Tired of Conflict and Instability, Shell Looks to Sell Nigerian Assets
Trying to put out Nigeria’s fires: a burning oil pipeline. (image: smh.com.au)
Sources indicate that Shell is looking to unload its onshore Nigerian assets, the Energy Business Review reports Monday. It appears Shell is looking to sell its interest in oil fields with reserves of 100 billion barrels, valued at $5 billion. Possible buyers include Chinese oil companies Sinopec and China National Offshore Oil Corporation.
The sale appears to be motivated by political and security concerns:
• Political: the Nigerian government seems to be seeking greater control over Western oil development within its borders, as well increasing the amount paid by foreign oil companies to Nigeria
• Security: Shell’s operations have been hit hard by insurgent attacks since 2006, including a recent dramatic attack on a pipeline operated by Shell and Chevron, breaking a recent cease-fire. According to reports, the company will seek to retain offshore Nigerian assets, since (1) the economic terms are more generous, and (2) they are much less vulnerable to insurgent attack.
It may not be easy for Shell to extract itself from Nigeria, however. Nigeria’s Oil Minister, Rilwanu Lukman, has stated that Shell’s assets are “not theirs to sell…[t]hey’re holding concessions given them by the government,” and hence would need government permission for any transfer of ownership. If so, even if this does not derail a sale, the Nigerian government could use its leverage to steer the sale to a buyer of their choice—such as Nigerian company Oando—and/or to extract other concessions.
If Shell does sell its land-based Nigerian assets, it will represent a considerable reversal of the company’s activities in the region. Shell, the largest and longest-standing Western oil company in Nigeria, produced 18 percent of its oil from the country in 2008. And Nigeria, with more than 36 billion barrels of proven oil reserves, is too large a supplier to be lightly ignored by any major energy players.
However, amid a general climate of oil oversupply and decreased demand, when Shell (like other energy companies) is reviewing its operations with an eye towards decreasing costs and risk while increasing margin, it only makes sense to investigate shedding assets in violence-torn, politically unstable countries. It doesn’t matter how much oil there is if you can’t get at it safely, or have to pay an exorbitant price for the privilege of producing it.
Another Oil Pipeline Attack Threatens Cease Fire in Nigeria | HeatingOil.com says: says:
[...] responsibility for a similar attack in late December. Two days later Shell, a target of the attack, looked to unload its Nigerian assets. Among other political reasons, Shell appears to be tired of the unyielding conflict in the [...]