Shell Delays Confirmation of Winning Bids for its Oil Blocks

Shell is continuing to delay the result of its latest round of divestment. It was expected that bidders would have been confirmed before the end of last month and it postponed the announcement. Now, news reports have emerged that indigenous downstream traders, Taleveras and Aiteo were the highest bidders for prize asset oil mining lease (OML) 29. However, according to the report, Shell is holding back from announcing the winners, as it wants the two to partner in the bid with more experienced upstream players. NOGintelligence has independently confirmed from its own sources that the two companies emerged the highest bidders after placing a joint bid of $2.85 billion.   

Shell had recently shortlisted candidates for the auction of its interests and that of its joint venture partners Total and ENI in OMLs 8, 24, 25 and 29 in Rivers State. The four OMLs, which Shell operates, and in which, together with its joint venture partners, it has a 45 per cent stake, together produced 70,000 barrels per day in the year before the sale was announced.

Shell had been keen to avoid a protracted bidding process and would surely have been encouraged after the likes of Glencore, Mercuria and Dangote Group join the race. However, the company is keen to ensure the success of the divestment by seeing the highly valuable blocks going to experienced operators.

Whilst some are left wondering why Shell should be concerned about the capability of the winners, analysts are unsurprised. Recent international oil company (IOC) divestments have seen winning bids far in excess of their true values.  Oando's winning bid of $1.79 billion for ConocoPhillips was said to be higher than it is worth. They have been trying to close that deal for over a year. Again, Britannia-U's winning bid of $16 billion for Chevron's three OMLs was said to be several hundred millions of dollars over the nearest bid. Analysts have also reported the bid to be way over its true value and Britannia-U has gone to court over Chevron's refusal to name the indigenous company led by the formidable Uju Ifejika the winner.  

The trend seems to be for indigenous companies to overprice these ex-IOC assets in their desperate bid to make sure they outbid everyone else. As a result, the IOCs have become wary of high bids, which put the ability of the winners to close the deals in doubt.  The same thing seems to be happening here and if, as reported Taleveras and Aiteo have been asked to join forces with a known operator, it is probably not just the matter of a successful operatorship that Shell will be worried out. It is not even certain that the winner will be allowed to operate, given government petroleum company, Nigerian National Petroleum Development Company (NPDC)'s stand on the matter of operatorship. NPDC insists that the right of operatorship reverts to it following the divestments.

The major concern for Shell right now is the ability of the winner to close the transaction. If the winning bidder has overpriced the asset then raising finance could be extremely difficult unless they are partnering with another asset owner where they can leverage off those other assets to secure the finance they need to close the deal. That could be what Shell has in mind when it asked the two marketers to join forces with Seplat. Soon-to-list Seplat is the darling of the industry right now and it seems it can do no wrong, after successfully concluding arrangements to list simultaneously on the main board of the London Stock Exchange and the Nigerian Stock Exchange.  

There is another point that may not be unconnected with the delay. Both Taleveras and Aiteo, well known independent marketers are currently receiving some negative attention over the so-called crude oil swaps that they have been doing with the Nigerian National Petroleum Corporation (NNPC). The Nigerian Extractive Industry Transparency Initiative (NEITI) has strongly criticised the swap arrangements under which Nigeria sells crude oil to the traders and the traders bring in refined petroleum products in exchange. NEITI says the swap arrangements are uneconomically in view of the processing and other costs inherent in such arrangements. NEITI wants Nigeria to stop the practice. A Swiss non-governmental organisation (NGO) Berne Declaration went as far as to say that these deals are fraudulent. Calls are growing for these swap deals to be investigated. Whatever the outcome of any such investigation, the two companies are already in the thick of it all.  Shell might be worried about the reputational risk involved in awarding the block to the two traders. They will be hoping that the companies may be able to hide behind a solid company like Seplat in this kind of acquisition. As they ponder the situation, they are holding off from making the final award.  

Meanwhile, Aliko Dangote's company is said to have submitted the winning bid for oil mining lease (OML) 18, as he begins his quest to achieve self-sufficiency in gas to power his energy guzzling cement factories. The block is a gas producer and already has a gas processing plant located on the block with a capacity to process 120 million standard cubic feet per day (mmsf/d) although it is currently producing just 80 mmsf/d.

The Shell joint venture has sold a series of blocks since 2010 for more than $2 billion, but the latest sales will represent the largest so far in terms of production. The theft-plagued key pipeline, Nembe Creek Trunk Line is also up for sale along with OML 29. Financial analysts had said the sale should fetch between $2 billion and $3 billion for Shell and its partners. Shell could be looking at a bumper harvest with the kinds of bids that it has received. However, unless Shell swallows its nerves and gets on with the sale, this one, like the two before it, could run and run.  

Angola About to Overtake Nigeria as Top Africa Exporter

Analysts are predicting that Angola will soon overtake Nigeria as Africa's top exporter if the current spate of vandalism of vital oil pipelines continues unabated. The prediction comes after a Reuters news report revealed that Nigerian crude oil exports have dwindled to its lowest since 2011.  

According to the report, Nigeria's exports for May are set to drop to about 1.59 million barrels per day (bpd). At its peak in 2011, Nigeria was able to attain a 2.2 million bpd.  

Currently, Forcados grades have been deferred after the pipeline supplying oil from the oil fields in that region was hit by a pipeline leak. Although the militant group, MEND, claimed responsibility for the damage, Shell said it was shut after it was discovered that the pipeline had been breached by unknown persons who were siphoning crude oil from the pipeline in a water depth of over eight meters.

The current force majeure declaration by Shell is the latest in a series, which the company says is losing the nation $7 billion a year.

The grossly inadequately equipped Joint Task Force set up by the Federal Government to deal with the problem is powerless to put a stop to the problem, which the Shell Country Manager, Mutiu Sunmonu, has described as a fight against "princes and principalities."