Shell said Tuesday it has agreed to sell its onshore oil and gas operations in Nigeria to a group controlled by local companies for $1.3 billion.
The deal is an effort to reduce risk by Europe's largest energy company, which is Africa's biggest oil producer. Nigeria has long been a base for Shell, but it is also the source of a negative legal and environmental legacy.
Specifically, Shell announced that it would sell its subsidiary in Nigeria. The subsidiary owns a 30% stake in a joint venture that operates a vast labyrinth of wells, pipelines and other facilities in the wet Niger Delta. Other partners in the joint venture include Nigeria's National Oil Company, which holds a 55% stake, and France's Total Energies.
Shell will continue its offshore energy drilling and liquefied natural gas operations in Nigeria.
Shell has long been considered Nigeria's most important energy producer, so its intention to sell the long-standing business could further cast doubt on the country's future as an oil and gas producer.
Nigeria's oil production has fallen by about 40% over the past decade due to lack of investment and management problems. Reflecting this slowdown, OPEC in November cut Nigeria's production quota by about 200,000 barrels per day to 1.5 million barrels per day.
Shell's director of production, Zoe Yujinovich, said the company's aim was to “simplify our portfolio”. He also said in a statement that Shell wants to focus its future investments in Nigeria on offshore drilling and liquefied natural gas operations, in which Shell is a global leader.
Offshore operations are also much easier to protect from piracy and other problems that plague Nigeria's oil production.
Shell's onshore oil operations in Nigeria date back more than 60 years. Once a promising and productive part of Shell's business, it also sparked a series of lawsuits over oil spills and harm to local residents.
The move raises questions about whether the company is trying to avoid future liability for past actions.
“They are selling off their aging infrastructure to local companies and leaving communities in a state of environmental disaster,” said a London-based law firm that has represented the Nigerian community in its lawsuit against Shell. said Daniel Rieder, partner at Leigh Day.
Shell said the buyer would be “accountable” for its share of Shell subsidiaries' “commitments” and “remediation” of past spills.
The potential buyer for Shell's business is a consortium called Renaissance Africa Energy. It is made up of four Nigerian companies and one small international company. The buyer will be the operator or manager of the joint venture.
This transaction appears to be unusually complex. Shell is expected to receive $1.3 billion, but said it could receive an additional payment of up to $1.1 billion. The book value of the Nigerian subsidiary was estimated at $2.8 billion. The Company will provide up to $2.5 billion in loans and other financing to assist the buyer in financing and strengthen the joint venture's continued operations.