Royal Dutch Shell has agreed to sell the prolific Oil Mining Lease (OML) 29 to a consortium led by oil-trading firms Aiteo and Taleveras Group in a deal wherein the consortium will pay $2.58 billion for the block and an associated pipeline.
Shell has been wanting to sell four of its onshore oil blocks – OMLs 18, 24, 25 and 29 – in addition to Nembe Creek Trunkline, which for years have been plagued by leaks stemming largely from oil theft.
The Wall Street Journal yesterday quoted two people said to be close to the deal as saying that the transaction had been consummated.
“This is a very good deal for Taleveras. OML 29 still pumps a lot of oil, and they can get the rents from the Nembe Creek pipeline,” said one of the people.
The journal also quoted Taleveras as saying that it was among the preferred bidders for block OML 29 but added that the company declined to comment when asked whether a deal had been finalised.
A Shell spokesman was also said to have declined to comment specifically on OML 29.
“We have signed sales and purchase agreements for some of the oil mining leases but not all that we are seeking to divest. In the event of a successful completion of the sales process, we shall make a market announcement,” he said.
Under the on-going divestment of four Nigerian oil blocks by Shell, Midwestern Oil & Gas Plc/Mart Resources/Suntrust Oil, under the Erotron Consortium, won the bid for OML 18, having offered $1.2 billion for the oil block.
OML 29, the most prolific oil lease under the current asset sale, and the Nembe Creek Trunkline were won by Aiteo/Taleveras in conjunction with four other companies in the consortium, having submitted a $2.58 billion bid for the assets.
The 60-mile Nembe Creek Trunk Line is one of Shell’s two key pipelines in the eastern Niger Delta, which the oil giant replaced in 2010 at a cost of $1.1 billion.
Pan Ocean Oil Corporation Nigeria Limited, operator of the NNPC/Pan Ocean Joint Venture, clinched OML 24 after submitting a bid of $900 million for the asset valued at between $500 million and $1 billion.
OML 24 currently delivers 25,000 barrels of oil equivalent per day from three fields and eight million standard cubic feet per day of gas (MMscf/d).
Lekoil, Crestar, Green Acres/CCC/Signet Petroleum, NDPR/SAPETRO and Essar submitted bids for OML 25. With a $500 million bid, Crestar won OML 25.
These successful bidders of the four oil blocks, which have paid 10 per cent of the bid price of the assets, have been given several deadlines to pay the balance but most of them have not met the deadlines.
Selling the Nembe Creek Trunk Line, which moves oil through the Delta to the Atlantic coast, would be Shell’s biggest move yet to exit onshore crude production in a region that has caused problems for decades.
Over the past year, the Nembe Creek line has had multiple punctures and closures, and at least one fire.
However, it is also a potentially lucrative source of revenue, given that other companies pumping oil in the region pay to use it to get their crude to the market.
The Shell-run entity that is selling the pipeline and oil blocks includes Shell, which has a 30-per-cent ownership stake, along with Total SA of France, which owns 10 per cent and ENI SpA of Italy, with five per cent.
The Nigerian National Petroleum Corporation (NNPC) retains ownership of the remaining 55 per cent in the four assets.
Meanwhile, the decision of the United States to stop the importation of Nigeria’s light blend crude oil due to the shale oil boom has exposed the country’s refineries to the dangers associated with the processing of lighter shale oil.
As a result of the increased domestic production of shale oil, the United States has slashed crude imports from a peak of almost 14 million barrels per day in 2006, to slightly above 7 million barrels per day.
Crude oil import from Nigeria, one of the principal sources of light crude, was also slashed from more than 1 million barrels per day in 2010 to zero in July 2014.
But the US refineries, Reuters has reported, are designed to handle medium blend crude as against the much lighter shale oil being produced in the country to replace imports from Nigeria and others.
US refiners are said to have shown a strong preference for a medium blend, but almost all the oil being produced as a result of the shale boom is much lighter than the refineries could handle.
Reuters reported that while imports of medium-heavy and heavy grades of crude oil (with specific gravity of less than 30 degrees) have remained roughly constant at 4.5 to 5 million barrels per day since 2007, imports of medium-light and light oils have dropped from 6 million barrels per day to just over 2 million.
Imports of the lightest grades of oil, the closest substitutes for domestic shale production, have been reduced from 2.5 million barrels in 2007 per day to just 500,000 in the first seven months of 2014, according to US Energy Information Administration (EIA).
The sudden change in the grades of crude oil processed by the refineries are said to have threatened the capacity of the plants to blend the different grades to derive the required quality of crude.
The refineries are said to be conscious of the quality and density of crude oil as “crudes vary considerably in terms of density, acidity, type of hydrocarbon molecules they contain, and presence of impurities such as sulphur and heavy metals such as nickel and vanadium”.
For instance, if the crudes contain too much acid or salt, the refinery’s equipment will be damaged by corrosion, while with too many heavy metals, the catalysts that aid refining will be poisoned.
Also if the crude oil is of the wrong density, it will be impossible to maximise the efficiency of the refinery’s distillation tower and other units.
But according to EIA, US’ crude oil production forecast – analysis of crude types released in May 2014, “roughly 96 per cent of the 1.8 million barrels per day growth in (domestic) production between 2011 and 2013 consisted of … grades with API gravity of 40 or above”.
To handle the lighter shale oil, the US refiners need to reconfigure their plants to handle a lighter average blend, but that would take time and also involve costly investment.
The simpler option, it was learnt, would be to lift the ban on crude exports and allow US refiners to continue to import and refine more of the heavier oils they prefer.