Shell’s Opaque Asset Divestment: Another Malabu in the Making?

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The Shell Petroleum Development Company (SPDC) has set aside the industry competitive bidding process it pioneered and has entered private negotiations with Heirs Holding, a company founded by business Tycoon and former CEO of the United Bank for Africa, Tony Elumelu, for Oil Mining Licenses 11 and 17 in the onshore Niger Delta for a reported $2 billion. Included in the sale are national infrastructure assets such as a natural gas-fired power plant that would be managed by Transnational Corporation of Nigeria Plc, another company run by Elumelu.

The SPDC is known to have sold a couple of prized assets in the Niger Delta in the last decade as it moves to divest its operations and move offshore. Besides Shell, other IOCs like Conoco Philips, Agip, Total, and BG have sold assets that have been purchased by local companies leading to the rise of indigenous Exploration and Production giants like Aiteo, Eroton, Newcross, Oando, Seplat, etc. “The bidding process alone has allowed these companies to develop significant technical competences and operational maturity”, a source with the Ministry of Petroleum Resources of Nigeria says.

It is however, puzzling to curious observers that Shell has not subjected this particular transaction to the open competitive bidding like their previous asset disposal. This is worrisome to industry players and experts because part of a competitive bid is major technical assessments. Emphasizing on the importance of technical adeptness of a company buying such important national asset, a senior staff of NNPC who prefers anonymity explained: “a competitive bidding round has always been our approved mode of divestment as it is not just about the commerciality. The public is often carried away by only the figures, but the technical bid is even far more important as the ability to sustain the asset is predicated on the technical competence of the bidder. As it stands, only Shell is about to win here as it will pocket the $2 billion and walk away clean from an asset that has only months to expire, leaving Nigeria to grapple with whether the asset is subsequently viable or not.”

What is Different?

There are several other examples of asset acquisition by indigenous companies from IOCs. What is different about this one? Analysts are also worried that this will start a new trend of opacity in the industry where strategic national oil assets will be disposed to companies owned by cronies, thereby compromising the asset from the outset.

Although Tony Elumelu is a seasoned business man and reputable entrepreneur, he is also the chairman of Transnational Corporation of Nigeria Plc (Transcorp), a diversified conglomerate that purchased some Federal Government assets under controversial circumstances during the regime of President Olusegun Obasanjo.

Bloomberg reports indicate that “discussions between Shell and Elumelu have been advanced at times and run into hurdles at others as he is yet to secure financing, the people said. No deal has been reached and the talks could still fall apart.”

Attempts to reach the Media Relations Manager of Shell Nigeria, Bamidele Odugbesan via his mobile phone to find out what is so different about the current deal that it hasn’t been subjected to open bidding like the others, was without success. Our correspondent has also sent an email to Shell Nigeria, asking the same questions without a response

However, sources close to Shell and industry analysts have argued that the transaction is far from closing. Shell has the right to adopt any disposal method and that the deal is subject to Ministerial approval from the Nigeria government and so should not be sensationalized at this stage.

Juicy Assets Not New to Controversy

OML 17 is a large onshore license within the NNPC/Shell JV, there are 15 oil and gas fields on OML 17, six of which are producing. Crude is exported through the Trans-Niger Pipeline to the Shell-operated Bonny oil and gas terminal. Whilst the OML 11 lies in the south eastern Niger Delta and contains 33 oil and gas fields of which eight are producing as at 2017. In terms of production it is one of the most important blocks in Nigeria.

OML 11 is not without controversy. In April 2018, the Nigerian government split the block into three parts when Shell presented its renewal application, giving Shell one portion. Shortly after, the office of the Honourable Minister of State for Petroleum Resources, Dr Ibe Kachikwu, vehemently denied allegations of links to Chevron Nigeria Limited for the resized oil block.

