Shell announced on Monday 18 December that it has reached a final investment decision (FDI) to invest $5 billion in developing the Bonga North Deepwater Project, an asset located about 130 kilometres offshore in Oil Mining Lease (OML) 118. The following Wednesday, it was announced that Nigeria has approved Shell’s $2.4 billion sale of its onshore assets to a Nigerian consortium, Renaissance Group, a consortium of Nigerian oil companies and investors.
The deal was concluded in January 2024 but the regulator, the Nigerian Upstream Regulatory Commission (NUPRC) objected to the sale in October, raising questions about Nigeria’s seriousness to attract investment into its oil sector and economy after a spate of high-profile divestment.
It has been revealed that Shell conditioned its on Bonga on approval of the onshore assets deal with Renaissance, forcing the hands of Nigerian authorities. essentially. Essentially, the Nigerian President and his advisers were forced to over ride the objections of NUPRC. The Shell assets that Renaissance Group is acquiring hold an estimated 6.73 billion barrels of oil and condensate, and 56.27 trillion cubic feet of gas.
NUPRC’s Objections to the Shell-Renaissance Deal
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in October rejected Shell’s sale of its onshore assets to the Renaissance Group, citing the consortium’s lack of technical capacity to manage and exploit the assets and also expressing doubts over its capacity to raise the required financing. The Renaissance consortium comprises five companies- ND Western, Aradel Energy, First E&P, Waltersmith, and Petrolin. Many of the managers and investors had long careers in Shell.
The Shell onshore assets comprise 15 onshore leases and three shallow water fields in Nigeria’s Niger Delta region. Its onshore infrastructure includes four gas processing plants and two oil export terminals that are used for the processing and export of hydrocarbons. Shell also boasts an extensive network of pipelines, mainly the Nembe Creek Trunk Line, a 97-kilometer pipeline with the capacity to handle 150,000 barrels per day, that transports crude oil to export terminals.
The divestment aligns with aligns with Shell’s decision to shift its Nigerian operations to deepwater and integrated gas projects. It is also a result of challenges in the Niger Delta, especially environmental damage from oil spills which are significantly linked to the activities of militants and oil thieves who damage pipelines. The NUPRC also cited the lack of comprehensive plans addressing environmental remediation and the management of existing liabilities associated with the assets as reasons for blocking the asset sale deal with Renaissance Group. The $2.4 billion deal actually values the assets Renaissance is acquiring at $1.3 billion and sets aside $1.1 billion for settling potential liabilities that may arise.
Investors and oil industry sources saw the delay in announcing NUPRC’s decision and the eventual rejection of the Shell-Renaissance Group deal as harmful to Nigeria’s quest to attract investment. Due to the prolonged delay in the signing of the Petrol Industry Act in 2021, Nigeria’s oil and gas sector experienced a notable decline in Final Investment Decisions (FIDs). There was virtually no project commitment from the international oil companies in the last 12 years, a situation that is mainly responsible for Nigeria’s current low production figures (and partly for the scarcity of foreign exchange).
A Nigerian oil industry executive who spoke to Arbiterz referred to the two-year delay in approving Seplat Energy’s $1.28 billion acquisition of ExxonMobil’s onshore Nigerian assets, finalized in October 2024 to illustrate the cost Nigeria would have suffered from further delaying approval of the Shell-Renaissance deal.
The executive estimates that the delay in approval the Seplat acquisition has cost Nigeria at least $8 billion in potential investments and has deferred oil production from these assets by approximately four years, impacting export revenues. He sees no justification behind the delays to approve oil sector asset sales which are critical to Nigeria’s oil sector and the broader economy beyond the “usual Nigerian regulatory rascality”.
Nigeria Oil Industry May be Turning the Corner
NNPC Limited and TotalEnergies reached a Final Investment Decision (FID) on the Ubeta Field Development Project in June 2024, committing $550 million to develop the Ubeta gas condensate field in Oil Mining Lease (OML) 58. Ubeta will produce about 300 million standard cubic feet of gas per day from 2027.
These developments indicate a positive shift in Nigeria’s oil industry, attracting significant foreign investment and potentially enhancing the country’s energy production capabilities.
Likely Impact on Nigerian Upstream Petroleum Regulatory Commission’s Decisions
Shell has exploited Nigeria’s need for investment to drive a hard bargain. The override of NUPRC’s objections to the sale of its onshore assets by higher authorities suggests that NUPRC may need to adopt a more flexible and collaborative approach in future asset sale approvals and similar regulatory decisions. By aligning regulatory oversight with the strategic economic objectives of Nigeria’s oil and gas sector, NUPRC can facilitate a more conducive environment for investment.
