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Nigeria confirms it is in talks with Shell over sale of onshore oil assets

Highlights

Nigerian onshore portfolio is incompatible with current strategy: Shell CEO

Ministry considering transferring Shell's stakes to local, foreign companies

Significant divestment of oil and gas assets expected in Africa

Lagos — Nigerian oil minister Timipre Sylva confirmed on May 19 that the government is in talks with Shell over sale of the company's stakes in Nigeria's onshore oil assets.

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"The federal government is in consultation with the Shell on its divestment plan, although some actually feel that Shell should not hurriedly divest," the minister said in a statement.

Shell is Nigeria's biggest oil producer, accounting for around 40% of the West African country's total crude and condensate output capacity of 2.2 million b/d, and the divestment could have a big impact on the OPEC member's oil output.

The minister's statement comes a day after Shell CEO Ben van Beurden had told investors that the company's onshore oil portfolio in Nigeria was "no longer compatible" with its strategic ambitions, which include a focus on climate change and net zero carbon strategy.

"We have been reviewing positions that continue to be challenged from an environmental perspective, and a particular point of attention has been onshore oil in Nigeria... we have reduced the total number of licenses in onshore Nigeria by half. But unfortunately, our remaining onshore operations continue to be subject to sabotage and theft," Van Beurden said at the Shell AGM on May 18. "... it means that the balance of risks and rewards associated with our onshore oil portfolio in Nigeria is no longer compatible with our strategic ambitions."

Van Beurden, however, said Nigeria will continue to be an important heartland for Shell, with a focus on the country's deepwater and gas assets.

Sylva said options put forward by Nigeria in its talks with Shell include handing over Shell's stakes in the assets to the Nigerian Petroleum Development Co., the upstream arm of state oil firm Nigerian National Petroleum Co., or NNPC, inviting bids from Nigerian indigenous producers, or having a mixture of local firms and foreign independent producers to bid for the assets.

With significant oil and gas reserves, Africa is expected to see a significant divestment of legacy oil and gas assets, as more energy companies pledge net-zero ambitions.

Security, regulatory risk

The company has already sold a handful of its onshore oil blocks over the past 10 years, citing the need to cut risk due to community unrest and continued sabotage attacks on its oil installations. These blocks had been snapped up by Nigerian indigenous operators including Seplat Petroleum, Aiteo E&P, First Hydrocarbons and NPDC.

Local analysts said apart from the associated risk of unrest and insecurity in the Niger Delta, the failure of the Nigerian government to pass into law the landmark energy legislation -- the Petroleum Industry Bill (PIB) -- was also a key factor pushing Shell away from the country.

"These onshore blocks in question are owned jointly with NNPC, and with uncertainty still hovering on the terms and conditions that Shell will continue to operate the fields, it is no surprising the company has decided to take a walk," energy analyst Abiodun Adesanya said.

This key legislation, which is meant to completely overhaul the Nigerian oil industry and provide new fiscal incentives to producers, has been in the works for more than a decade.

Hopes were raised that the PIB would be passed by the parliament by the first quarter of 2021, but this did not materialize.

Sylva said the executive arm of the government was in talks with lawmakers to ensure the passage of the PIB by June this year.

On May 18, Nigerian Vice President Yemi Osinbajo said the PIB was in its third reading, or final stages, after which it would be passed.

"We are trying to make our oil and gas industry more competitive," he said at the Columbia Global Energy Summit,

Nigeria, Africa's largest oil producer, has seen its output fall sharply since early 2020 due to the oil price crash amid the coronavirus pandemic and as it came under pressure to adhere to OPEC+ output cuts.

Nigerian crude oil and condensate production averaged as low as 1.65 million b/d for the first four months of this year, compared with 1.75 million b/d and 1.90 million b/d in 2020 and 2019, respectively, according to S&P Global Platts estimates.

The OPEC member is also very keen to grow its gas resources as oil export revenues continue to taper.