Shell Gives Bidders June Deadline for Four Oil Blocks

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By Ejiofor Alike

Shell Petroleum Development Company (SPDC) has given the end of June to local and international investors that submitted bids for four of its oil blocks to show their commitment to pay for the assets both in the form of equity and debt, THISDAY has learnt.

THISDAY was informed by a source conversant with the asset sales that the oil giant had handed down the deadline to the bidders and their bankers to demonstrate their preparedness to meet the next milestone in the transaction as a sign of their seriousness to acquire the assets.

Local and foreign companies had formed consortia that submitted bids for the four oil blocks currently on offer by Shell.

Shell is divesting its 30 per cent stake, while Total and ENI are set to sell 10 per cent and five per cent respectively in four Nigerian oil blocks – Oil Mining Leases (OMLs) 18, 24, 25 and 29.

The Nigerian National Petroleum Corporation (NNPC) shall retain ownership of the remaining 55 per cent in each of the four leases.

Prior to the June deadline, the bidders had already paid 10 per cent of their bids to Shell. They stand to forfeit their deposits if they fail to pay for the assets within the timeframe determined by Shell to pay the balance.
The source further revealed that like the past asset sales, NNPC is again insisting that the operatorship of the four oil blocks will not be transferred to the new buyers but to the Nigerian Petroleum Development Company (NPDC), a subsidiary of the NNPC.

NNPC is contending that this will be in accordance with the governing Joint Operating Agreement (JOA) between it and the international oil companies (IOCs).

However the bidders, said the source, remain undeterred and hope that they can structure a new arrangement that would enable them operate the assets themselves.

They are concerned that they would be investing too much acquiring the oil blocks and have started making overtures to NNPC to give them the green light to operate them.

“They are in discussions with the NNPC to see if they can get the operatorship, given what happened with past blocks – OMLs 26, 30, 34, 40 and 42 – sold by Shell,” he said.

The JOA between Shell, NNPC, Total, Nigerian Agip Oil Company and other IOCs operating a joint venture arrangement with NNPC provides that an operator of a producing asset can sell its interest to a third party but cannot transfer the operatorship to the new buyer.

Article 19.4 of the JOA states: “Subject to Clause 19.1 and 19.2, if any party has received an offer from a third party, which it desires to accept, for the assignment or transfer of its participating interest, it shall give the other parties prior right and option in writing to purchase such participating interest as provided in sub-clauses 19.4.1 to 19.4.2.”
However, SPDC, as the operator of SPDC/NNPC Joint Venture, has no powers to transfer its operatorship to a third party without the written consent of theNNPC.

According to the JOA, SPDC can only transfer operatorship to its affiliate or affiliated company, with Article 1.1.2 (i) of the JOA defining Shell’s affiliates as Shell in the Netherlands; Shell Transport and Trading Company Plc in the United Kingdom or any other company that is controlled directly or indirectly by any of these two companies.
The implication of the JOA is that if an operator sells its interest in an oil block, the operatorship will revert to NNPC and not to the new buyer.

Of all the assets so far divested by Shell, only OMLs 4, 38 and 41 are operated by the new buyer, Seplat Petroleum Development Company.

But in accordance with the JOA, the operatorship of other producing assets sold by Shell, including OMLs 26, 30, 34, 40 and 42, were transferred to NPDC, rather than the new buyers.

Under the ongoing divestment programme, Midwestern Oil & Gas Plc/Mart Resources/Suntrust Oil, under the Erotron Consortium, won the bid for OML 18.

OML 29 and the Nembe Creek Trunkline were won by Aiteo/Taleveras in conjunction with four other companies in the consortium, having submitted a $2.5 billion bid for the assets. OML 29 is the most prolific oil lease under the current asset sale.

Pan Ocean Oil Corporation Nigeria Limited, operator of the NNPC/Pan Ocean Joint Venture, clinched OML 24 valued at between $500 million and $1 billion, while Lekoil, Crestar, GreenAcres/CCC/Signet Petroleum, NDPR/SAPETRO and Essar submitted bids for OML 25.

OML 24 currently delivers 25,000 barrels of oil equivalent per day from three fields and outputs eight million standard cubic feet per day of gas (MMscf/d).

The divestment by SPDC is part of the Anglo/Dutch giant’s plan to dispose of $15 billion of assets globally in 2014 and 2015.