Shell tied new Nigeria offshore investments to approval for oil asset sale

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Shell made the approval of the sale of its controversial assets in the Niger Delta a condition of fresh investments off the coast of Nigeria, according to people familiar with the deals.

The Anglo-Dutch company said on Monday it had made a final decision to invest a reported $5bn in the Bonga North project, a deepwater field 130 kilometres off the west African coast. The investment is a boost for President Bola Tinubu’s drive to attract much-needed capital into the Nigerian economy.

Two days later, Shell said its deal to sell $1.3bn of onshore oil assets to Renaissance Africa Energy, a local consortium, had been approved by Nigeria’s petroleum ministry, 11 months after it was first announced.

The approval is a sharp turnaround for a deal that was rejected by Nigerian regulators in August and faced significant obstacles, including questions over how decades of environmental damage would be cleaned up, as the Financial Times has reported.

Three people familiar with the talks said conversations between Shell, Tinubu and his officials centred around the company’s wish to continue investing in Nigeria, and to commit resources to the deepwater oil sector and lucrative liquefied natural gas projects in the country. 

But Shell also made clear the need for it to exit the onshore assets, whose 68-year history has been marred by ecological damage from oil spills and tensions with communities in the Niger Delta, the people said.

Nigeria’s government was minded to assure Shell that its exit deal would be approved as Abuja sought investment in the oil and gas sector, they added.

One of the people close to the deal said Shell’s sale of its troublesome onshore assets to Renaissance “was important — don’t get me wrong. But it wasn’t just this one deal alone. The conversation was about the larger investment context in Nigeria and how Shell wanted to be a part of that.”

Shell declined to comment on the link between the two announcements. Renaissance also declined to comment.

Renaissance, a mostly local consortium, is acquiring the Shell Petroleum Development Company of Nigeria (SPDC), Shell’s onshore oil production unit in Africa’s largest producer. 

SPDC is the most important oil company in the country and part of a joint venture which produces about 30 per cent of Nigeria’s oil and gas. Shell owns 30 per cent of the JV, alongside 55 per cent held by the state-owned Nigerian National Petroleum Company. TotalEnergies and Agip control 10 per cent and 5 per cent, respectively.

The FT reported last month that Nigerian regulators had concerns about Renaissance’s ability to finance the project. There were also worries over whether Renaissance could cover the bill for the clean-up of environmental damage across SPDC’s operations and whether those costs had been properly assessed by Shell. 

It is unclear if the concerns raised by the regulators have now been addressed by Shell and Renaissance.

Shell was told in September that its renewed efforts to gain approval offered “no fresh information or justification for a change” to the rejection of the deal, according to a September 19 letter sent by Gbenga Komolafe, chief executive of the Nigerian oil industry regulator, to SPDC and obtained by the FT.

A coalition of civil society groups in an open letter sent this week had urged Tinubu, who also doubles as Nigeria’s senior petroleum minister, to reject the divestment deal. They said allowing it to proceed would “ignore the interests of the Niger Delta communities, jeopardise the environmental and social wellbeing of the region for generations to come, and undermine Nigeria’s sovereignty”.

Shell has faced numerous lawsuits from communities over spills that have polluted bodies of water and rendered farmlands unusable. In 2008, a major SPDC pipeline ruptured twice, dumping nearly 600,000 barrels of crude, or roughly half of Nigeria’s daily production, into rivers and farmlands. Shell paid more than $80mn in compensation to residents of the area affected by the spills.