Shell divestment onshore: the buyer beware!
Since last year, Royal Dutch Shell has made headlines with plans to sell its onshore oil fields in Nigeria to focus on deep offshore exploration and production, citing several operational risks that it said were become incompatible with its future plans. However, some fear that the oil major is trying to shirk its responsibility for the environment and host communities. It could also push potential buyers, unaware of possible landmines in the deal, to avoidable business risks, writes Peter Uzoho.
Translated caveat emptor in Latin, the expression “let the buyer beware” in commercial transaction law is a principle that the buyer buys at his own risk in the absence of an express warranty in a contract. Last week, news of Royal Dutch Shell’s sale of more of its onshore oil assets in Nigeria made headlines, as it had in the past.
THISDAY exclusively reported last Friday that at least five Nigerian oil and gas companies were preparing to submit their respective bids to acquire the assets this month. The deal, according to industry and banking sources involved in the transaction process, was estimated at $ 3 billion, the value of the assets.
Some independent Nigerian oil and gas companies, including Seplat Energy Plc, Sahara Group, Famfa Oil, Troilus Investments Limited and Niger Delta Exploration and Production (NDEP), have expressed interest in purchasing the assets.
There are indications that these companies might be oblivious to the dangers that lie ahead when they buy assets without prudence and with due diligence. Oddly enough, no international oil company should participate in the bidding process at this initial stage and bids must be submitted by January 31.
Shell began discussions with the federal government last year over selling its stake in the onshore fields, where it had been active since the 1930s, as part of a global campaign to cut carbon emissions. The Anglo-Dutch company owns stakes in 19 petroleum mining concessions (OML) in Nigeria’s onshore oil and gas joint venture – Shell Petroleum Development Company (SPDC), which industry and banks source, particularly Wood MacKenzie, a world leader in oil and gas consulting. company, had said they were valued between $ 2 billion and $ 3 billion.
Shell operates SPDC and owns 30 percent of the company’s capital, Nigerian National Petroleum Company (NNPC) Limited owns 55 percent, TotalEnergies 10 percent and ENI five percent.
WoodMac had listed the assets for sale under the names OML 11, OML 20, OML 21 (Assa North), OML 22 (Enwhe), OML 23 (Soku), OML 25, OML 27, OML 28 (Gbaran-Ubie), OML 31, OML 32, OML 33, OML 35, OML 36, OML 43 and 45 (Forcados-Yokri), OML 46, OML 74 & 77 and OML 79.
Giving context to the company’s decision to divest the facility, MacKenzie had said emissions from Shell’s assets in the onshore delta and shallow water are among the highest in its global portfolio.
The Anglo-Dutch oil major has also struggled for years with spills in the Niger Delta due to pipeline theft and sabotage as well as operational issues, resulting in costly repairs and high-profile lawsuits.
In May last year, Shell CEO Mr. Ben van Beurden told the company’s annual general meeting that Shell can no longer afford to expose itself to the risk of theft and sabotage in its Nigerian operations.
The NNPC could also choose to exercise its right of first refusal on any sale to a third-party company, the sources said.
Sources said it was not clear whether potential bidders could raise sufficient funds, as many international banks and investors are wary of oil and gas assets in Nigeria due to concerns about environmental issues and corruption.
Some African and Asian banks, however, were still willing to finance fossil fuel-related operations in the region, they said.
In addition, Troilus has hired Africa Bridge Capital Management, a Nigeria-focused company, to raise up to $ 3 billion for assets, according to sources and documents.
The sources said any buyer of Shell assets should also show that they can cope with future damage to the oil infrastructure that has ravaged the Nigeria Delta in recent years.
LAND MINES FOR SUSPICIOUS BUYERS
Over the past 60 years, when offshore investments were largely unsustainable, the activities of oil companies, including Shell, have devastated the ecosystems of the host communities where they operate.
However, the idea is that they are now rushing to offload toxic assets to unsuspecting local investors who may be just too keen to acquire producing oil blocks without properly performing the due diligence required to make those investments. viable in the long term.
One example is the recent massive oil spill from Aiteo Eastern Exploration and Production Company (AEEPC) Limited’s Nembe facility which they bought in apparently defective condition from Shell not so long ago. In 2014, Aiteo made an offer and acquired the OML 29 from Shell and the Nembe Creek Trunk Line for $ 2.7 billion.
With the acquisition of the 30% stake of Royal Dutch Shell Plc as well as that of Total SA of France and Eni of the minority stake of Italy in OML 29 and the Nembe Creek Trunk Line, Aiteo holds the majority stake of 45% in the two assets, for which it paid 569 million dollars for the participation of Total SA.
OML 29 includes the Nembe, Santa Barbara and Okoraba oil fields, with an average combined production of approximately 43,000 barrels per day of oil equivalent in 2014.
However, experts believe that Aiteo bought the asset at an exorbitant price and without considering the risks it would incur on them, hence the disaster of the oil spill that caught him off guard.
According to an oil and gas expert and managing director of ARISE NEWS CHANNEL, Ms. Ijeoma Nwogwugwu, Nigeria’s weak regulatory environment and the authorities’ inability to strengthen environmental and oil laws for the deactivation of abandoned wells and Aging oil installations haven’t helped matters.
She said that as a result, multinational oil companies who want to avoid spending millions of dollars on dismantling have taken advantage of the loopholes by selling their oil assets, including aging and rusting infrastructure, to local oil companies.
“Since the late 2000s, Shell, Chevron and ConocoPhillips have sold their stakes in around 20 to 25 oil blocks to local oil operators at ridiculously exorbitant prices.
“All of the acquisitions were leveraged buyouts that left several Nigerian banks with massive exposures to the oil and gas sector. Many loans have not yet been repaid to date and in several cases have contributed to an increase in non-performing loans and depreciation charges on the books of banks, ”Nwogwugwu said in a recent article.
THE N800BN JUDGMENT
Added to this, in light of the Federal High Court Owerri Division’s judgment of 800 billion naira on November 27, 2020 against Shell in favor of the Egbalor Eleme community of Rivers State, would these assets not become a other toxic acquisition?
Won’t it just offload responsibility onto hapless local investors with semi-informed offshore financial partners? Shell is in the process of selling $ 3 billion of its onshore assets in Nigeria as part of a strategic effort to move further offshore and into deep water where they will have little or no interactions with communities of homepage
The 800 billion naira judgment against SPDC and its offshore parent companies in The Hague and the UK should be a huge revelation that Nigerian courts are no longer timid in determining environmental claims.
Now is the time to warn potential investors of the toxicity of these Shell assets. And for these investments to be viable, Seplat Energy, Sahara Group, Famfa Oil, NDEP, Troilus Investments Limited and other Nigerian independents who bid for these assets must perform detailed due diligence.
They need to include clauses in acquisition agreements that release new investors from any liability in the event that claims arise from faulty or outdated pipelines and production assets, otherwise they will acquire liabilities rather than assets.