Shell offloads its Nigerian onshore business to focus on deepwater and integrated gas

UK-headquartered energy giant Shell has made arrangements to sell its Nigerian onshore subsidiary, the Shell Petroleum Development Company of Nigeria Limited (SPDC), to Renaissance, a consortium of five companies – ND Western, Aradel Energy, First E&P, Waltersmith, and Petrolin – comprising four exploration and production firms based in Nigeria. The net book value of the entity subject to the sale process is around $2.8 billion. Following the divestment, the oil major plans to turn all its attention to deepwater and integrated gas businesses in this African country.

According to Shell, the sale process was designed to preserve the full range of SPDC’s operating capabilities following the change of ownership, including the technical expertise, management systems, and processes that the oil major’s subsidiary implements on behalf of all the companies in the SPDC joint venture (SPDC JV). The existing staff will continue to be employed by the company as it transitions to new ownership. 

Upon 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 the country achieve maximum value from NLNG. The completion of the sale of the UK player’s Nigerian onshore subsidiary is subject to approvals by the Federal government of Nigeria and other conditions.

Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, commented: “This agreement marks an important milestone for Shell in Nigeria, aligning with our previously announced intent to exit onshore oil production in the Niger Delta, simplifying our portfolio and focusing future disciplined investment in Nigeria on our deepwater and integrated gas positions. It is a significant moment for SPDC, whose people have built it into a high-quality business over many years.

“Now, after decades as a pioneer in Nigeria’s energy sector, SPDC will move to its next chapter under the ownership of an experienced, ambitious Nigerian-led consortium. Shell sees a bright future in Nigeria with a positive investment outlook for its energy sector. We will continue to support the country’s growing energy needs and export ambitions in areas aligned with our strategy.” 

Furthermore, SPDC JV holds 15 oil mining leases for petroleum operations onshore and three for petroleum operations in shallow water in Nigeria, operated by SPDC. While the consideration payable to Shell as part of the transaction is $1.3 billion, Renaissance will make additional cash payments to the oil major of up to $1.1 billion, primarily relating to prior receivables and cash balances in the business, with the majority expected to be paid at completion of the transaction.

This will be adjusted to reflect any shareholder distributions above $200 million made before completion. Shell explains that other contingent payments, including those related to gas supply to NLNG, may become payable depending on business performance and fluctuation of product prices. At closing, the UK giant will provide secured term loans of up to $1.2 billion to cover a variety of funding requirements.

Moreover, Shell is providing additional financing of up to $1.3 billion over future years to fund SPDC’s share of the development of the SPDC JV’s gas resources to supply feed gas to NLNG, and its share of specific decommissioning and restoration costs, which will only be drawn down when these costs are approved and incurred by the SPDC JV.

The UK oil major’s three other main businesses in Nigeria, which are not part of this transaction, encompass Shell Nigeria Exploration and Production Company Limited (SNEPCo), which produces oil and gas in the deepwater Gulf of Guinea; Shell Nigeria Gas Limited (SNG), providing gas to domestic industrial and commercial customers; and Daystar Power Group that provides integrated solar power to commercial and industrial business across West Africa.

Aside from these, Shell also holds a 25.6% interest in NLNG, which produces and exports LNG to global markets and falls outside the scope of this divestment process. Shell has been very busy recently. The firm took a final investment decision (FID) in December 2023 for a deepwater development in the U.S. Gulf of Mexico.

The company also disclosed an acquisition of the remaining stake in an asset in the U.S. Gulf of Mexico, consolidating its ownership in a deepwater field, which has been developed as a subsea tie-back to the nearby Ursa production hub.

The oil major is actively pursuing more hydrocarbons. To this end, the company greenlighted a phased offshore drilling program to bolster production at a development project in the U.S. Gulf of Mexico and took a FID for a 2024 two-well drilling campaign in the North Sea.