March 2, 2024
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OIL & GAS

Why Exit of Major Oil Companies Posed Threat to Nigeria’s Oil Industry Growth

Nigeria has for years struggled to halt the decline in its oil production, resulting in diminished government revenues and preventing Africa’s largest OPEC producer and exporter from fully capitalizing on the 2022 surge in oil prices.

Simultaneously, Nigeria has witnessed the departure of major oil companies from the tumultuous onshore Niger Delta, plagued by issues such as oil theft and illicit pipeline tapping, leading to frequent oil spills attributed to these major players.

The onshore region, marred by security challenges, has fallen out of favor in the increasingly competitive and streamlined oil industry, particularly after two price crashes between 2015 and 2020. Unable to rival the cost-effectiveness and enhanced security of exploration and production in other areas within the portfolios of major oil companies, Nigeria’s onshore sector is no longer considered a focal point for future development in Big Oil’s strategic planning.

In 2023 and early this year, more international oil companies divested or expressed interest in selling their onshore assets in Nigeria. The trend from the last few years has become more apparent—Big Oil prefers to spend cash on more lucrative and secure projects than on the Niger Delta onshore region plagued by illegal activity for years.

U.S. supermajor ExxonMobil intends to sell its shallow water business in Nigeria to Seplat, the biggest Nigerian energy company by market value. The deal is still bogged down at the Nigerian regulator, although the chief executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, told Reuters in October that the commission was “very optimistic” the $1.3-billion sale would move forward.

ALSO READ: Shell’s Sale of Onshore Assets Unclear New Era for Nigerian Oil – Analysts

Nigeria Withdraws $1.1 Billion Claim against Eni on Oilfield Deal

A month earlier, Italy’s Eni according to OilPrice.com, signed a deal with Nigeria’s energy company Oando PLC to sell Nigerian Agip Oil Company Ltd (NAOC Ltd), the wholly Eni-owned subsidiary focusing on onshore oil and gas exploration and production in Nigeria, as well as power generation. Eni continues to operate in the country, focusing on operated offshore activities. Participation in operated-by-others assets, both onshore and offshore, and Nigeria LNG remain in the Eni portfolio, too.

In line with its plan through 2026, Eni’s global Upstream business “will supplement the core organically led growth with inorganic high-grading activity, adding resources with incremental value while divesting resources that can offer greater value and opportunities to new owners,” the Italian major said.

Then in November, Norway’s Equinor announced the sale of its Nigerian business to local firm Chappal Energies. Equinor’s assets include a 53.85% ownership in oil and gas lease OML 128, including the unitized 20.21% stake in the Agbami oil field, operated by Chevron.

Like Eni, Equinor said that the transaction realizes value and “is in line with Equinor’s strategy to optimize its international oil and gas portfolio and focus on core areas.”

The latest divestment announcement came from Shell, which said earlier this month that it would exit Nigeria’s onshore oil and gas industry but would remain a major investor in the country’s energy sector through its deepwater and Integrated Gas businesses.

Shell has struggled with its onshore business in Nigeria for years and has had its fair share of troubles there, including several lawsuits over oil spills from local communities.

As a result of regulatory, security, and environmental issues, investments in Nigeria’s oil and gas industry have slowed over the past few years, leading to a drop in oil production, which has made Africa’s top oil producer the biggest laggard in the OPEC+ agreement.

Nigeria hasn’t pumped to its quota under the deal and had its ceiling reduced once before OPEC+ handed it a 1.5 million barrels per day (bpd) quota for 2024 at the meeting in November 2023. That meeting was postponed by a few days due to disagreements over quotas with Nigeria and Angola, which had the latter announced it was quitting OPEC.

Nigeria, however, is still part of the cartel and the OPEC+ agreement and even hopes to boost its oil production this year and in the following years.

The administration of the new president, Bola Tinubu, who took office in May of 2023, has been looking to attract investments. In the absence of the deep pockets of Big Oil for onshore operations, Nigeria will have to rely on local oil firms and consortiums of smaller companies to revitalize its onshore oil sector after years of underinvestment and still ongoing oil theft and vandalism on petroleum facilities.

“If companies are now leaving the less capital-intensive onshore operations to focus on offshore operations, it sends a perfect picture of the risk involved in doing business in Nigeria,” Seyi Awojulugbe, a senior analyst at Lagos-based security consultancy SBM Intelligence, told Reuters.

Local firms could have an easier time negotiating with local communities, which could make their doing business in Nigeria’s onshore oil sector easier, Noelle Okwedy, an energy analyst at intelligence firm Stears based in Lagos, told the Financial Times last month.

“For local companies who don’t have the billions of dollars in capital to invest in offshore assets, buying these assets is a chance for them to expand,” Okwedy noted.

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