Reasons why oil majors are leaving Nigeria
Sopuruchi Onwuka
Key issues bordering mainly on the congeniality of business environment form the major reasons why Nigeria’s traditional petroleum industry partners are scaling down their businesses in the country in a move that have clearly indicates eventual exit from the country.
Key industry leaders who expressed concerns over the seemingly coordinated asset divestment programmes by the multinational oil firms that form the pillars of the Nigerian petroleum industry demand that regulators examine the reasons for the exodus of investors.
Biggest petroleum investors including Shell, ExxonMobil, Total, Chevron and Eni have since 2010 started clawing back their investments in the country through phased divestment programmes that have seen them recover over $12 billion from stakes in brownfield or dormant assets onshore Niger Delta.
In more recent divestment programmes, ExxonMobil listed its Nigerian assets as part of its wider plan to generate some US$15 billion by 2021 and US$25 billion by 2025 from divestments. Chevron is also seeking to divest its equity in eight Nigerian onshore and in shallow water blocks as part of a global drive to reshape its portfolio.
Total’s 12.5% stake in the Nigerian offshore block OML 118, which includes the Bonga, Bonga Southwest and Aparo fields, is also up for sale as part of the French major’s bid to raise US$5 billion from asset sales around the world.
Shell also declared massive capital recovery from Nigeria; offering its stakes in dozens of vulnerable onshore, swamp and shallow offshore assets for sale. Shell’s divestments from onshore assets traditionally carry cumulative 45 percent interest it shares with Total and Eni.
The onshore and shallow water assets on sale are operated by the companies under joint venture agreement with the Nigerian National Petroleum Company (NNPC) Limited. The deepwater assets offered by Total are also operated by Shell under a Production Sharing Agreement (PSA) with the NNPC Limited.
Despite reiterating their intentions to retain and operate their hydrocarbon portfolios as critical revenue source to finance their diversification into new energy, international oil companies continue to drive their asset divestment programmes in Nigeria.
Whereas indigenous and foreign independent oil firms see opportunity in the divestments, discerning industry observers raise concerns over the massive capital outflow from Nigeria, pointing out that the capital recovery by the deep pocket oil firms was coming at a time of global financing for petroleum projects are shutting down.
At the 2021 Business Forum hosted by the Nigerian Gas Association, panellists hazarded explanations on why oil industry’s biggest investors are pulling out of the country.
Erstwhile President of the NGA, Mrs Audery Joe-Ezigbo, opined at a panel discussion that commitment to environmental and social governance (ESG) by multinational companies has started impacting on their local investments in Nigeria.
Mrs Joe-Ezigbo pointed at diversion of international financing flow towards low carbon energy and pressure on oil majors to diversify into low carbon portfolios.
The Oracle Today reports that the foreign multinational companies had in response to ESG pressure during the COP26 conference in Glasgow early in the month declared their unwillingness to abandon their petroleum portfolios in a total switch to green energy investments.
The oil companies most of which have changed to energy companies to reflect portfolio diversification in response to pressure from investors and regulators, and also in compliance to emission reduction commitments, now amplify the role of fossil fuel in meeting the immediate energy demand and generating the needed revenues required to finance investments in cost intensive and low return renewable energy industry.
Chairman of RoyalDutch Shell, Mr Ben van Beurden, declared that the company relies on its traditional oil and gas business to fund transition to net zero by 2050, adding that the company would continue production of petroleum fuels to meet immediate and midterm demands.
Mr Van Beurden stated that whereas the company was still committed to its net-zero pledge, Shell would rely on cash from its oil and gas business to pay for investments in green portfolios required to transition to carbon free energy business. He also dismissed calls on the company to split its legacy oil and gas business from its renewables investment.
Mr van Beurden argues that that global reliance of fossil fuel must be managed down over time to avert future price shocks.
He supported the position of the Secretary General of the Organization of Petroleum Exporting Countries (OPEC), Dr Mohammed Barkindo, that the industry is adapting to new technology to transform its legacy petroleum facilities to produce cleaner biofuels and hydrogen energy.
Blackrock, one of the largest asset managers in the world with over $13 trillion in pension and savings portfolio, also faulted the growing clamour on the part of many pension fund trustees and their scheme members to dump or divest shares in fossil fuel businesses to starve them of capital.
The Chief Financial Officer of BP, Murray Auchincloss , also argues that underinvestment in petroleum development and “significant constraints in energy supplies” threaten global economic recovery from pandemic downturns of 2020.
Chairman of TotalEnergies, Mr Patrick Pouyanne, and the Chief Executive Officer of BP, Mr Bernard Looney, separately expressed the views of their companies for sustained investment in petroleum development in order to achieve a smooth transition to green energy.
At the World Petroleum Congress (WPC) 2021 that ended in Texas, United States; government and industry delegates reviewed the Glasgow Climate Pact and warned that transition from petroleum to renewables would be messy for many years and lead to sharp energy price volatility as demand and supply clash.
Chief Executive Officer of Hess Corporation, John Hess, declared at the world’s biggest petroleum industry conference that the global quest to develop new energy forms must not be run into conflict with the existing fossil fuel industry.
He stated that oil and gas should be seen as part of the solution and not perceived as problem to orderly energy transition.
