ruling prohibited Shell from proceeding with the sale until a verdict was reached in an appeal over a 2019 oil spill involving the company. This ruling came as 88 communities in Rivers State sought $1.95 billion in compensation from the lawsuit.

The Supreme Court of Nigeria has recently ruled in Shell’s favour, permitting the company to have a hearing in the dispute, and noting that the Court of Appeal did not consider the merits of the case in its verdict.

This business deal illustrates the trend of international oil companies shifting away from onshore and shallow water operations in Nigeria. Other major players such as ExxonMobil and Equinor have also been involved in similar transactions, reflecting the changing dynamics in the oil and gas industry.

In summary, Shell’s decision to divest its onshore oil business in Nigeria represents a significant development in the country’s energy sector. It not only signifies the evolving landscape of the industry but also highlights the complexities and challenges faced by international oil companies in the region.