Olu Verheijen’s flawed investment appraisal
Sopuruchi Onwuka
The calculation by the Special Adviser to the President on Energy, Olu Verheijen, that the Nigerian energy industry attracted impressive $6.7 billion investments in 2024 has found players in the industry looking around in surprise.
In presenting the Presidency Energy Sector Wrap-Up 2024 from her Abuja office weekend, Mrs Verheijen also stated that Nigeria would witness over $5.0 billion in gas investments with potential for over $30 billion in deep offshore investments by 2029.
She stated that the large inflow of cash from petroleum investments present opportunities for further growth and development and also marks a turning point for the country’s energy landscape.
In presenting the breakdown of the investments, Olu Verheijen pointed at some investment decisions for development of Nigerian deepwater oilfields as well as acquisition of divested assets in the onshore, swamp and shallow offshore oilfields.
According to her, oil and gas industry accounted for large investment inflow in 2024 totaling $5.5 billion. She listed Shell’s decision to embark on $5 billion investment in the Bonga North deep offshore project, describing the investment decision as historic and the first greenfield deepwaterdevelopment in more than ten years.
Mrs Verheijen also pointed at $1.3 billion acquisition of Shell Petroleum Development Company (SPDC) Limited by Renaissance Consortium; $1.3 billion acquisition of Mobil Producing Nigeria Unlimited (MPNU) from ExxonMobil by Seplat Energy Plc; and Chappal Energies’ acquisitions of Equinor Nigeria Energy Company and TotalEnergies’ stake in SPDC operated JV.
“Seplat Energy Plc completed the acquisition of Mobil Producing Nigeria Unlimited MPNU from ExxonMobil Corporation ($1.3 billion (firm consideration).
“Chappal Energies completed the acquisition of Equinor Nigeria Energy Company (ENEC), a subsidiary of Norway’s Equinor ASA (US$1.2 billion).
“Chappal Energies completed the acquisition of TotalEnergies EP Nigeria’s 10% interest in the SPDC JV licenses in Nigeria ($860 million).
“Oando Plc completed the acquisition of the Nigerian Agip Oil Company (NAOC) ($800 million).
“These acquisitions unlock onshore fields for a new wave of ambitious indigenous companies, ready to invest and boost production.
“This shift strengthens local ownership, drives immediate growth in oil and gas output, and sets Nigeria on a path to a more stable and prosperous energy future.”
The deals, she interpreted, highlight the growing interest of both domestic and international players in the Nigerian market.
From the government’s side, Mrs Verheijen counted a $400 million intervention in the Presidential Metering Initiative (PMI) “to improve Nigerians’ access to, affordability of, and dependability of on-grid power.”
She also mentioned that $700 million went to projects for clean cooking and clean mobility, “which reflects a rising focus on sustainable energy solutions.”
For the gas industry, the report highlighted TotalEnergies and Nigerian National Petroleum Company (NNPC) Limited’s $550 million investment in the Ubeta non-associated gas project.
“Our goal, working with all industry stakeholders across public and private sectors, is to improve the availability, affordability, and reliability of on-grid power,” stated Olu Verheijen.
“This achievement reflects the bold reforms undertaken by the government to enhance the country’s investment competitiveness within the oil and gas sector,” she added.
The rich profile of the Presidential Adviser guarantees flow of expressive force and persuasions, a gift that brings her audiences into strong convictions. Yet, most people find it implausible to count government’s interventions as investments, given the established role of the state as provider of social services and enabler of business. It even becomes more difficult to align the government’s hyped interventions with resolution of real issues on ground.
In the power sector, for instance, government’s interventions in deployment of meters do not add extra kilowatt to the national grid. The meters are mere transaction instruments that facilitate payment of utility bills by existing consumers. It neither improves electricity supplies nor enhances access to supply channels. It would therefore be difficult to interpret acquisition and deployment of electricity consumption meters as credible investment towards access to supply.
Whereas Mrs Verheijen is right on the reforms by the current administration of the federal government to position the domestic petroleum industry to attract investments and grow production, counting the prevailing divestment and acquisition deals in the industry as significant part of achievements is highly defective.
While the transactions provide indigenous upstarts with entry and growth opportunities, the community of industry players and analysts actually lament the divestments by key international oil players as capital outflow.
Group Chief Executive of Oando Plc, Mr Wale Tinubu, stated in a different event that international oil companies (IOCs) in Africa divested over $10 billion oil and gas assets between 2014 and 2024 in a wave of recoup that seals the hope of further foreign direct investments in the African conventional terrains.
He stated that the IOCs hold no plan for continuous investment for steady growth of development in the African continent, adding that the prevailing divestments are driven by climate action, new focus on gas and the need for reallocation of cash to more promising investment environments.
In Nigeria, for instance, Shell operated JV has divested over $12 billion worth of assets on behalf of its partners since 2008. Other companies including Chevron, ConocoPhillps, Petrobras, TotalEnergies, Eni and Equinor have also since then sold significant portfolios mainly in the maturing onshore and shallow water terrains.
According to a presentation from FBNQuest, divestment deals are considerably responsible for acute foreign exchange squeeze in the economy, and they account for largest credit burden on the domestic banking industry.
In all the divestment deals, the acquisition funds are actually exported out of the country and can hardly count for any investment win for the local economy. The funds form substantial investment recovery by the exiting multinational oil firms. They are thus proceeds which are drawn from the domestic economy and directly flown out of the country as the IOCs give up significant part of their operations in the country.
Once more, the divestments do not translate any new direct investment as the buyers of the divested assets only replace the international companies in already existing ventures. Most of the buyers are actually wont to explore bypassed opportunities while some would naturally be quick to market with existing reserves in order to offset acquisition loans with last barrel production.
So, whereas Mrs Verheijen sang praises for the government’s efforts at attracting investments inflows, international analysts think that the acquisitions are actually investment losses that directly relate to the prevailing macroeconomic downturn.
International advisory firm, PricewaterhouseCoopers (PwC), contends that foreign investments might continue to elude Nigeria in response to the country’s negative real interest rate, galloping inflation and falling value of the Naira in the international money market.
The independent report from PwC countered Mrs Verheijen’s calculations with a different estimate showing that foreign direct investments in Nigeria dropped by 65 percent in first quarter of 2024 to mere $29.8 million. PWC made it clear that market disincentives may lead to further capital outflow from Nigeria in 2025.
In its “2025 Nigerian Budget and Economic Outlook,” the PWC declared that declining interest rates in advanced economies are likely to lead to a reallocation of funds to more competitive markets offering higher real returns, stressing that Nigeria may not benefit significantly from new investment funds due to its negative real interest rates.
The firm noted that investing in Nigeria has become challenging for foreign investors due to hyperinflation which reached 34.80 percent in December. It also pointed at Nigeria’s Monetary Policy Rate (MPR) which stands at around 27.50 percent.
The advisory firm stressed that likely increase of policy rates by the central banks of advanced economies in response to envisaged inflation in 2025 would certainly exacerbate capital outflows from economies like Nigeria, where it noted that negative real interest rates diminish the appeal of local assets to international investors.
