Divestments: Local Content and Nigeria’s deepwater future
Sopuruchi Onwuka
Projections by industry experts on the fate of the Nigerian deepwater petroleum explorations and production activities continue to be divided as foreign international oil companies that opened up the terrain showed little or no interest in capturing more exploration opportunities at the last commercial bid round.
Only two big multinational oil firms-Chevron and TotalEnergies-showed interest in two petroleum licenses; and only TotalEnergies captured an exploration license on PPL 2000/2001 out of the 31 oil blocks offered at the 2024 commercial bid conference hosted by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).
Commission Chief Executive of the NUPRC, Engr Gbenga Komolafe
In all, none of the existing Nigerian foreign partners renewed interest in the deepwater terrain which government officials have officially designated as the playground for the international oil giants.
So, when the Minister of State for Petroleum Resources (Oil), Senator Heineken Lokpobiri, declared that Nigeria’s deepwater oil and gas exploration activities would rapidly regain vibrancy, a few executives at the 2024 Practical Nigerian Content (PNC) conference sat up in hopes of significant disclosures.
And when he went on to explain that the new policy and fiscal incentives floated by the current administration of the federal government would now push the international oil companies to stake more funds in finding new resources towards realization of the national aspiration for more reserves and enhanced production capacity, the conference delegates who thronged Yenegoa for policy dialogue registered some disenchantment.
The annual PNC conference is hosted by the Nigerian Content Development and Monitoring Board (NCDMB) in Yenegoa, Bayelsa State, to bolster pan industry discourse on strategies for realization of prime national economic aspirations for the petroleum industry.
Despite the kinesics in the audience that disagree with his assertions, Senator Lokpobiri pressed on with explanations that the international oil firms which formed traditional oil and gas exploration and production joint venture allies to the government for decades have elected to cede all easy terrains to mainly indigenous independent companies in order to undertake more rewarding adventure in the deep offshore.
According to Lokpobiri, the big international oil companies hold the technology, financing and experience to venture into the deepwater where, he said, the indigenous independent companies lack the capacity to dare.
Minister of State for Petroleum Resources (Oil) Sen. Heineken Lokpobiri
The minister had floated the same narrative earlier at the 2024 Africa Energy Week (AEW) in Cape Town, South Africa, where he told delegates that the wave of divestments going on in the country do not denote mass exit of multinational players from the country. He declared that the foreign firms are merely responding to the allure of Nigerian deepwater opportunities.
However, the context of the Cape Town narratives is uniquely different from that of PNC. Both conferences addressed differing communities of players in their audiences. Whereas the AEW is a platform for African countries that compete for global exploration capital, the PNC is more of opportunity stage for local companies seeking better prospects from local content policy incentives in the industry.
Obviously, the PNC delegates who exchanged smiles as they shot glances across the hall hold different opinions from the minister; and most of them have been advised by paid consultants and analysts to follow different signals exuding from the prevailing divestment programme in the upstream petroleum industry.
Whereas the minister echoed the consistent pledges by the divesting international oil firms, different opinions flow from independent analysts who closely follow the developments in the Nigerian petroleum industry where oil majors currently auction critical assets across the onshore, coastal swamp, shallow water and deep offshore terrains.
Most of the industry captains and analysts interviewed by The Oracle Today see that the divestments by the IOCs as a clear withdrawal strategy in a measured step that is structured to align with envisaged demand decline associated with climate action and energy transition. Their migration deeper offshore is seen as a mop up campaign designed to produce as much volumes of petroleum as possible before projected peak oil and dreaded demand fall.
Unlike the onshore terrains where they have played for over six decades, the deepwater still holds substantial reserves that resulted from previous exploration investments. These reserves are yet to deliver any market returns. Therefore, analysts see them as too large to be stranded in a possible market crash. And only fringe interest holders like Equinor and Petrobras have already sold their stakes in the Nigerian deepwater.
Biggest players in the Nigerian deep offshore terrains include Shell which operates the Bonga fields including Bonga Main, Bonga North, Bonga Northwest, and Bonga Southwest and Aparo fields. The company also holds operating rights to a number of other undeveloped assets in the region.
