Stalled divestments take toll on oil industry investments

• Production decline worsens

Sopuruchi Onwuka

Waning investment appetite in operated shallow oilfields onshore and shallow offshore Niger Delta has become a confirmed signal that the operators of the joint ventures have switched off their neuro-motors from the assets. And government’s poor management of the situation is killing the industry.

The luminous sample of the situation, the Oracle Today reports, is the lingering approval mess stalling the divestment of commercial interests of Mobil Producing Nigeria (MPN) Unlimited in the thorny transaction to sell the assets to Seplat Energy Plc.

The billion dollar divestment deal which trails similar divestments by Shell, Total, Eni, Chevron and ConocoPhillips ran into impasse when the Nigerian National Petroleum Corporation (NNPC) Limited and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) jointly influenced reversal of ministerial and presidential assents to the asset transfer.

The hands of politicians in the deal which ought to be purely commercial transaction has since triggered alarm in the domestic petroleum industry where protracted investment apathy has caused global players, including Nigeria’s traditional partners, to channel new investments to new petroleum plays in Africa and elsewhere around the world.

While sinking huge investments in countries like Guyana, Brazil, Angola and Guinea at a time of high oil prices; international oil companies like Chevron, Total, ExxonMobil, Eni and Shell are currently winding down operations in Nigeria.  

Despite selling significant JV assets that currently form the foundation for indigenous independent upstarts in the upstream exploration and production business, Shell and its partners have also offered up for sale their stake in the entire JV assets operated by Shell under their jont operating agreement (JOA) with NNPC.

Chevron Nigeria Limited is stilling dolling out units of assets for divestment as the American multinational appears to take more cautious approach in a measured exit pace.

Both ExxonMobil Corporation and Seplat Energy Plc have separately informed their shareholders in New York and London respectively that they would continue pressing for conclusion of the deal in which the American behemoth has offered up all its JV interests for sale.

Shell and partners who had put their entire JV interests in one market tray have quietly pulled the assets from the shelf as the industry carefully observes the outcome of the intrigues that has caught up both ExxonMobil and Seplat in a political cobweb.

And with the scare situation in the divestment market, sustainability crisis in the operating environment and a myriad of operating disputes with government; the IOCs are currently no longer exploring actively in operated deepwater concessions despite mopping up huge revenues from the market.

They have also not participated directly in most of the latest exploration rounds in the country, pointing at the country’s preferential block allocation clauses that promote rights if first refusal.

“It just doesn’t make sense that after you have spent time, money and efforts winning a bid, one guys just steps up the podium to with a signature bonus,” the Managing Director of one of the American majors had told our correspondent during the last competitive bid round in Nigeria.

“We are not local players. I am an upstream guy. My proposals are upstream. I don’t intend to run refineries or fertilizers in Nigeria. We have a clear focus on what we want to do in our operations around the world. And what we decide is mostly recommended by the environment. So, in Nigeria for example, we bring investments, technology and our global expertise to the upstream business,” our source said about his company’s non participation in a mini-bid round held by the defunct Department of Petroleum Resources (DPR) for strategic downstream investors.

Therefore access for the big majors since early 2000s is limited to partnerships and operating contracts with non-capable rent-seeking indigenous players that earned political patronage with deepwater assets.

Currently, the attention of the big players focuses on development and recovery of already discovered deepwater hydrocarbon reserves; posting signals that the IOCs are definitely fed up with the Nigerian system.

Although it was not explicitly mentioned during the several industry leadership sessions at the just concluded Nigerian International Energy Summit (NIES); the heads of Shell, Total, ExxonMobil, Eni and Chevron in Nigeria jointly called for enhanced operating environment and international operating standards as the only route from the prevailing investment quagmire in the Nigerian oil and gas industry.

Eminent industry analyst and professional leader, Mr Austin Avuru, was a bolder and more explicit. He told policy drivers and regulators that poor management of transition in the domestic petroleum industry is principally responsible for speedy production decline, arguing that deal impasse stalls investments in production optimization.

Mr Avuru who recently retired as the Managing Director of Seplat Energy Plc made it clear that opportunities must be created for efficient and capable independent players to step into the shoes of fleeing major international oil companies that currently divest mature assets in the country.

He made it clear that access to assets must never a political decision, stressing that only capable hands in the industry could drive progress from where the IOCs have stopped. He called on government agencies responsible managing the crew change from foreign companies to indigenous players to be more circumspect discerning capable hands.

In citing the way Seplat Energy and Platform Petroleum have both managed assigned assets with total efficiency, he pointed at the high level of resource value optimization, huge investments, high output and large economic values coming from lean assets separately operated by both companies.

What is lacking in the raging debate to fix the industry and recover Nigeria’s production capacity, according to him, is for the regulators to position capable indigenous companies to step into the shoes of foreign companies that are inevitably leaving the country.

He made it clear that whereas oil theft contributes to the prevailing disruption in the industry, the real culprit in the prevailing investment crisis and falling production numbers is the crippling delay in closing divestment deals.   

He counted over five assets where production declines are tied to divestment issues. He also pointed at the toll the fiscal and operating disputes in the country have taken on deepwater operations, leading to steep plunge in production volumes.

The Oracle Today reports that Nigeria’s oil production has consistently fallen from about 2.7 million barrels per in 2007 to about 1.5 million barrels per day in the first quarter of 2023.  Worse figures of less than 800,000 barrels per day were recorded in 2022. And the NNPC constantly blamed the decline on commodity stealing from the evacuation pipelines by illegal refiners in the Niger Delta.

However, our study of the pattern of theft in the Niger Delta show that the illegal refineries that traditionally use metal barrels to cook crude oil into distillates hold little or no capacity to handle big volumes in their sporadic operations. Nearly all of them have no storage capacity and cannot keep of large volumes stolen crude.

Mr Avuru explained chat that whereas the illegal refiners and other thieves thriving on the crime side of the industry are disruptive, the real problem with falling production numbers is investment impasse resulting from poor management of divestments associated with patterned exit of international oil companies (IOCs).