Implications of Shell divestment from Nigeria’s oil business – Experts

ANALYSTS have said that SHELL’s exit from the Nigerian onshore oil business will attract varying consequences for indigenous firms and the country’s foreign exchange market.

On Tuesday, January 16, Shell Plc disclosed its consent to sell its Nigerian onshore oil and gas subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC), to a consortium of local companies for up to $2.4 billion.

A Bloomberg report says the British multinational company will sell its SPDC for a consideration of $1.3 billion. At the same time, the buyers will pay up to $1.1 billion for prior receivables at completion.

“This agreement marks an important milestone for Shell in Nigeria, aligning with our previously announced intent to exit onshore oil production in the Niger Delta, simplifying our portfolio and focusing future disciplined investment in Nigeria on our Deepwater and Integrated Gas positions,” Shell Head of Upstream, Zoë Yujnovich, was quoted to have said.

The buyers, Renaissance Africa Energy, made up of a consortium consisting of ND Western Limited, Aradel Holdings Plc, the Petrolin Group, First Exploration and Petroleum Development Company Limited, and the Waltersmith Group, had in a statement on Tuesday confirmed the acquisition of Shell SPDC.

“The completion of the transaction is subject to the requisite regulatory approvals,” Renaissance Africa stated.

Sharing his thoughts on the development, an economist, Kalu Aja, said, “Shell leaving onshore Nigeria is bad.”

Aja tweeted this on his X handle, explaining that onshore or offshore was not what investors read, but that what they read was “Shell is leaving the largest oil exporter in Africa; things must be bad for investors in Nigeria.”

He said Shell or any multinational operating in a country attracts others, which is all about branding and national pride.

That said, Shell lost a case in the Netherlands, and they were asked to “reduce” their oil footprint; Nigeria’s onshore divestment is their response, Aja said, lamenting that open stealing of oil onshore was a significant factor in Nigeria.

On his part, the Head of Financial Institutions rating at Agusto&Co, Ayokunle Olubunmi, told The ICIR that divesting the international oil company (IOC) to the Nigerian indigenous firms could come in the form of a two-edged sword.

It could relieve key technical competence areas in the oil and gas operations to Nigerians as there are specialised positions the IOCs reserve for expatriates and have never been occupied by Nigerians, Olubunmi said.

“It is important to us to be able to handle our oil and gas assets,” he added.

According to him, whatever profit the indigenous firms make will be retained in Nigeria, stressing that it could improve the stock market’s performance if the companies are listed on the country’s stock exchange.

“We can see it from Seplat Energy, which is listed on the Nigerian stock exchange. The company has helped significantly in the stock exchange. For instance, Nigerians that want to hedge against the naira buy Seplat’s shares because the company pays even its dividends in dollars,” Olubunmi said.

In contrast, he said the major downside to the divestment would be the capital requirements to finance, explore and even optimise the oil fields, as investments in oil and gas are capital-intensive.

“That is why all those IOCs have contacts with banks and financial institutions worldwide that provide funding for their operations. These funds are dollarised as all the equipment and other items needed for operations are sourced in dollars.

“So, it is likely going to be difficult for the local firms to be able to raise the dollar amounts to explore the oil fields and maximise them,” Olubunmi said.






     

     

    Commenting on how the divestment could impact foreign exchange in the economy, he added, “I do not think the impact will be that much. The acquisition will not affect the firm’s operations directly but indirectly because when we realised that many banks are shying away from dollar notes and cutting down on Euro-bonds exposures.

    “The ability of the banks to adequately finance oil and offshore operations has reduced. That is to say that banks’ appetite toward dollar exposure has reduced.”

    In their statement on Tuesday, Renaissance Africa said the acquisition marked a significant milestone, establishing its strategic position in the Nigerian market.

    Renaissance Africa is “committed to ensuring a smooth transition and looks forward to leveraging its expertise, in partnership with SPDC’s industry-leading staff and working in partnership with all the stakeholders in the SPDC-JV to drive continued growth and success in Nigeria and beyond,” the consortium added.

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