WoodMac values Shell Nigeria lease sale at $2.3b

. Urges proper due diligence

Global research and consultancy firm, Wood Mackenzie (WoodMac), has valued Shell Nigeria 30% equity in the sale of 19 Oil Mining Leases (OMLs) at $2.3 billion.

Last month, the Anglo-Dutch oil giant had hired Standard Chartered to sell its Shell Petroleum Development Company of Nigeria Limited (SPDC), as it launched a major divestment of its Nigerian assets.

Shell quietly began divestment of its shallow-water and onshore subsidiary assets, because it no longer views its activities in the Niger Delta as core to its ongoing strategy, which is driven by the environment, social and governance (ESG) pressure from its investors, calling for transition to cleaner and renewable fuels.

Pronouncing the valuation in a comment posted on its website, Research Director, Sub-Sahara Africa upstream, Wood Mackenzie, Gail Anderson, said the current valuation of Shell’s 30% in the joint venture (JV) at a $50 long-term oil price does not include the export pipelines and terminals.

Wood Mackenzie, a Verisk business (build once, sell many times), considers only 20% of the JV resources to be currently commercial due to a lack of investment, crude theft, insecurity and gas market constraints.

She said: “But this (valuation) is based on the current sub-optimal, business-as-usual investment profile under existing fiscal terms,”

Due diligence

Anderson also called for proper due diligence in the face of scarce funding from international financiers to avoid the experiences in the past where investors paid premium prices in the hope of becoming lease operators.

“There is considerable value upside across the joint venture assets, which bidders will need to carefully evaluate and quantify.”

 “A competent buyer/operator, giving priority to the assets, could commercialise much more than 20% of the resource base. However, the availability of funding for the joint venture partners will, as ever, dictate how much.”

She added: “Importantly, the recently passed Petroleum Industry Bill (PIB), which has still to be signed into law, will offer materially lower royalties and taxes for oil.”

Indeed, the Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Mele Kyari, at an international conference of the Society of Petroleum Engineers (SPE), Nigerian Council in Lagos, had also sounded a note of warning to prospective investors.

There is considerable value upside across the joint venture assets, which bidders will need to carefully evaluate and quantify.

Kyari noted that while the senior member in the JV ventures cannot stop partners from divesting their interest, it made “clear distinctions between divestment of shares and Operatorship Agreements, while leveraging its right of pre-emption as well as evaluating the operational competence and track records of new partners.”

Experts believe the valuation will ultimately be derived from different views on the separate assets – the shallow-water fields, the onshore fields and the infrastructure, for which there could be separate buyers.

Alternatively, Shell may sell portions of equity in the whole of SPDC to different consortia of buyers. Either way, buyers will need to have a local Nigerian element, they said.

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