Chief Executive Officer of Spain’s Repsol, Josu Jon Imaz, stated at the WPC that a reliable supply of oil and natural gas must be guaranteed by energy companies as demand would continue in the coming years.
He stated that the prevailing distortions and volatility in the market have begun to hurt families with energy bills as high prices affect households during a strong global push to move away from fossil fuels.
Chief Executive of America oil multinational, ConocoPhillips, Ryan Lance; warned in a panel discussion that hasty switch from use of oil and gas could create huge energy supply gaps, spur price jumps and induce global inflation.
Government proposals to halt investments in new oil, gas and coal production “didn’t do anything about the demand side or inflation,” h stated.
Managing Director of Oil and Natural Gas Corporation (ONGC) of India, Subhash Kumar, warned against pushing the unprepared world into energy transition, noting that consumers and markets are not prepared to make the transition to clean fuels as quickly as some want.
Panel discussants criticized global political leaders for making demands on both sides of the industry: calling for speedy transition from fossil fuels while calling on OPEC+ producers to boost market supply to meet immediate fossil fuel demand.
The CEO of Suncor Energy Incorporated of Canada, Mark Little, lamented the tendency of political leaders to focus on supply as solution to prevailing energy crisis, adding that energy transition advocates demand cheaper and adequate petroleum supply while demonizing the producers.
With the global oil players standing firm on their position to continue earning revenues from the prevailing strong demand for oil and gas, it become a puzzle why the same firms appear to be winding down in Nigeria.
At the NGA Business Forum, the Managing Director of the Nigerian Liquefied Natural Gas (NLNG) Limited, Mr Phillips Msheibila, tasked government to find out and sufficiently address the reasons why critical industry players are pulling out of the country.
Mr Msheibila pointed out that the IOCs are pulling investments from the country despite the celebrations around the PIA and the Decade of Gas.
He called on the government to evaluate the domestic business environment and address host community, national security and economic issues that cause investment flight in the country’s upstream petroleum industry.
Shell holds operating stake in the NLNG, and Mr Msheibila is a senior official of Shell Companies in Nigeria.
Shell had pointed at the vulnerability of its onshore operations to vandalism and associated production disruptions, costly repairs, environmental liabilities and host community crisis as the major reasons for giving up the assets.
“We have been reviewing positions that continue to be challenged from an environmental perspective, and a particular point of attention has been onshore oil in Nigeria… we have reduced the total number of licenses in onshore Nigeria by half. But unfortunately, our remaining onshore operations continue to be subject to sabotage and theft,” Van Beurden said at the Shell AGM on May 18, 2021.
“It means that the balance of risks and rewards associated with our onshore oil portfolio in Nigeria is no longer compatible with our strategic ambitions,” he explained, adding that Shell would continue to operate its deepwater assets in Nigeria.
Shell operates the Bonga oilfields in deep offshore Nigeria. It holds significant stakes in non operated assets in the same terrain, especially the Zabazaba field operated by Eni.
Other IOCs including Total, ExxonMobil and Chevron also hold and operate significant oil and gas assets in deepwater Nigeria.
However, despite their deepwater oil assets and investments, many in-country analysts are convinced that the international oil firms are in the last phase of their Nigerian operations.
Chairman of AA Holdings, Mr Austin Avuru, pointed out in a chat with The Oracle Today that Nigeria’s exploration boom has since peaked. He explained that the country holds little or no marginal attraction that fit into the portfolio size of deep pocket explorers.
In responding to a different question about falling rate of exploration drilling in both onshore and deepwater sedimentary terrains, Mr Avuru said that every player knows that ‘we are in the final stage of squeezing out that last barrels.’
Mr Avuru is an eminent geologist who stands tall in the National Association of Petroleum Explorationists (NAPE), Nigerian Mining and Geosciences Society (NMGS) and Institute of Directors of Nigeria. He is the founding Managing Director of London listed Seplat Energy Plc, and the Chairman of Platform petroleum.
Mr Avuru said that all the IOCs already know that existing ocean floor geological models have already produced the best exploration results, adding that current exploration efforts are merely searching for bypassed reserves.
He dismissed concerns about energy transition as the likely reason for the divestments in the country, saying that the prevailing strong demand in the market place remains a strong commercial incentive for any investor.
He instead pointed at exploration peak in the country, the altering fiscal terms, social instability and worsening security as the unmistakable signals for any foreign investor to begin capital recovery in preparation for eventual flight.
He pointed out that the focus of IOCs’ drift into deepwater is to fast track development and production from already discovered reserves. He predicted that licensing tenures for the emerging developments in the deep offshore Nigeria would complete the maturity of all Nigeria’s petroleum plays.
Mr Avuru stated that divestment of assets from foreign to indigenous players would be a continuous exercise even into the deepwater until there is a complete change of ownership at all brownfield assets that would be left behind by the IOCs.
The Oracle Today reports that government is increasingly empowering the NNPC Limited to assume exploration role in the country’s inland and deepwater frontiers, a move which confirms drastic fall in wild cat exploration by commercial investors.
Meanwhile, part of the resolutions at the 2021 NGA Business Forum is a call on government to comprehensively address all factors that currently propel capital flight from the country. The group demanded that the local environment must be primed for ease of doing business in order to achieve the economic diversification agenda of government.