Nigeria’s oil regulator has blocked the proposed $1.3 billion sale of Shell’s onshore oil assets to Renaissance Group, citing concerns over the buyer’s capacity to manage the operations effectively. This decision has reignited discussions about local firms’ ability to run critical oil infrastructure and the future of oil majors in Nigeria’s onshore sector.
Shell Petroleum Development Company (SPDC), which owns the assets, had announced its exit from Nigeria’s onshore and shallow water operations earlier in the year, agreeing to sell its stake to a consortium of five companies, mostly local entities. Shell’s move is part of a broader strategy to focus on more lucrative offshore operations, but the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has stepped in, declining to approve the sale due to concerns that Renaissance lacks the technical and financial competence required to operate the assets.
The sale, first announced on 16 January, has now stalled, with Shell attempting to provide further information to regulators to help facilitate the transaction. However, the situation has raised larger questions about the capacity of local firms to manage large-scale oil assets and the future of Nigeria’s oil sector amid a retreat by international oil companies (IOCs) from onshore operations.
The NUPRC’s refusal is rooted in stringent regulatory guidelines introduced under the Petroleum Industry Act (PIA) of 2021. According to these guidelines, any buyer of oil assets must demonstrate financial capability, technical competence, and a clean operational record. The regulatory body has expressed concerns that the Renaissance Group, despite being a consortium of local companies, may not meet these standards, especially given the underperformance of some of its existing assets.
Approval of such transactions requires two levels of consent: technical approval from the regulatory commission and ministerial consent from the Minister of Petroleum, a role currently held by Nigeria’s president. The commission’s decision effectively acts as an advisory to the minister, who has the final say on whether the transaction should proceed.
Tolu Aderemi, a partner at Petstone and Gray Solicitors, explained that the commission’s concerns were primarily about the Renaissance Group’s capacity to manage the assets effectively. The commission is mandated to ensure that asset sales are in the best interest of the country, particularly given Nigeria’s ongoing struggles to meet its Organisation of the Petroleum Exporting Countries (OPEC) production quota.
The current impasse highlights a broader challenge facing Nigeria’s oil sector: the ability of local firms to manage the country’s vast oil resources. Renaissance Group, like many other domestic oil firms, faces questions about both its financial strength and technical capabilities.
In recent years, several IOCs, including ExxonMobil, TotalEnergies, and ENI, have divested from Nigeria’s onshore oil fields, citing a combination of security concerns, regulatory uncertainties, and a strategic shift toward offshore oil production, which is seen as more profitable. While these divestments open opportunities for local companies, they also bring to the forefront the issue of whether domestic firms can fill the gap left by the IOCs.
Some Nigerian firms, such as Seplat and Sahara, have successfully stepped up, managing significant oil assets and demonstrating the capacity to compete with international players. However, others have struggled, particularly when it comes to managing marginal fields, which are smaller and often less productive oil fields.
Aderemi pointed out that while domestic companies must be supported and encouraged, they also need to demonstrate they can efficiently manage the assets allocated to them. “We must constantly encourage domestic exploration and production,” he said, “but where you have evidence that existing assets are being managed suboptimally, it makes no commercial or technical sense to allocate more resources”.
Nigeria’s government has long supported an indigenisation policy aimed at promoting local participation in the oil and gas sector. Under this policy, when an indigenous company bids within 10% of the lowest bid for a contract, it must be awarded the contract over an international competitor. While this policy has helped boost local participation, it has also led to concerns about the capacity of some domestic companies to manage large-scale operations effectively.
Aderemi noted that while the policy has merit, it must be balanced with the need to ensure that companies have the technical and financial capabilities to manage the assets they acquire. “If I’m creating a law that protects you as an indigenous company, there is also a corresponding obligation for you to develop capacity,” he said.
The halting of Shell’s sale comes at a critical time for Nigeria’s oil sector. The country has consistently struggled to meet its OPEC production quota, and any disruption to oil production could have significant economic implications. The oil and gas sector remains a key source of revenue for the Nigerian government, and any delays in approving asset sales could slow down exploration and production activities.
For now, the ball is in the court of the Minister of Petroleum, who must decide whether to approve the sale despite the concerns raised by the NUPRC. The decision will likely have far-reaching implications, not just for Shell and Renaissance but for the future of Nigeria’s onshore oil industry and the role of local firms in managing the country’s oil wealth.
As international oil companies continue to retreat from Nigeria’s onshore sector, the ability of domestic firms to step up and manage these assets effectively will be crucial. While the Nigerian government’s indigenisation policy aims to build local capacity, ensuring that companies have the necessary skills and resources to manage large-scale oil operations will be essential for the country’s energy future.
Nigeria’s decision to block Shell’s $1.3 billion asset sale underscores the challenges of balancing local participation with the need for technical and financial competence in the oil and gas sector. As the country seeks to increase domestic involvement in the industry, ensuring that local firms are equipped to manage critical infrastructure will be essential to securing Nigeria’s energy future and meeting its OPEC obligations.
