As Shell Petroleum Development Company Limited moves to wrap up the sale of four of its onshore oil blocks in the Niger Delta, an assets overview of the blocks reveals that they contain an estimated 2.990 billion barrels in proven oil reserves and estimated gas reserves of 11.303 billion standard cubic feet (bcf).
Shell had tendered four of its blocks – Oil Mining Leases 30, 34, 40 and 42 – to bidders last year in a bid process that attracted at least 30 consortia comprising local and foreign oil firms.
Top on the list of interested bidders include Consolidated Petroleum; African Petroleum in conjunction with Mid-Western Energy; Nestoil in partnership with Polish-based Kulczyk Oil Ventures Inc; Eland-Starcrest Consortium; and India’s Essar Energy Plc.
Others are UK-registered Afren; Seven Energy in partnership with oil services firm Petrofac; Niger Delta Exploration & Production Plc; Vertex Energy; Shoreline Energy International, supported by UK-based Heritage Oil; and Oando Group Plc backed by China’s Addax Petroleum and Perenco, an Anglo-French company.
Shell along with its partners, Total and Eni, are selling 45 percent of their stake in the blocks. 55 percent is held by the Nigerian National Petroleum Corporation under a Joint Operating Agreement.
Documents obtained from Shell last week showed that of 2.990 billion barrels in proven oil reserves, the international oil companies’ stake in the blocks is 1.345 billion barrels, representing 45 percent of their equity in the leases, which is what was tendered for sale to bidders.
The IOC’s share of proven gas reserves also offered for sale to bidders amounts to 5.086 billion standard cubic feet.
The assets overview obtained from Shell further indicated that not all of them are producing. Production in OML 40 will not resume until 2012 after repairs to a vandalised pipeline has been concluded.
In the case of OML 42, production has been dropped to some 20,000 b/d until on-going re-entry is concluded in 2012.
Production, however, in OMLs 30 and 34 stood at 40,000 barrels per day in April 2010, with each block contributing 340 million standard cubic feet of gas daily to the Escravos-Lagos Pipeline System via the domestic gas network operated by the Nigerian Gas Company, a NNPC subsidiary.
Of the four blocks Shell put on tender, OML 30 holds the largest proven oil reserves of 1.5 billion barrels and 2.627 bcf in gas reserves, amounting to almost 2 billion barrels of oil equivalent (boe) of reserves.
This, said an industry expert, probably explains why it attracted the most interest from bidders and staggeringly high bids.
Conoil is believed to have offered $1.295 billion for OML 30, followed by $850 million offered by AP. Oando also made an offer of $760 million for the same block, along with a contingent offer to increase it to $1 billion.
OML 30 has a historical production of up to 60,000b/d and boasts major oil fields – Kokori and Olomoro – among others that are supported by extensive oil infrastructure.
OML 42, on the other hand, sits in swampy terrain with proven oil reserves of 905 million barrels and gas reserves of 4.901 bcf, which amounts to 1.712 billion barrels of oil equivalent of reserves.
Historically, the block attained production peaks of 100,000b/d, falling to 50,000b/d. Its major oil fields are Jones Creek and Odidi.
OML 34, with Utorogu and Ughelli East as its major oil fields, historically produced 10,000 to 15,000b/d, but currently holds proven oil reserves of 400 million barrels and gas reserves of 3.534 bcf. This is equivalent of a little under 1 billion barrels of oil reserves.
The least prolific of the four blocks is OML 40, containing 185 million in proven oil reserves and 244 million standard cubic feet of gas reserves, which translates to 225 million barrels of oil equivalent of reserves.
Its major oil fields are Gbetiokun and Opuama with a historical output of 5,000b/d. But Shell sources confirmed that it has the potential to increase production to 10,000b/d after revamping of the pipeline.
A Shell official also revealed that OMLs 30, 34 and 42 are contiguous blocks and are located close to the company’s Forcados loading terminal.
He explained that once the blocks are handed over to the new owners, they shall operate them and are bound by the share purchase agreement to evacuate oil output into Forcados.
Shell has already endorsed the sale of two of the four oil blocks. Early in April, the Dutch multinational signed off on the smallest block, OML 40, to Eland Oil and Gas and Starcrest Nigeria Energy. The consortium is said to have offered $154 million for the block.
Last Friday, Shell also signed an agreement to sell 45 percent in OML 42 to Nestoil in partnership with Folawiyo Energy and Polish-based Kulczyk Oil Ventures (Neconde Consortium) for $800 million.
The company is said to be rounding up negotiations with Conoil and Niger Delta Exploration & Production for OMLs 30 and 30 respectively, and may sign with the companies in the next few days.
But industry sources have revealed that the final approval for the transfer of rights in the four blocks is subject to approval by NNPC, which holds controlling interest in them.
NNPC, sources confirmed, will only endorse the sales if it elects to waive its pre-emptive rights in the blocks.
Should the state-run oil firm choose not to waive its rights, Shell and its partners will not be able to close the sales and will be hard pressed to refund the 10 percent deposit the bidders had paid into a designated escrow account with J.P. Morgan in the UK, as stipulated under the bid terms.
Shell has more onshore oil reserves than any other oil multinational in Nigeria, but it has also suffered some of the toughest challenges working in the vast and volatile wetlands of the Niger Delta, the heart of Africa’s largest energy industry.
Incessant attacks on pipelines and facilities by militants, who claim they are fighting for a fairer share of the wealth exploited in their backyard, have cut out large chunks of Shell’s output in the past, some of which will never be restored.
This forced Shell to launch a shakeup of its Nigerian operations by offering its leases for sale in response to what it described as harsh operating conditions.
Shell is the operator of the NNPC (55%); Shell Petroleum Development Company (30%); Total Exploration Nigeria Limited (10%); and Nigeria Agip Oil Company (5%) joint venture.
Last year, the joint venture sold its 45 percent stake in three oil leases – OMLs 4, 38 and 41 – which had been shut down since 2008 to the Seplat Consortium jointly owned by French oil firm, Maurel & Prom, Platform Petroleum Limited and Shebah Petroleum Development Company Ltd.
