It was reported in Reuters that Royal Dutch Shell plans to sell 4(four) more oil blocks in Nigeria.These are OMLs 13 and 16 onshore in the Niger Delta, and OML 71 and 72, which are in shallow waters.
American Oil giant’s Nigerian subsidiary Chevron is also reported to be selling five shallow water blocks, while American firm ConocoPhillips is reportedly selling its Nigerian businesses to a Nigerian energy firm.
Oil majors in Nigeria seem to be selling off their “onshore assets” while acquiring “offshore oil blocks”; this may be in support of Nigeria’s increased local content, participation policy or it may be a practical solution in response to the challenges faced onshore and in the shallow waters; possibly due to the“Emergence of Social Normative Norms in Oil Pollution”due to lax enforcement of the law in the area of environmental degradation which may have resulted in prolonged host community hostility targeted at the International Oil Companies.
“Off Shore Deep Water Oil Blocks”seem to be devoid of community issues, relations, corporate social responsibility obligations,oil theft and other “disruptions” which have seemingly unsettled the IOC’S.
Courtesy of Nigeria’s “local content” policy Shell’s latest assets will possibly be sold to marginal field operators…
However, it’s not plain sailing all the way, as the challenges facing marginal field operators include:
Litigation with technical partners; many awardees have ended up in litigation with their technical partners.
Capacity Building and Technology Limitations; There have been capability and capacity issues as well as technology limitations.
Asset acquisition and management – many of the assets were not bankable and they could never have raised funds on them and agreements were delayed among other problems.
The non-bankability of some Marginal Field assets; has led to the inability to raise funds for the development of the fields.
Environmental Issues; Many have had environmental issues such as communities, security, and gas flaring, among others.
Shell’s Possible DivestmentOf4(Four) Oil Blocks…
In this authors opinion 7 (seven) basic phases are common to most “acquisition/purchase and divestment/sale transactions”. They are; Seller’s preparation for a sale, Buyer’s preparation for a sale, Negotiation of the Purchase and Sale agreement, Due diligence search, Pre-closing, Closing and Post-closing.
Shell Nigeria, probably carried out it’s“seller’s preparation” for a sale long before news of same emerged on the streets. Would be “buyers” would be preparing for a possible acquisition via negotiation and a due diligence search…
Due Diligence InMarginal Field Purchases.
This brings us to the issue of due diligence. This is a crucial part of the acquisition and divestment of oil and gas properties.“Due diligence examination”coversthe buyer’s examination of the property and seller’s records as regards the oil blocks for sale. These clauses often provide that the buyer will have both the access andright to examine the property (oil blocks) and pertinent files, books and records of the seller.
The buyer is deemed to have knowledge of all defects or deficiencies he could have discovered through theexercise of due diligence in his examination of the property, the official title records,files, books and records of the seller. Primary goals of the due diligencesearch would be to confirm that the seller has the ownership (or a stake in the case of a joint venture) and standing to convey the interestsdescribed in the purchase and sale agreement to the buyer, clarity on who will operate the blocks, what steps will be taken to tackle security issues and who will manage the seller’s infrastructure before a value can be put on each of the assets. (Ideally both the buyer and seller should value the assets in question).
Difficulty in securing funding and other technical challenges
These challenges make it difficult for marginal field operators to acquire relevant assets like the one Shell just put up for sale and carry out their operations.
This is aloose alliance between two or more oil and gas companies, designed to unite their personnel, technology and experience for short- or long-term projects.
Possibility of Joint Venture/Operating Agreement between Marginal Field Operators?
A joint venture is an association of corporations or other legal entities who agree by contract to engage in a common undertaking for joint profit. In Marginal Field Operations the Joint Venture is usually between Marginal Field Operator and a technical partner.The parties to a joint venture, (contribute money, intellectual property and other assets) in order to produce oil and gas from a given acreage.
IOC are constantly using joint ventures to carry out their projects, this is evidence of its efficacy. Marginal field operators can float JVs to bid for oil blocks, and when same is acquired they can use JVSto explore same.
Reasons For Joint Ventures
Few companies can singlehandedly finance Oil and Gas exploration on their own, so joint ventures became attractive options to raise funds, share risks, costs and create economies of scale. Not to mention that with wider balance sheets, Joint Venture Marginal field operations are more likely to be bankable thus helping to solve the problem of (non-bankability of some Marginal Field assets).
JV’S can help with “Lack of Capacity Building and Technology Limitations”
Capital-intensive industries like Oil and Gas, in order to continue profitable operationsdepend to a large extent on advances in technology to reduce costs.Marginal Field companies that form “clusters” can make progress by pooling their money, personnel and technology;by this action, these companies will probably enhance their chances of developing advanced technological methods that would reduce exploration and production costs and increase profit.
What About Pooling and Unitisation Agreements?
Poolingis when multiple tracts are joined together in a single lease by their owners, it can be a voluntary consolidation by owners of participating interests or royalty interests, or a compulsory joining of all interests in a drilling unit entitled to only one well location. Unitization is an arrangement to jointly develop an oilfield straddling two or more contract areas.It involves taking production at the locations and rates it is most efficient to take it, without disruption of the scheme by the legal rights inhering in competing properties.For recovery and pressure maintenance units, it means injecting gas and fluids where these will most efficiently aid in expelling reservoir contents.
In all the focus should be on possible synergies…Interestingly,community relations have become a huge issue onshore, however this might be a ray of hope for our Marginal Field Companies as they acquire new marginal fields. However, Marginal Field companies would do well to avoid triggering off“social normative norms,as they come with a backlash”through insensitive operations and environmental degradation, as some evidence of IOC migration from onshore to offshore seems to point to the assertion that “the Federal Government gives the Oil companies the license to ‘work and win’ the oil while it is the ‘communities’ that give the companies the ‘freedom’ to carry out their operations”.
Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos
Olufola Wusu Esq. © 2013
Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his
“first-rate skills” in assisting clients…