Deconstructing Renaissance Africa Energy’s audacious move on Shell

The recent announcement of Renaissance Africa Energy’s impending acquisition of The Shell Petroleum Development Company of Nigeria Limited (SPDC) is a noteworthy industry development. The acquisition is described as a “landmark transaction,” suggesting its strategic importance.

The announcement outlines a significant strategic move by Renaissance to acquire SPDC, with a focus on collaboration, smooth transition, and regulatory compliance.

Renaissance Africa Energy is revealed to be a consortium, composed of ND Western Limited, Aradel Holdings Plc., the Petrolin Group, FIRST Exploration and Petroleum Development Company Limited, and the Waltersmith Group. The collaboration of these entities is bound to bring diverse skills, resources, and experiences to the table, potentially enhancing the overall capabilities of the consortium.

The acquisition is positioned as a milestone for Renaissance, indicating that it plays a pivotal role in the expansion strategy of the consortium. This move could enable Renaissance to strengthen its foothold not only in Nigeria but also in the broader African energy sector.

For Shell, the decision aligns with the company’s strategic focus to exit onshore oil production in the Niger Delta. The company plans to concentrate its future disciplined investment in Nigeria on Deepwater and Integrated Gas positions. This indicates a shift in focus towards these specific areas within the country. Three other main businesses in Nigeria will not be affected by this transaction. These include Shell Nigeria Exploration and Production Company Limited (SNEPCo), Shell Nigeria Gas Limited (SNG), and Daystar Power Group. Shell’s interest in NLNG (25.6%) is also outside the scope of this transaction.

The fine art of crafting the deal

Gleaning through Shell’s announcement of the impending deal provided further insight into the strategic decisions and financial implications of the transaction.

First, the divestment involves the sale of SPDC to Renaissance Africa Energy, a consortium of five companies in acquisition terms that include a consideration payable to Shell of US$1.3 billion, with additional cash payments of up to US$1.1 billion related to prior receivables and cash balances. The amounts above will be adjusted to reflect any shareholder distributions, above US$200 million, made prior to completion

Second is the approval process and conditions. The completion of the transaction is subject to approvals by the Federal Government of Nigeria and other conditions. The deal has been structured to preserve SPDC’s operating capabilities, including technical expertise, management systems, and processes for the benefit of the joint venture.

Third is the assets involved; SPDC JV holds 15 oil mining leases for petroleum operations onshore and 3 oil mining leases for petroleum operations in shallow water in Nigeria. As of December 31, 2022, SEC proved reserves subject to the transaction were approximately 458 MMboe.

Fourth, relates to the future involvement of Shell. Following completion, Shell plans to retain a role in supporting the management of SPDC JV facilities that supply a major portion of the feed gas to Nigeria LNG (NLNG). Shell will provide additional financing of up to US$1.3 billion over future years to fund SPDC’s share of the development of gas resources for NLNG.

Finally, a look at the financial information shows that the net book value of the entity subject to the transaction is approximately US$2.8 billion as of December 31, 2023. Economic performance accrues to the buyer from December 31, 2021 (the effective date). Shell expects to recognize impairments in respect of the business up to the date of completion, depending on the future financial performance. At closing, Shell will provide secured term loans of up to US$1.2 billion to cover various funding requirements.

Echoes of Seplat-ExxonMobil sour deal

The invalidation of the Seplat-ExxonMobil deal by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) raises concerns. However, the expressed optimism from the NUPRC CEO, Gbenga Komolafe, during the last Africa Oil Week in South Africa indicates the possibility of a resolution and a glimmer of hope.

The other angles which added layers of complexity surrounding the Seplat-ExxonMobil deal include the legal disputes between NNPC and the Akwa Ibom State government and also the rift between the then Minister of State for Petroleum and the Group Managing Director of NNPC. These conflicts created uncertainties and affected decision-making, towards consummating the deal.

The setback suffered by the invalidation of the Seplat-ExxonMobil deal did not in any way discourage Renaissance Africa Energy from pursuing similar ambitious initiatives.

Can Renaissance Africa Energy bite the bullet?

The commitment to ensuring a smooth transition suggests that Renaissance Africa Energy is aware of the challenges associated with such acquisitions. This commitment is crucial for maintaining operational continuity and addressing any potential concerns among employees, stakeholders, and the broader industry.

The announcement emphasizes collaboration with SPDC’s industry-leading staff. This indicates an intention to leverage the existing expertise within SPDC, recognizing the value of its workforce in achieving continued growth and success.

Renaissance Africa Energy expresses a commitment to working in partnership with all stakeholders in the SPDC-JV (Joint Venture). This highlights an understanding of the importance of maintaining positive relationships with various entities involved in SPDC’s operations, including government bodies, local communities, and other industry partners.

As expected, the completion of the transaction is subject to regulatory approvals, indicating that the consortium is aware of the legal and regulatory framework governing such acquisitions. This also suggests a commitment to conducting the acquisition process in accordance with relevant laws and regulations.

This is a significant move for Renaissance Africa Energy, positioning the consortium as a key player in the Nigerian energy market. The success of this acquisition will likely depend on the consortium’s ability to navigate regulatory processes, effectively integrate SPDC’s operations, and collaborate successfully with all stakeholders.