Monday, March 7, 2011

Shell Nears Deals With Local Bidders for Nigerian Assets


LAGOS, Nigeria—Royal Dutch Shell PLC is close to selling four of its onshore oil blocks in Nigeria to local oil producers eager to snap up Western oil majors' properties as unrest in North Africa and the Middle East boosts global crude prices.

Shell's sale of the four blocks, including one valued at over $1 billion, is expected to close within days, according to a person familiar with the matter. The sales are part of a Shell plan to reduce its footprint onshore Nigeria, where militant attacks and oil theft have slashed the company's output since 2006. The Nigerian government is also considering legislation that could make it easier to confiscate non-producing or dormant oil fields from companies.

A Shell spokesman confirmed that the four blocks were up for sale but declined further comment.

Industry executives and analysts say the sales reflect a shift by Shell to favor offshore fields over land-based projects in Nigeria. Other oil majors also are weighing sales of onshore parcels, say local oil industry executives. Those moves could speed the rise of local energy companies.

"This is the first time in Nigeria's history that you have a number of small local operators," says Soji Awogbade, a partner at the Nigerian law firm Aelex, which regularly advises on oil deals. "Six years ago there weren't any."

Locally-owned companies including Niger Delta Exploration and Production PLC, Chrome Oil Nigeria Ltd. and Seven Energy International Ltd. each are bidding on Shell parcels. Seven Energy has raised close to a $1 billion in its pursuit for new production properties.

Shell has narrowed the preferred bidders for its prized parcel to five from 18 companies. The five include Nigeria's Oando PLC, backed by Anglo-French company Perenco and Chinese-owned Addax Petroleum, and Shoreline Energy International, backed by U.K.-based Heritage Oil PLC, according to the person familiar with the matter. The identities of the other three preferred bidders could not be confirmed.

The four blocks Shell is selling are located in the western swamps of the Niger Delta. Shell is the operator of the blocks, with minority partners France's Total SA and Italy's ENI SpA. Nigeria's national oil company, NNPC, has a controlling stake in the four blocks.

"It's a portfolio rationalization," says Simbi Wabote, a general manager at Shell's Nigerian subsidiary, SPDC. "You have to ask if it's profitable to produce those wells rather than focus on the areas that are a priority, so why don't you give it to smaller companies."

A Shell parcel known as OML 30 is currently producing 45,000 barrels a day. Two of the other properties are producing an estimated 26,000 barrels a day combined and have potential for significant natural gas production, according to the person familiar with the matter. The remaining property is not currently producing oil.

If a local company buys OML 30, the transaction would thrust a local player into ranks of top Nigerian producers at a time when political turmoil in the Middle East and North Africa has pushed crude prices above $100 a barrel. Nigerian government estimates indicate that Shell's OML 30 boasts 1.4 billion barrels in reserves.

Of course, the Nigerian upstarts face financing and other difficulties. Oando recently has been forced to sell some marketing assets to raise funds to acquire new oil properties. But with Libya in turmoil sending crude prices higher, local oil companies have their best shot to date at capturing significant oil fields.

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