Royal Dutch Shell plc (RDS.A) announced that its subsidiary – Shell Petroleum Development Company of Nigeria Limited (“SPDC”) – completed the divesture of its 30% interest in Oil Mining Lease 40 in the Niger Delta, onshore southern Nigeria. The deal fetched SPDC total cash proceeds of $102 million.
Shell sold the stakes to Elcrest Exploration and Production Nigeria Limited – a joint venture between Scotland-based Eland Oil and Gas and Nigeria's Starcrest.
Elcrest also took over 10% interests in the block from the Nigerian affiliate of Total SA (TOT) and 5% stake from Nigerian Agip Oil Company Limited, thereby gaining a total stake of 45%. The remaining 55% interest is controlled by the country’s state-owned oil company – Nigerian National Petroleum Corporation.
This is Shell’s sixth onshore block sale in Nigeria since 2010. The company stated that operations at this block have been stalled in 2006 due to military turbulence.
The disposition also underlines Shell’s strategic initiatives to exit unprofitable markets to improve its performance and remain competitive in this difficult environment. The company also targets to reap more benefits by concentrating more on offshore activities in Nigeria, where possibilities of military attacks are less.
In December 2011, Shell sold its stakes in Oil Mining Lease 26 to the Nigerian company FHN26 Limited – a unit of Afren plc, for $98 million, while Oil Mining Lease 42 was sold for $390 million to a consortium Neconde Energy Limited comprising Nestoil Group, Aries E&P Company Limited, VP Global, Kulczyk Investments and Kulczyk Oil Ventures.
The Hague-based Royal Dutch Shell owns one of the largest integrated oil and gas businesses in the world. The group has operations worldwide and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.
We remain optimistic on Shell’s prospects given its exposure to major projects with an emphasis on technological application to unconventional resources. Shell’s consistent financial and operational performance along with overseas market exposure continues to enhance its portfolio and market position.
However, being one of the largest integrated oil and gas companies in the world, Shell is particularly susceptible to the downside risk from the current turmoil in the global economy. We are also concerned by the group’s high level of capital spending, which may result in reduced returns going forward.
Shell currently retains a Zacks #3 Rank that translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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