Oil and gas is the lifeline of the Nigerian economy. There is no respite for the economy whenever there is a challenge with global crude oil price and domestic supply. Sadly, IoCs in Nigeria have not slowed down their divestment in the oil and gas space, specifically in the Nigerian upstream operational structure since the 2016 collapse in price levels. While it may appear puzzling that IoCs are transitioning from majority to minority stakes in upstream, the reasons are near-reached. Weak viability of oil mining licenses, lingering implementation of the Petroleum Industry Bill and the switch to cleaner energy by IoCs, driven by environmental, social and governance concerns are drivers for the unrelenting divestment.
Shell Petroleum announced a fresh divestment having sold out about 50% of its oil and gas asset in the last decade. The recent announcement pertains to its onshore activities, which has resulted in oil spills and increasing operational costs. For instance, the company is liable to bear a US$44 million fine for oil spills in the Niger Delta region following a court verdict last year. Total Petroleum also announced last week, the divestment of its stake in onshore Oil Mining Lease (OML) 29 to Aiteo Eastern E&P, a Nigerian company, for $569 million. Along with its divestment in two other OMLs, Total Petroleum turned over US$1bn. For Total, they are making a move to cleaner energy; thus making some of its Nigerian assets irrelevant to its future plans. In 2016, Mobil Nigeria sold off 60% of its downstream facility to NIPCO while Chevron is in the process of relinquishing 40% of its interest in OML 86 and 88.
It is important to understand the consequences of these divestment for Nigeria. For a start, the divestment are a pointer to the fact that IoCs are losing interest in the Nigerian economy. While they will still be here for a while, their presence is gradually fizzling out. The divestment also portends the possibility of an increase in unproductive OMLs in Nigeria, which suggests that Nigeria loss from its oil and gas assets may expand. Furthermore, since the divestment mostly manifest through a sale to a domestic buyer, there is a big question of capacity on the part of domestic oil companies. With IoCs divesting their interest, one thing is apparent – the interest in Nigeria’s gas potentials is still in focus. The topical climate change theme and the appropriateness of renewable energy at this time leads the set of factors driving the divestment of IoCs. Therefore, it appears that the Nigerian government, through the NNPC, is looking in the wrong direction.
Why Nigeria is getting it all wrong? Synthesizing all of the motivations for the divestments of IoCs in Nigeria, the future of energy is renewable energy. Instead of the NNPC to begin to explore renewable energy by collaborating with private sector players like All-on, Daystar energy, Rensource and Lumos Nigeria, they are bothered with exploring crude oil in the North by carving a 30% frontier fund for this purpose. Unarguably, oil cannot be completely eradicated, but its use will reduce significantly over the next couple of decades. Already, the manifestation for Nigeria is the search for new buyers of crude as countries like the United States and China, who were erstwhile buyers of commercial quantities of Nigeria’s crude are advancing the cause of renewable energy.
To submit, the divestment of IoCs in Nigeria may not slow down anytime soon; at the very least, because of the growing gospel of renewable energy. It has also become critical for the NNPC to reduce the cost of operating OMLs in Nigeria. In fact, at the last marginal field round completed in May, the NNPC were more concerned about making more revenue than ensuring that the operation of these OMLs benefit the average Nigerian. Furthermore, the 30% frontier fund proposed for exploring crude oil in the north should be redirected to exploring for gas deposits all over Nigeria. The emphasis should be on gas, electricity and other clean energy, not crude oil. Implementing the PIB remains the big push for more foreign investment in the oil and gas space and it is imperative that it goes live.
Written by Michael Ogunremi and Dipo Oladehinde
Dipo is an analyst covering the oil and gas space with BusinessDay
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