Shell Asset Sale Announcement Expected

Published at 12:20PM - 14/08/14

Shell is preparing to make a major announcement about a sale within part of its Nigerian business of four onshore oil blocks. The particulars of the sales and purchase legalities are now being concluded in preparation for the transfer.

Two blocks are likely to be bought by SPDC, its joint venture in Nigeria. (SPDC is a partnership between Eni, Total, Shell and the UK government.) The buyers are now in the process of providing their funding, according to industry sources currently involved in the deal.

If this stage of the process is successfully completed, the only remaining stage will be to obtain government approval of the deal. At this point, SPDC will be able to make a formal announcement of the sale, and this is expected imminently.

Further updates on the Nembe Creek pipeline progressing in tandem are yet to be released.

The sale of the assets is expected to be worth $2 billion or more, and these are part of a package of disinvestments by Shell over the next two years. The total programme of asset disposals is expected to reach around $9 billion in value. The announcement comes as Ben van Beurden, Shell’s CEO, delivers his commitment on better cost management and focuses operational activity on the best-performing assets and projects.

Shell’s share price dropped on release of the latest news by 23p (at 2376p). Its Nigerian offshore assets are viewed as being prized development grounds. However, the business’s onshore operation has been affected by a series of oil spills, which has damaged the company’s reputation along with its finances, thanks to complex clean-up activities.

These spills are primarily the direct result of thievery, as gangs tap into oil pipelines in a process called ‘bunkering’. Shell has said that it is working to make progress on rapid spill clean-ups and is also on the brink of solving the theft problems. However, critics remain unconvinced on both counts.

The ongoing problems apparently hastened Shell’s decision to divest these oil blocks in Nigeria. A spokesman for SPDC said that the JV had already signed agreements for a number of the oil leases.

Shell has also begun the staff consultation process with employees who are likely to be affected by the sale, but it has stated that it will continue to maintain a ‘significant’ presence in UK gas and oil.

Nigeria’s government is keen to encourage indigenous businesses to increase their ownership on a greater scale, and analysts believe that their local networks and smaller operations would be less likely to attract bunkering issues. A rise in the number of small exploration companies has seen rapid growth in bids, with over one hundred early-stage offers received by Shell earlier this year.

Talveras and Aiteo, both Nigerian oil traders, are believed to have been successful in securing OML 29, the biggest block, seeing off local competitors, Seplat Petroleum, which was listed on the LSE in early 2014.

Glencore, the Swiss commodities giant, also expressed early interest about moving into Nigerian oil, but they later exited the race. Currently, 30pc of the oil blocks are owned by Shell, with SPDC, Eni and Total owning 5pc and 10pc respectively. The majority stake is held by Nigeria’s government.

Last updated on 08:53PM - 15/08/14