/ 28 March 2011

Shell Nigeria oil sales face tricky final hurdles

Royal Dutch Shell has shortlisted bidders for the four Nigerian onshore oil blocks it has put up for sale but financing challenges and negotiations with state-oil company NNPC could yet undo best laid plans.

India’s Essar Energy said this week it was unsuccessful in its bid for Shell’s Niger Delta assets, which are widely understood to be blocks 30, 34, 40 and 42.

These zones all have sizeable reserves and have attracted bids of over $1-billion, sources close to the deals have said. Shell has declined to comment.

“We are out of the race,” said Andrew Turpin, head of media relations at energy and power firm Essar Energy. “We bid at a level for blocks that we felt was economic and good value but clearly other people bid higher.”

Shell owns the majority stake in the blocks but is partnered by Total, Eni and state-oil firm NNPC. The French and Italian majors could also sell their shares.

No one is definitely out
Independent commodity trader Elan Oil is favourite to win block 40, the smallest asset, while consortiums involving local players Oando, Niger Delta Ltd and Conoil are all in the mix for other blocks, sources said. British-listed bank Standard Chartered was backing Conoil’s bid, they said.

United Kingdom-registered Afren and African-based Shoreline Energy are still in the late stages of bidding.

Local Nigerian firm Seven Energy, who bid in partnership with oil services firm Petrofac, didn’t make Shell’s shortlist, sources said. Both companies declined to comment.

But analysts said no one should be counted out of the race in a process which could have more twists and turns.

“You can’t really say anyone is definitely out,” said Philippe Vasset, analyst at Africa Energy Intelligence.

“Financing could be a major stumbling block … NNPC will have to sign off on the deals which could be a problem … companies could be invited back in,” Vasset said.

Nigeria’s oil and gas industry is an uncertain investment environment because wide-ranging energy reforms, years in the making, are stuck in Parliament and will not pass before nationwide elections which start in a week.

The Petroleum Industry Bill aims to re-write Nigeria’s relationships with its oil partners, alter fiscal terms and re-structure state-oil firm NNPC, leaving any financier having to make decisions based on an investment environment which is likely to change when the reforms are passed into law.

Even once terms are agreed and financing is secure, any deal will have to be signed off by Nigeria’s state-oil company NNPC, a firm which has a chequered history with its partners.

Shell has more onshore oil reserves in Nigeria than any other foreign oil company but it has also suffered some of the toughest challenges working in the vast and volatile wetlands of the Niger Delta, the heart of Africa’s largest energy industry.

Sabotage attacks on pipelines and oil platforms by militants who say they are fighting for a fairer share of the wealth created in their back yard, have cut out large chunks of Shell’s output in the past, some of which will never be restored.

Communities in the Niger Delta blame Shell for years of oil leaks, gas flaring and other side effects from an energy business from which they benefit little. Shell was forced to abandon its oilfields in Ogoniland in 1993 due to protests over pollution and a lack of investment in local infrastructure.

Shell has said it views Nigeria as a key part of its business and the sale of these assets, which make up a small portion of its operations in the country, is not the beginning of a wider departure from Africa’s most populous nation. — Reuters