Nigeria Blocks Shell's $2.4 Billion Asset Sale

By MacDonald Dzirutwe

LAGOS (Reuters) – Nigeria's decision to block Shell's $2.4 billion sale of its onshore assets has sent a negative signal to investors, highlighting the urgent need for strengthening the country's vital oil sector, analysts say.

President Bola Tinubu has had some success in attracting foreign investment as Africa's most populous nation deals with a fiscal crisis. However, this week, the upstream regulator surprised many by refusing to approve Shell's $2.4 billion deal with the Renaissance consortium, which is mostly composed of local firms. Reasons for the decision were not provided, and Shell has yet to comment. The company has been a significant investor in Nigeria's oil sector for over 50 years, a cornerstone of the economy and main source of foreign currency.

A similar transaction by Exxon Mobil to sell onshore assets to Seplat Energy was approved this week after a wait of over two and a half years.

Clementine Wallop, director for sub-Saharan Africa at Horizon Engage, a political risk consultancy, stated that the difficulty in securing regulatory approval contradicts the government's efforts to attract foreign investment. "On one hand, the government proclaims it is open for business, looking to improve the ease of doing business, while on the other hand, there are long delays in approvals," Wallop said, noting that these delays impede the success of Tinubu's investment initiatives and also affect other sectors.

Downward Trend

As Nigeria's economy struggles to recover from the pandemic and its effects on oil demand, foreign investment inflows fell to $3.9 billion last year, down from $5.3 billion in 2022, continuing a five-year downward trend from $24 billion.

The oil assets Shell is selling are either underperforming or inactive but could be revitalized through new investments. The government believes increasing oil production—currently below 1.35 million barrels per day against a target of 2 million bpd—can alleviate dollar shortages.

The lack of foreign currency and the naira's significant depreciation has forced multinational companies, including Procter & Gamble, GSK Plc, and Bayer AG, to either exit Nigeria or employ third parties for distribution. Additionally, MTN and PZ Cussons have reported losses attributed to Nigeria's currency turmoil.

To attract the necessary investment, analysts argue that faster regulatory approval is essential, though other challenges like power shortages and corruption complicate the situation further. "The country needs to do more to attract investments in the oil and gas sector, such as improving the speed of regulatory approvals," said Ayodele Oni, energy lawyer at Bloomfield Law Practice in Lagos.

Despite these obstacles, some investors remain optimistic. Kola Karim, CEO of Shoreline Energy International, noted that assets acquired by Seplat could be rapidly improved for increased production. He also observed that recent executive orders, including one that raised the uncapped expenditure threshold for oil firms to $10 million, would streamline project timelines. "For the first time in a long time, there's a big alignment from the government and the oil companies," Karim stated.