By Macson Obojemuinmoin, in Lagos
UK supermajor Shell Plc has reached an agreement to sell its Nigerian onshore subsidiary The Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance, a consortium of five companies comprising four exploration and production companies based in Nigeria and an international energy group.
Renaissance comprises of ND Western, Aradel Energy, First E&P, Waltersmith and Petrolin.
The sale involves the major’s 30% stake in Oil Mining Leases (OMLs) 20, 21, 22, 23, 25, 27, 28, 31, 32, 33, 35 36, 43, 45 and 46, all onshore, and OMLs 74, 77& 79, all in shallow water.
The consideration payable to Shell as part of the transaction is $1.3Billion. Renaissance is expected to make additional cash payments to Shell of up to $1.1Billion, primarily relating to prior receivables and cash balances in the business, with the majority expected to be paid at completion of the transaction.
It has been a drawn-out process, Four Nigerian companies (Seplat, Heirs Oil & Gas, Sahara Energy and NDWestern) were in the running as of end of 2021, when Shell asked parties interested to put in firm bids by mid-January 2022. As of June 2023, only two entities: the Rennaisance Consortium and the Heirs Oil & Gas/Tullow Oil Consortium remained in contention.
The latter had dropped out of the race by October 2023, but Shell had been reticent about the dealmaking.
“Completion of the transaction is subject to approvals by the Federal Government of Nigeria and other conditions”, Shell announced in the release.
The company also allowed that the transaction “has been designed to preserve the full range of SPDC’s operating capabilities following the change of ownership. This includes the technical expertise, management systems and processes that SPDC implements on behalf of all the companies in the SPDC Joint Venture (SPDC JV)*. SPDC’s staff will continue to be employed by the company as it transitions to new ownership”.
Shell declares that it will remain a major investor in Nigeria’s energy sector through its Deepwater and Integrated Gas businesses
“Following completion, Shell will retain a role in supporting the management of SPDC JV facilities that supply a major portion of the feed gas to Nigeria LNG (NLNG), to help Nigeria achieve maximum value from NLNG”.
Shell explains that the transaction amounts “will be adjusted to reflect any shareholder distributions, above $200Million, made prior to completion. Other contingent payments, including those related to gas supply to NLNG, may become payable depending on business performance and fluctuation of product prices.
The company also says that “the net book value of the entity subject to this transaction is approximately $2.8Billion as at December 31, 2023.
“Under the agreed deal structure, economic performance accrues to the buyer with effect from December 31, 2021 (the effective date). However, Shell will continue to consolidate SPDC until control transfers at completion. Although any amounts will depend on the future financial performance of the business, we expect to recognise impairments in respect of the business up to the date of completion, including to the extent that the net book value of SPDC exceeds the expected consideration at completion”.
- At closing, Shell will provide secured term loans of up to $1.2Billion, to cover a variety of funding requirements.
- Shell is providing additional financing of up to $1.3Billion over future years to fund SPDC’s share of the development of the SPDC JV’s gas resources to supply feedgas to NLNG, and its share of specific decommissioning and restoration costs. This additional financing will only be drawn down when these costs are approved and incurred by the SPDC JV.
- Shell has three other main businesses in Nigeria that are outside the scope of this transaction:
- Shell Nigeria Exploration and Production Company Limited (SNEPCo), which produces oil and gas in the deepwater Gulf of Guinea;
- Shell Nigeria Gas Limited (SNG), which provides gas to domestic industrial and commercial customers; and
- Daystar Power Group, which provides integrated solar power to commercial and industrial business across West Africa.
- In addition, Shell holds a 25.6% interest in NLNG, which produces and exports LNG to global markets. Shell’s interest in NLNG is also outside the scope of this transaction.