ExxonMobil is also in the area with operating rights on Erha and Usan deepwater fields. It boasts of interests in third party operated assets, as well as other undeveloped assets including Bosi, Uge, Owowo and other fields which are yet to see development investments.
There is also the Italian Eni with a number of non-operated interests in the area but with strong investment plan for development and operation of the billion barrel Zabazaba and Etan deepwater fields. A unit of its affiliate Agip companies is actually the country’s first deepwater operator with its Abo field.
Chevron is in the deep offshore operating the high yield Agbami field, while retaining a number of non-operated interests in the area.
TotalEnergies is the king of the Nigerian deepwater, holding title as the most prolific producer which has facilitated development of more assets in the area than any other company. In one block alone, TotalEnergies has developed and operates the Akpo, Egina and Porewei deepwater fields. It also developed the ExxonMobil operated Usan field. It is also in joint development plan with ExxonMobil on the straddled Owowo deepwater field.
Other secondary players in the Nigerian deepwater included Norwegian Equinor, China National Offshore Oil Corporation (CNOOC), and Petroleum Brasiliero (Petrobras) among other companies with stakes in non-operated assets.
With little access to deepwater blocks during the era of military government in the country, companies like TotalEnergies and Chevron had moved in to manage oil blocks arbitrarily awarded indigenous novices like Theophilus Danjuma’s South Atlantic Petroleum (Sapetro) and Folurunso Alakija’s Famfa Oil respectively. And despite holding notional operating rights, it can conveniently be asserted that Sapetro and Famfa are never considered factors in the deep offshore petroleum play.
This league of big foreign multinationals had earlier dominated the onshore terrains of the Niger Delta where they operated the NNPC/Shell/Total/Agip joint venture (JV); the NNPC/MPN JV; the NNPC/NAOC/COP JV and the NNPC/CNL JV respectively.
However, the configuration of the NNPC JVs has significantly altered as the IOCs transfer their stakes to indigenous companies in a carefully designed capital recovery programme.
Therefore, while officials of government strongly assert that Nigeria remains in long term partnership with the international oil companies, many differing voices point at the ongoing divestment programmes in the industry as clear signal that the companies have actually activated a withdrawal process.
According to industry figures available to our correspondents, the IOCs have divested over $12 billion oil and gas assets in Nigeria between 2010 and 2024.
A document from Oando Plc cited some of the current and potential deals driving Nigeria’s oil and gas asset acquisitions to include Renaissance Consortium’s $1.3 billion acquisition of Shell Petroleum Development Company’s (SPDC’s) 30% joint venture interest; Chappal Energies’ $860 million acquisition of TotalEnergies’ 10% stake in SPDC JV; and Seplat Energies $1.2 billion acquisition of 40% interest in the NNPCL/ExxonMobil JV.
The deals also include Oando’s $783 million acquisition of Nigeria Agip Oil Company (NAOC) Limited which consolidates the company’s earlier acquisition of ConocoPhillips interest to transform the indigenous company into the operator of the NNPC/Oando JV.
The sale of the assets does not however translate to total exit of some of the oil majors from onshore terrains and widely reported. Whereas ExxponMobil, ConocoPhillips and Eni sold all onshore gas, power and oil assets; Shell retains some of its onshore gas business in the country; TotalEnergies sold all non-operated onshore interests; while Chevron sold assets where it has no immediate development plans.
Chevron and TotalEnergies still hold control of their operated JVs which also hold significant gas portfolios.
The retention of onshore gas assets by the divesting companies indicate clearly that the issues in the divestment programme have nothing to do with deepwater preferences but a lot to do with climate action.
This might actually explain why the divesting IOCs are not keen on taking more exploration licenses even in the deepwater. Rather, they are vigorously working on field development plans as a way of selling the notion that they are still investing in the country’s deepwater terrains.
So, while the government officials including the president celebrate investment decisions by companies like Shell, keen analysts observe a pattern of all new investments in the Nigerian deepwater-development and production investments! This new pattern of investments holds no sustainability prospect for the Nigerian deepwater petroleum activities. It will leave the deepwater brown and mature in no distant time; and lay justifiable reason for the same big companies to activate another round of divestments in the deep offshore terrain.
