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Divestment: IOCs Rough Exit Path and Ease of Doing Business Issues

President Bola Ahmed Tinubu

By Gideon Osaka

Recent developments within the upstream subsector have further reinforced the future plans of international oil companies (IOCs) for Nigeria to dispose their entire onshore and shallow water business to focus on deepwater investments. However, one big problem delaying their exit from onshore operations in Nigeria is the tough regulatory bureaucracy these oil majors are going through. While the IOCs may have had a perceived smooth entry into these assets, exit approvals from Nigerian authorities have been time-consuming and fraught with regulatory hurdles and bureaucratic bottlenecks. Although, President Bola Tinubu since taking office last May pledged to remove obstacles faced by producers in doing business in the country, one year into his presidency, asset sales by these IOCs, which were well underway before his election, remain a tough nut to crack.

ExxonMobil last month reportedly decided against renewing a 33-year-old lease on its expansive offices in Lagos’s upscale Lekki district. From the 12-floor Mobil House, leased at the cost of $10 million annually, Exxon is said to be relocating staff to a six-floor office building, 22 kilometers away in the upmarket Ikoyi area, built to accommodate half the personnel working at the former offices. Although the company was quick to douse the shock that came from this report by maintaining that the move to a “new modern, purpose-built office reflects our commitment to Nigeria”, analyst reported that the company’s relocation to smaller offices and an absence of any new investments highlights how serious it is about scaling down its Nigerian operations.

Last year, ExxonMobil announced its plan to sell four onshore oilfields to Seplat, an indigenous energy company, for about $1.3bn. Aside ExxonMobil, Eni, Shell and TotalEnergies have all sought to leave the oil-rich Niger Delta citing various reasons that included security concerns, theft and sabotage, and need to focus on deepwater drilling.

Eni announced last September it would sell its onshore subsidiary to Oando, a local company. Before that, China’s Addax sold its four oil blocs to state oil company NNPC last year.

Norwegian oil company Equinor announced recently that it had sold its Nigerian entity to local company Chappal Energies, bringing to end, Equinor’s three-decade association with Africa’s largest oil producer. The Equinor divestment to Chappal includes a stake in the prolific Agbami oil field.

Shell is in a similar position: it has expressed interest in divesting from onshore fields that could fetch almost $3bn. At the start of the year, Shell declared that it had reached an agreement to its 30% share in Shell Petroleum Development Company (SPDC) of Nigeria to a consortium of five businesses, four of them local, known as Renaissance. Shell, like its leading competitors, has been on a prolonged asset disposal campaign in Nigeria, which dates back to over a decade. For instance, between 2010 and 2015 alone, Shell offloaded its interests in close to 10 oil-mining licences (OMLs) – OML 4, 38, 41, 26, 42, 40, 34 and 30, with Seplat Energy, emerging a major beneficiary of the divestments. In the latest move to end its near-century operations in Nigeria’s oil-rich Niger Delta, SPDC is offering its onshore assets to a consortium of local companies for $2.4 billion.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), all the blocks under proposal for divestment by the IOCs (NAOC, MPNU, Equinor and SPDC) have an estimated total reserve of 8.211 million barrels of oil, 2,699 million barrels of condensate, 44,110 billion cubic feet of associated gas and 46,604 billion cubic feet of non-associated gas. This, according to the agency, is a significant contribution to the nation’s hydrocarbon resources.

Also, NUPRC puts the current average production from these blocks at 346,290 barrels per day (bpd) (NAOC-28,018 bpd, MPNU-159,378 bpd, Equinor-36,155 bpd and SPDC-122,739 bpd).

Valuechain reports that potential departure of the majors means a total of 26 onshore blocks are on offer, holding an estimated reserve of 13.76 billion barrels of oil, 2.70 billion barrels of condensate, and about 90,717 billion cubic feet of gas.

Regulatory hurdles before IOCs

The planned exit by the oil majors has, however, been delayed by a number of issues. While some of the deals remained caught in legal cases that have stymied progress, others stem from litigations related to oil spills. However, the most outstanding delay has been regulatory problems from the respective government agencies.

ExxonMobil’s plan to sell four onshore oilfields to Seplat, for about $1.3bn has since been stalled till date. While former president and oil minister Muhammadu Buhari had originally approved the deal in August 2022 — he reversed the decision just days later in favour of the NNPC limited who also want to exercise their right to purchase the assets. The industry regulator insisted that the consent to the deal remained declined.

