Will a new private oil giant emerge in Nigeria? Already active, through various companies, in exploration-production and oil services, the businessman and philanthropist Tony Elumelu, 57, has just got his hands on 45% of the OML 17 license block in the Niger Delta.
This block is located onshore, a few dozen kilometers north of Port-Harcourt, the total transaction amounts to $1.1bn. It consists of the acquisition of the shares of Shell (30%), Total (10%) and ENI (5% via its subsidiary Nigerian Agip Oil Co.).
The OML 17 block, which holds oil and gas reserves, has a production capacity of 27,000 barrels/day.
To finance the transaction, Tony Elumelu was advised by White&Case and supported by a large number of private banks and development institutions, including Afreximbank, ABSA, Africa Finance Corporation, Union Bank of Nigeria, Hybrid Capital and the Amundi Fund.
The deal includes an oil offtake contract with Shell’s trading arm.
This could shelter it from the weak price of oil, which is projected to remain under the $60/barrel level for the next few years, according to a January forecast from the US Energy Information Association. News of a big stimulus package from incoming US president Joe Biden, as well as the tearing up of pipeline plans to connect the Canadian tar sands to the US market, has pushed oil higher in recent days.
A capacity of 27,000 barrels/day
Shell, through its Nigerian subsidiary SPDC, was the operator of the license, which is also 55% owned by the national company NNPC.
The operation was carried out through TNOG Oil & Gas Limited, a subsidiary of the two main groups in the Elumelu’s galaxy, namely the private company Heirs Holding and the Transcorp group (listed in Lagos).
The OML 17 block, which holds oil and gas reserves, has a production capacity of 27,000 barrels/day. Its 2P reserves (proved and probable) amount to 1.2 billion barrels, according to TNOG. It has 15 gas and oil wells, six of which are producing, according to Wood Mackenzie, a research company.
Already present in upstream oil
Shell had announced in 2018 its plan to put certain Nigerian assets under review, including the OML17 block. Tony Elumelu was already a favourite candidate at the time. He has since raised the necessary funds to expand its oil and gas assets.
Known for his activities in the field of power generation, Tony Elumelu is already present through various companies in the upstream oil sector. Transcorp thus operates in association with NNPC the small onshore block OPL 281.
Tenoil, a subsidiary of Heirs, also owns the marginal Ata field, which is expected to come on stream soon (3,500 barrels per day expected by mid-2021).
Dominated by far by the giant NNPC, the local Nigerian oil sector counts about twenty domestic operators ensuring (before the Covid-19 crisis) about 20% of the production of the country with, among its leaders, Aiteo Eastern E&P Co (Benedict Peters) or Seplat.
Sign of the times, the government of President Muhammadu Buhari has already approved the transaction of Tony Elumelu.
For several years, the authorities, faced with the stagnation of the country’s production and the inefficiency of NNPC, have been pushing through various measures to increase the local content of projects and also to structure the private oil sector. This goal has been reaffirmed several times in recent months by Timipre Sylva, Minister of Petroleum.
A national goal never reached
The country’s overall long-term objective is to reach a production of 4 million barrels per day. This target, which is a very old one, has never been reached. At the beginning of 2020, the country was producing only 1.76 million barrels per day, a figure that has since fallen to 1.4 million barrels due to the crisis.
To boost the sector, Nigeria is finalizing a new Petroleum Industry Bill, currently under final discussion in Parliament.
While international companies have made heavy investments in recent years in the Nigerian offshore, the reform of the sector comes against the backdrop of a certain disengagement of these operators from onshore blocks, as in the case of the sale of OML17 by Shell, Total and ENI.
Afrocapitalism vs Gangs of the Delta
This type of onshore asset is considered increasingly risky in terms of security and compliance in a region marked by sporadic actions of armed groups.
The region is also sadly known for its frequent environmental problems, often linked to the action of armed gangs or smugglers.
In a tweet commenting on his acquisition of OML17 Tony Elumelu stated that “as a native of the Delta, I have always believed that the region deserves better (…). With TNOG our approach to Afrocapitalism underlines our commitment to inclusive development and shared prosperity with our host communities.”