Shell said on Tuesday it had agreed to sell its onshore oil and gas business in Nigeria to a group dominated by local companies for $1.3 billion.
The transaction is an effort by Europe's largest energy company to reduce its risks in the country that is Africa's largest oil producer. Nigeria has long been a cornerstone for Shell, but also the source of a damaging legal and environmental legacy.
Specifically, Shell said it would sell its Nigerian subsidiary, which owns 30 percent of a joint venture that operates a vast labyrinth of wells, pipelines and other facilities in the swampy Niger Delta. Other partners in the joint venture are Nigeria's state oil company, which has a 55 percent stake, and France's TotalEnergies.
Shell will continue its offshore energy drilling in Nigeria, as well as its liquefied natural gas operations there.
Shell has long been considered Nigeria's largest energy producer, so its willingness to offload a long-standing business could increase doubts about the country's future as an oil and gas producer.
Over the past decade, Nigeria's oil production has declined by about 40 percent due to lack of investment and management problems. Reflecting this slide, OPEC in November cut Nigeria's production quota by about 200,000 barrels per day to 1.5 million barrels per day.
Zoe Yujnovich, Shell's chief production officer, said the company's goal was to “simplify our portfolio.” She also said in a statement that Shell wanted to focus its future investment in Nigeria on offshore drilling and liquefied natural gas, a business in which Shell is a global leader.
Offshore operations are also much easier to protect from piracy and other problems that have plagued Nigerian oil production.
Shell's onshore oil business in Nigeria dates back more than 60 years. It was once a promising and productive part of Shell's operations, but it has also led to a series of lawsuits over oil spills and damage to local people.
The move raises questions about whether the company is trying to avoid future liability for past actions.
“They are selling their decrepit infrastructure to local companies and leaving local communities in a state of environmental disaster,” said Daniel Leader, a partner at London-based law firm Leigh Day, who has represented Nigerian communities in cases against Shell. .
Shell said buyers would be “responsible” for the Shell subsidiary's portion of its “commitments” and for “remediation” of past spills.
Potential buyers of Shell's business are a consortium called Renaissance Africa Energy. It is made up of four Nigerian companies and one small international company. The buyers will be the operator or manager of the joint venture.
The transaction appears unusually complex. Shell says it will receive $1.3 billion and there could be other payments, up to an additional $1.1 billion. He estimated the book value of the Nigerian subsidiary at $2.8 billion. The company is providing loans and other funds of up to $2.5 billion to help buyers finance the transaction and bolster continued operations at the joint venture.