Oil giant, Shell, had late last year announced it had agreed to sell its Nigerian onshore assets to Renaissance, a consortium of four Nigerian firms and one foreign company, for a book value of $2.8 billion. It said that with the deal, its onshore subsidiary, the Shell Petroleum Development Company of Nigeria (SPDC) will now be operated by ND Western, Aradel Energy, First E&P, Waltersmith and Petrolin, a Swiss firm. However, the completion of the deal was still subject to approval by the federal government which till date, is yet to be secured. Under the immediate past administration, major divestment moves were thwarted by the federal government.

While the stalemate around these deals goes on, Nigeria continues to lose from the assets being divested. For instance, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, recently revealed that Nigeria lost $34 billion in the last two and a half years that the ExxonMobil-Seplat Energy transaction has been awaiting approval by the government.

According to Lokpobiri output from the assets declined from 600,000 barrels per day (bpd) to current 120,000bpd, leaving a shortfall of 480,000bpd, which he said amounted to $34 billion loss at a conservative $80 per barrels.

“If from only that Seplat-ExxonMobil transaction, we have lost about $35 billion; imagine if that money was in Nigeria. Imagine if NNPC has about 70 per cent of that money. If they have that money to expand their investment, I believe that Nigeria will be in a better place,” the minister said.

Despite these challenges, the government has continued to express its willingness to approve the deals.

On the $2.8 billion onshore assets sale agreement between Shell and the consortium of oil companies, the Minister said that government was only awaiting the document detailing the terms of the deal to give its consent.

On the stalled Mobil-Seplat $1.3 billion deal, Lokpobiri said that the process has almost been concluded, stressing that he had settled all the areas of disagreement between the NNPC limited and the oil companies.

“I can also tell you that the Seplat-Mobil transaction, which was truncated in the last administration has been 99 per cent resolved. I brought the parties together. We have had a series of meetings. We have agreed on the terms.

“It’s just for the NNPC board to sit and approve the terms of the settlement and Seplat board sits and approves the terms of the settlement. It was a big disincentive to the IOCs to make further investments. And so, I brought them together, we have resolved, we have disagreed to agree. So, that matter is resolved.”

Further to this is the fact that the industry regular, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) offered two proposals on a shorter and faster way the divesting entities can quickly offload the assets.

At a recent meeting with the companies in Abuja, the NUPRC Chief Gbenga Komolafe offered a short-term option with faster approval if the companies commit to cleaning up spills and compensating communities.

“We have the undertaking here. The consent here though fixed for June, could be much shorter,” he said.

“If you agree to take that option, you sign the undertaking knowing that there are obligations to be fulfilled,” Komolafe said.

The second long-term option involves waiting for NUPRC to identify and assign all liabilities, potentially delaying the final approval until August.

NUPRC is seeking to balance a faster exit for oil majors with protecting the environment, local communities, and the long-term viability of the assets.

The companies are reportedly reviewing the proposals. Analysts say the accelerated option could cost oil majors millions of dollars for cleanups and reparations.

“We aim to ensure that the companies that take over these blocks have the necessary financial resources and possess the technical expertise required to responsibly manage the blocks throughout their lifecycle in accordance with good asset stewardship practices,” Komolafe said.

Enter the locals

With the international oil majors stepping back from onshore and shallow water assets that have been subject to rampant theft and vandalism analysts see an opportunity for local Nigerian players to increase their market share in acquiring these assets.

The divestitures are providing an opportunity for local firms to develop the onshore market. They are more likely to hire local talent, giving Nigerians the opportunity to advance to high-ranking positions in the oil and gas industry and boosting the domestic corporate sector as they step into the void.

Consultancy Westwood Global Energy Group says that the upcoming years will present an exceptional chance for indigenous oil companies to take the lead in onshore and shallow-water exploration, with drilling and production likely to increase at least to the end of this decade.

Still, the departure of IOCs from onshore does not mean they are exiting the country altogether. Offshore sites – which lack the security challenges of onshore – are increasingly attractive to the majors. Industry data shows that about 13bn of Nigeria’s over 37bn barrels of proven oil reserves are in the deepwater sector.

TotalEnergies has pledged to invest, with a focus on offshore oil projects and gas production. Speaking during a recent meeting with President Bola Tinubu, Chief Executive Patrick Pouyanné said the energy giant was ready to invest $6bn in the coming years.

“We are looking extensively at more deepwater production and gas production opportunities across the terrain. We welcome your policies and your personal commitment to ensuring that all required fiscal incentives are provided while security issues are tackled. Everything is here. We just need to conclude with the tweaks and changes necessary to unlock the outstanding potential in both oil and gas”.

Shell is looking at a $5bn offshore oil investment opportunity in Nigeria’s Bonga North offshore project, and has pledged to spend a further $1bn in five to 10 years to boost natural gas output for domestic supplies and exports, according to a Nigerian presidential spokesman. 

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