IOCs’ selloff frenzy signals Nigeria’s decline as oil giant

In January 2021, Tony Elumelu’s TNOG Oil & Gas Limited bought a 45 percent stake in Oil Mining Lease (OML) 17 for over $800 million from oil majors, Shell and others. It planned to grow production from 27,000 barrels per day (bpd) to 100,000 barrels, a peak reached in the past.

By December, the company had grown production by 40,000bpd but was only receiving the value of fewer than 10,000bpd from crude it pumps into the terminal.

Divestments by International Oil Companies (IOCs) used to provide local operators an opportunity to prove their mettle, taking declining fields past production peaks, and improving host community relations to deliver higher royalties to the government; now local operators are scrambling to extract value from divested fields.

Yet, Nigeria is witnessing the biggest divestment drive by the IOCs. Shell, ExxonMobil, Chevron, Eni and Total are all involved in efforts to offload their onshore and shallow-water assets. Fields that once accounted for more than two-thirds of all of Nigerian oil production no longer represent value for multinationals, whose access to financing is critical for their development.

Analysts say this spate of divestments in an oil industry troubled by existential threats without new investments could herald Nigeria’s decline as a major oil producer.

“A steady flow of divestments in the absence of big-ticket projects bringing in much-needed fresh capital into the Nigerian oil and gas industry may be a cause for worry for policymakers or a signpost on the need to do things a little differently,” said Olufola Wusu, an energy lawyer and partner at Megathos Law Practice.

Fed up with rampant crude theft and sabotage of their oil and gas infrastructure, hostile host communities that have forgotten that social service is the government’s chief function, and multiple government agencies who have legitimised extortion in the name of taxes, oil majors are hedging their risks by holding on to deep-water fields.

“Offshore 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 IOCs,” Wusu said.

In its 2021 briefing notes, Shell reported that in the last quarter of the year, crude oil theft from pipelines across the region increased ostensibly as a result of rising oil prices, which made the activity more profitable. Security risks have heightened and production in some areas has been put on hold.

The danger for Africa’s biggest economy is that oil majors now see divestment in Nigeria without investments in their deep-water fields as the best path to return value to shareholders. This situation has crimped government earnings from the oil sector compelling the President Muhammadu Buhari government to a mad dash for loans.

Over the last decade, Shell Petroleum Development Company has reduced its licences in the Niger Delta by half and completed in 2021 the sale of its 30 percent interest in OML 17 in the Eastern Niger Delta

“Options for the remaining onshore portfolio are under consideration,” the company said.

Shell’s onshore and shallow water assets include 30 percent participant interest joint ventures in 263 producing oil wells (157 West assets and 106 East assets), 56 producing gas wells (4 West assets and 52 East assets), and 52 producing oil wells are up for sale.

Other assets include a network of 3,173 kilometres of operating flow lines and pipelines, six gas plants, two major oil export terminals and one power plant, which could also be up for sale.

ExxonMobil’s Nigerian unit, Mobil Producing Unlimited, seeks to unload its entire asset portfolio in Nigeria which consists of 40 percent operating ownership of OMLs 67, 68, 70, 104 and associated infrastructure, the Qua Iboe Terminal, one of Nigeria’s largest export facilities and 51 percent interest in Bonny River Terminal and Natural Gas Liquids Recovery Plants at EAP and Oso.

TotalEnergies is seeking to sell its interests in 16 onshore fields and three in shallow water, producing over 20,000 barrels of oil equivalent per day. The sale includes infrastructure such as 3,500 km of pipelines connecting to two key crude export terminals, Bonny and Forcados.

Chevron and Eni are also seeking to divest from their interests in 10 fields and seven fields respectively in the Niger Delta.

The net effect of their departure from these fields is worsening output in Nigeria’s oil production. Already, Angola and Libya have overtaken Nigeria as top producers as output has dipped below 1 million bpd.

“The Nigerian oil industry from 2022 will be taken over by independents, whether they are Nigerian or foreign independents because the IOCs are not coming back,” Uduimoh Itsueli, a former chairman of the Nigerian National Petroleum Corporation and chairman of Dubril Oil Company Ltd, said in an interview.

“But these independents do not have the clout of the IOCs and their capacity to absorb shocks to their operations is limited,” he said.

IOCs could curtail operations on account of crude theft and still make profits from other investments or other regions but local operators and independents may not have this capacity.

“IOCs have, over the years, amassed a wealth of experience and competency navigating the challenging business environment, a significant gap that the local oil companies (LOCs) have to fill within a short period,” said Ese Osawmonyi, a senior analyst at SBM Intelligence.

Osawmonyi said the preparedness of LOCs to operate these onshore assets, specifically in operational efficiency, increased productivity and revenue-generating capabilities remains an essential concern for the federal government and other market players.

For example, the SPDC JV produced 383,000 barrels of oil equivalent in 2021, compared with 497,000 barrels of oil equivalent in 2020. “The fall in output was largely a result of curtailed oil production because of heightened security issues, such as crude oil theft and illegal oil refining,” the company said.

Whereas IOCs can curtail production, local companies may be forced to shut the fields entirely.

Source: norvanreports.com