A group, the Ken Saro Wiwa Associates, had alleged a plot by a minister “to unilaterally transfer CNL’s interest in the Yorla Oil Field (OML 11–Ogoni Fields) to an anonymous company in which he has interest.” In a petition to President Muhammadu Buhari, the KSWA said it was an “organization with global membership committed to promoting the ideals and the consolidation of the legacies of the Ogoni hero and human rights activist, Ken Saro Wiwa and his fellow martyrs in the struggle.”

Chevron’s General Manager, Policy, Government and Public Affairs, Esimaje Brikinn, denied the allegations stating that Chevron has no equity in the block.

Is this Another Malabu?

Nigeria has been embroiled in a long-running graft case involving the 2011 purchase by Eni and Shell of Nigeria’s Oil Prospecting Licence 245, an offshore oilfield, for about $1.3bn. In 1998, OPL 245 was awarded by a former Petroleum Minister, Dan Etete, to Malabu Oil and Gas, which later sold it to Eni and Shell. The deal saw the Nigerian government act as an intermediary between the oil majors and Malabu Oil and Gas, a company allegedly controlled by Etete under conditions considered as very opaque. Italian prosecutors had earlier indicted Shell and Agip for their role.

Nine executives or contractors on the deal at the time, including Eni’s CEO, Claudio Descalzi, have been accused by Italian prosecutors of paying bribes for the estimated nine billion barrels of oil in OPL 245.

The trial of top executives from the two IOCs kicked off on May 14, 2018, with Shell and Eni strongly denying any wrongdoing. Those on trial could face lengthy jail sentences if found guilty.

What is the Rush?

Shell discovered oil in the Niger Delta in the 1950s and has maintained its “biggest producer” and strategic relevance to Nigeria ever since. In 2010, SPDC scored another first, pioneering the divestments of onshore assets in Nigeria when it announced the transfer of its 30% interest in OMLs 4, 38 and 41 to Seplat Petroleum Development Company Plc. Shell continues to maintain its bearish outlook on Nigeria ever since as it has taken over $10 Billion by a coalition of partners (including ENI and TOTAL) from asset sale in Nigeria.

Today, up to $12 billion of the portfolios of IOCs are available for divestments as many Nigerian licenses near expiration. Many of Shell’s JV licenses which expire in 2019 are expected to lead the pack. Shell would likely divest more blocks in line with its strategy to re-position its oil portfolio deep-water as it continues to battle accusations of environmental pollution.

A former Minister of State for Petroleum, Mr. Odein Ajumogobia recently speaking at an event attended by our correspondent stated that all the onshore oil blocks belonging to Shell and nine other blocks (Oil Mining Leases 18, 24, 25, 26, 29, 30, 34, 40, and 42) sold to indigenous operators by the oil giant and its partners would expire by 2019.

Some of the Divestments by Shell and its partners include:

In related events, Creststar Consortium paid initial deposit of $100 million of the $500 million bid price for OML 25 before the NNPC came forward to exercise its right of first refusal, an action being challenged in the court by the Canadian firm-backed consortium. Nigeria’s Ministry of Petroleum also recently approved the recommendation of the Department of Petroleum Resources (DPR), to revoke three Oil Mining Leases (OMLs 31, 33 and 36.) operated by Shell.

Why Shell is departing from its culture of transparently and competitively divesting its assets in bidding processes, in the sale of these two oil mining licenses, is a development that may not augur well for Nigeria as the financial beneficiary of these assets.

For months, Heirs has struggled to come up with the financing for the assets. This usually would not have been a problem if Shell had adopted its usual competitive bid as there are usually one or two reserved bidders to immediately step in when a winner is unable to meet its obligations.

Shell’s move to sell OML 11 and 17 may form a tragic legacy which undermines government’s stance on strengthening and securing the petroleum sector. Although, it is too early to determine what decision Shell will eventually take, industry analysts are clamouring for Shell to open up the bid and stop the opaqueness to avoid another Malabu.

 

To be continued

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