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Nigeria’s PIB may to be too late to help buyers of Shell assets

By David Whitehouse
Posted on Thursday, 19 August 2021 13:31, updated on Monday, 13 September 2021 20:38

REUTERS/Rick Wilking.

The signature of Nigeria’s Petroleum Industry Bill (PIB) by President Muhammadu Buhari may be too little, too late to help Royal Dutch Shell achieve best prices for its assets as it seeks to exit, analysts say.

Buhari finally signed the bill, first introduced in 2008, into law on August 16.

The bill reduces taxes and royalty payments and exempts deep offshore oil and gas production from some taxes. Shell is selling the joint venture licences held by the Shell Petroleum Development Company (SPDC) in Nigeria, which includes a 30% stake in 19 oil mining leases. The company has called for expressions of interest by September 10.

The oil major is under legal and investor pressure to align its strategy with the Paris climate accords. In May, a court in The Hague ordered Shell to reduce its worldwide CO2 emissions by 45% by 2030 versus 2019, a ruling which the company is appealing.  Shell’s current aim of reducing carbon emissions by 20%  by 2030 is “clearly insufficient,” says Harry Granqvist, senior ESG analyst at Nordea Asset Management.

Shell says that its oil production peaked in 2019 and its output will decline by 1-2% a year, including divestments, until 2030. At Shell’s last shareholders’ meeting, Nordea voted for a motion which sought to push the company to align its strategy with the Paris accords. The resolution was not adopted, but the fact that it was supported by over 30% of voting rights sent a ”clear signal” to the company, Granqvist says.

Gail Anderson, research director at Wood Mackenzie and a specialist in Nigerian oil and gas, questions who will want to buy high-cost, emissions-intensive assets in the Niger Delta. It will be “extremely hard” for Shell to shift all the licenses in the current environment, she says.

  • Anderson values Shell’s 30% interest in the Nigeria licenses at $2.3bn.
  • Wood Mackenzie says that only 20% of the joint venture resources are currently commercial due to a lack of investment, crude theft and insecurity.
  • A competent buyer giving priority to the assets could commercialise much more than 20%, a note from Anderson says. “However, the availability of funding for the joint venture partners will, as ever, dictate how much.”

Weak Buying Power

Research from Janet Ogunkoya, senior oil and gas analyst at Tellimer in Lagos, shows that daily oil production in Nigeria has dropped below the levels of 2020, and even below the rate during the 2016-2017 militant attacks on energy facilities.

Local independent oil producers are the most likely bidders for Shell’s assets, and the improved fiscal terms in the PIB strengthen the case for investing in the assets, she says. But local producers “do not have very robust balance sheets” so “there might be some discounting to take into account the relatively weak buying power.”

  • “For the local producers getting financing to secure these assets would be a huge challenge,” she says.
  • Indications from Shell that some of its Nigerian leases have upcoming development costs “could warrant further discounting”, she says.
  • Ogunkoya points to local oil producer Seplat as a possible beneficiary of the pressures facing Shell.

Bottom Line

ESG pressures on Shell mean that lowball bids are the rational strategy for potential buyers.

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