Why Shell May Not Renew Oil Blocks In 2019

Seventeen of SPDC’s (Shell Petroleum Development Company) oil blocs will fall due for renewal in 2019, giving the oil multinational the option of either renewing or relinquishing them.

The oil blocs are located onshore in the Niger Delta, an area that has historically been a hotbed of military insurgency and communal unrest. Shell has in the past few years, divested its holdings on the back of difficulties encountered while operating in this region, including the vandalization of oil infrastructure, oil theft and insecurity. It has divested its interests in at least 8 onshore Oil Mining Leases (OMLs), from 2010 to date, marking a gradual shift away from difficult places like Nigerian onshore oil and in line with its global strategy of optimizing capital and getting back to growth.

Royal Dutch Shell, its parent company has been on a divestment drive. It has been seeking to cut debt and increase its cash flow following its acquisition of BG Group, which made it Europe’s largest oil and gas company.

Last month, the parent company’s CFO stated that the company was making significant progress on up to $5 billion of asset disposals, after two divestments worth $4.7 billion in February this year, including a large part of its North Sea portfolio.

Shell is also looking to sell its operations in Gabon.

The biggest sign of uncertainty around the renewal of its blocs is its plan to continue to reduce capital spending in 2017, after it spent lower than expectations in 2016.

Low crude oil prices, may also discourage Shell from renewing. Analysts forecast of oil prices are they may continue to trade in the current range or even dip further.

Furthermore, being an election year, the company may decide to wait in 2019 for the results of the Presidential elections before finally making a stand.

The Nigerian oil and gas industry has been tilting towards Indigenous oil firms who are eager to play bigger roles in Nigeria’s oil production.

Whether it will relinquish these assets is still not clear, as the firm expects some of its growth to come from $10 billion of new projects coming on stream by 2018, adding more than 1 million barrels of oil equivalent per day.