Shell started the selective divestment of some of its Nigerian assets with the SEPLAT and FHN/Afren deals. In executing these deals, Shell’s stated objectives were to optimise its portfolio in Nigeria while supporting the indigenisation drive of the Nigerian government.
While the SEPLAT deal has been fully consummated and the consent of the Minister of Petroleum obtained, the FHN deal is yet to get final approval of the authorities.
Shell is now about to divest from four additional blocks. The process and choice of the players from the Shell divestment process should be of vital national importance for a number of reasons:
1. These four blocks hold aggregate remaining volumes and exploration potential in excess of the hydrocarbon resources of Ghana, Cote d’Ivoire, Gabon and Cameroun combined;
2. The gas resources in the blocks are critical to domestic gas supply for power generation and the gas based industrialisation program of Mr. President;
3. The investment required to further develop these assets apart from the acquisition costs should run into several billions of dollars over several years. Drilling requirements alone may be in the neighbourhood of between 300 to 600 wells over the next 7-10 years. At well cost of between $15-30 million per well, this could result in several billions of dollars spend in drilling alone, that should generate needed jobs and stimulate the economy-particularly in the Niger Delta region.
All these key facts should have significant implications on how the assets are divested and entities that are assigned these assets.
The current divestment process has thrown up a lot of controversies ranging from the seeming interest to get a market price to executive sweetheart deals. The initial structure of the current divestment was hinged on a firm and final bid. However, the process was switched into selective auction in which some bidders were unaware of the changing rules. It is also widely known that some non-compliant bids made it to the final stages of the selection process. There are also major concerns that proper due-diligence was not done on some of the principals in the buying entities or deliberately ignored.
What national interests should our regulators and consenting authorities protect?
•First, they should support truly indigenous companies that can transform to the next generation of super independents. It is the growth of such companies that can help us achieve our national aspirations, domesticate growth and capture benefits for the local economy. These kinds of companies can build on a firm foundation of assets at home, eventually expanding across Africa. We have seen several examples of such companies being built in Africa but sadly they are not indigenous. We can build our own Addax, Tullow Oil and Afrens with the pool of technical and commercial resources we have developed over the last 50 years. We need to encourage well organised, professionally managed and well funded players.
•Second, we should discourage local middlemen working with newly set-up expatriate companies. We have seen several examples over time and they seldom add value to Nigeria. This also makes a mockery of indigenization and is similar to what we had in the past, beginning from the 1970s – a consequence that still lives with us today. This approach sees Africa as a continent to be exploited and left underdeveloped. If in the past, the excuse was a lack of local experienced managers, that excuse no longer holds true in the Nigerian oil and gas industry.
•Third, we should ensure that a significant component of the funding of the equity base is locally sourced with debt type instruments sourced locally and internationally. This is to ensure a truly indigenous ownership and expand opportunities for long term investment by local financial groups and establishments.
•Fourth, consenting authorities should do proper due diligence to ensure that principals with money laundering, US FCPA and similar International anti-corruption issues are not allowed to participate in asset transactions. This would give a further boost to a sustainable and systemic fight against corruption and do much to boost our international image and ability to attract foreign capital.
What are the key risks to the country if national interests are not protected for the long term?
1. Missed opportunities to utilise local talent and generate huge employment in the Niger Delta.
2. Inability to get enough gas to support power and gas based industrialisation aspirations.
3. Inability to grow national champions that can launch out from a Nigerian base, grow across the continent and generate wealth for Nigeria. We can create our own MTNs in the Oil and Gas Industry. MTN started in South African in 1994 and is now a company with global aspirations.
4. Greater risk of capital flight, particularly if the questionable expatriate owners, managers and financiers are working with questionable Nigerians.
5. Continued perception of Nigeria as a corrupt country where processes that are not transparent can stand, with the attendant impact on our ability to attract ethical long term capital.
A clear government stance that only transactions that clearly meet national aspirations and that are done in a manner that meets globally acceptable standards will be approved can help steer the process aright. Several examples abound globally of how governments have used national interest to steer the acquisition and divestment of assets in line with national objectives. One example is the CNOOOC bid for Unocal which the US government blocked in support of Chevron at an even lower bid valuation.
A second example is the Shell and OVL block 18 divestment in Angola for $600mln which was pre-empted by Sonangol. The third example was when the Australian government stopped Shell from increasing its stake in Woodside.
The government of the day would leave an enduring legacy that supports economic growth and technology transfer aspirations for generations unborn if the right decisions are made in support of national interest and a new ethical culture. Emereonye is a Lagos-based oil and gas analyst.