According to the Group Chief Executive Officer of Oando Plc, Mr. Wale Tinubu, the IOC divestment programme is not peculiar to Nigeria. He pointed at similar divestments in Gabon, Angola, Cameroon and Egypt.
Group Chief Executive Officer of Oando Plc, Mr. Wale Tinubu
In a presentation he delivered at the AEW in Cape Town, Mr Tinubu noted the Assala Energy $628 million acquisition of Shell’s onshore assets in Gabon; Etu Energies $443 million acquisition of Galp Energia’s stake Offshore Angola; and Savannah Energies $407 million acquisition of ExxonMobil’s Upstream and Midstream businesses in Chad and Cameroon.
He also pointed at Panoro Energy’s $180 million acquisition for all of Tullow’s assets in Equatorial Guinea and the Dussafu asset in Gabon, as well as Apex’s $45 million acquisition of 6 concessions in from International Egyptian Oil Company.
Wale stated that divestments in African oil industry are focused around gas, energy transition, decarbonization, a situation which he said is propelling IOCs to review their portfolios. He added that IOC divestments which are prevalent in the African region have reduction of carbon footprint, climate action and new focus on gas as priority.
“Divestment is also driven by need for cash as seen XOM sale of Nigerian assets while boosting new investments in Guyana,” he stated, noting that the IOCs have “no continuous investment for steady growth of development in the continent.”
Industry thought leader and prolific investor, Mr Austin Avuru, stated in an interview that the exit of the IOCs from Nigeria is inevitable and awaiting.
Chairman of AA Holdings, Mr Austin Avuru
He explained that it is natural in the industry that big players vacate maturing terrains for independents to harness probable and potential reserves while exploring for bypassed reserves. He also noted that even the Nigerian deepwater is fast getting mature and would in no distant time lose its allure for big players.
Mr Austin Avuru is an eminent geologist who has earned immense experience in oilfield operations, high level executive management, high-risk and high-return investments, industry leadership, policy advocacy and investment advisory.
Mr Avuru is the founding Managing Director of Platform Petroleum, founding Managing Director of Seplat Energy Plc, lead investor in Pillar Oil, and currently the Chairman of AA Holdings. He is an eminent Fellow of the National Association of Petroleum Explorationists (NAPE), Society of Petroleum Engineers (SPE) and a member of Institute of Directors (IOD).
In providing insight into the activities at the Nigerian deepwater oil operations, he noted that the initial production floaters like the Shell’s Bonga FPSO, TotalEnergies’ Akpo FPSO, ExxonMobil’s Erha FPSO and Chevron’s Agbami FPSO have all produced for nearly 20 years.
He also noted the trend of declining production from the deepwater as signs that the area is already registering maturity.
“So when the area gets mature as it has happened in the North Sea, the IOCs will also leave and the independents will step in to scoop the last barrels,” he explained, adding that the future of the deepwater will eventually fall into the hands of the capable independent companies.
On the capacity of indigenous companies to play in the deepwater, Mr Avuru was emphatic that the only way to groom the capacity is tp provide the opportunity to operate. He pointed at indigenous companies like First Exploration and Production Limited which, according to him, have performed excellently in the shallow water.
Mr Avuru stated that any company that has performed creditably in the shallow water could be trusted with deepwater assets. He explained that all offshore assets have similar operating concepts, adding that the major difference remains the scale of investments.
Also speaking on the same subject, the Executive Director of Hobark International Limited, Dr Emmanuel Okoroafor, noted that the Nigerian deepwater petroleum industry is on the verge of irreversible crew change.
Executive Director of Hobark International Limited, Dr Emmanuel Okoroafor
He made it clear that the caliber of indigenous services providers and Nigerian professionals already working for IOCs in the deepwater are evident that the country has groomed adequate capacity to operate in any terrain.
He pointed at all the Nigerian Managing Directors of Shell companies in the country, top Nigerian management executives in all the IOCs and the capable indigenous companies providing world class oilfield services to offshore petroleum operations across the world.
In commending the Nigerian Content Development and Monitoring Board (NCDMB) on efficient delivery of its local capacity building mandate in the past 14 year, Dr Okoroafor noted that time has come to start challenging indigenous companies with deepwater jobs to guarantee their competence to operate at all terrains.
