Deal marks end of era as Shell exits operational involvement after 70 years
Oil giant Royal Dutch Shell has struck a landmark $2.4 billion deal to sell its stake in a joint venture that operates tens of thousands of oil wells in the Niger Delta region of Nigeria.
The sale, announced early Tuesday, marks the end of an era for Shell in Nigeria after more than 70 years of operations. Shell has faced mounting criticism over oil spills and other environmental damage linked to its Nigerian operations over the decades.
Shell agreed to sell its 30% stake in the Shell Petroleum Development Company of Nigeria Ltd (SPDC) to a Nigerian consortium called Niger Delta Exploration and Production. The consortium is led by domestic energy firm Shoreline Natural Resources Ltd.
Years of negotiations culminate in deal
The deal, valued at $1.8 billion initial payment plus another $600 million to be paid later, ends years of on-again, off-again talks between Shell and the Nigerian government over the assets.
As recently as last year, Shell had denied reports it was actively seeking to sell the stake. But behind the scenes, negotiations gained momentum in recent months, culminating in Tuesday’s announcement.
In a statement, Shell said its Nigeria country chair Peter Costello would continue serving in an advisory role to help ensure a smooth transition of operations and decommissioning activities.
Move allows Shell to focus on offshore and gas
By selling out of Nigeria’s challenging onshore oil operations, Shell will be able to focus more resources on expanding its offshore oil production and key liquefied natural gas (LNG) assets in the country, analysts say.
“This deal aligns with Shell’s strategy to focus its upstream business on nine core positions globally, including deep water and LNG in Nigeria,” said Avinash Persaud, an industry analyst at energy consultancy Wood Mackenzie.
Shell built the first LNG plant in Nigeria in 1999 and has extensive offshore deepwater operations which tap into some of Africa’s largest oil fields.
The regions where Shell retains assets accounted for around 97% of the company’s oil production in Nigeria last year. The onshore fields set to be sold to Niger Delta E&P made up just 3% of Shell’s total 2022 output.
Years of spills and unrest in Niger Delta
Shell’s onshore oil operations in the Niger Delta have faced security issues, pipeline attacks from militants, and widespread unrest going back decades in the impoverished region.
The company has also been mired in legal battles over oil spills in Ogoniland, part the Niger Delta. A Dutch court ordered Shell’s Nigerian subsidiary to pay compensation over leaks in two villages, although the amount has not yet been determined.
By selling the stakes in the SPDC joint venture, Shell transfers operatorship and a share of clean-up responsibilities to Niger Delta E&P.
|Type of Incident
|SPDC-Recorded Number of Incidents (2015-2020)
|Sabotage and Theft Incidents
Table showing number of oil spills linked to Shell’s Nigerian operations recorded from 2015-2020, split between operational causes and sabotage/theft. Data source: Shell Sustainability Report 2020
Shell has argued that many spills are caused by pipeline sabotage or attempted theft rather than operational failures. But environmental groups counter that Shell’s infrastructure is outdated and prone to leaks regardless of cause.
Sale helps Shell pivot towards clean energy
More broadly, Shell has been selling oil assets around the world to help finance its pivot towards clean energy and low-carbon operations aligned with net zero emissions targets.
The sale announced Tuesday is Shell’s first major divestment in Nigeria, but similar sales could still be on the horizon.
“This deal represents the first step in a possible broader program of divestments in Nigeria for Shell as it looks to rebalance its portfolio in line with its target to be net zero by 2050,” Persaud said.
Selling mature oil assets allows Shell to channel billions of dollars into areas like electric vehicle charging, hydrogen, biofuels and wind a solar power instead.
So while the Nigerian sale marks the closing of a chapter for Shell, it also opens new opportunities for Shell to redeploy capital into the energy transition.
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