With majority of the multinational oil companies divesting their investments in the country’s oil wealth in the last couple of years, the belief in some quarters is that this development may be a mixed blessing of sorts for the economy, reports Ibrahim Apekhade Yusuf
IN a move reminiscent of The Great Scramble for Africa by the European powers from 1888-1899, several international oil companies (IOCs) from different parts of the world literarily fell over themselves to get a slice of the nation’s lucrative oil wealth, following the discovery of the famed black gold in the late 50s, as they explored and produced the prized crude as they deemed fit.
But in a clear twist of fate, the same IOCs are now frantically divesting their hitherto prized assets, for reasons which border on the complex and the superficial.
The Nation can authoritatively report that the purported story of the planned divestment of the oil majors, which once fed heavily on the rumour mill, has since become a glaring reality today.
Why IOCs are no longer at ease with Nigeria’s oil assets
The IOCs account for more than 70per cent of the nation’s daily crude production. Naturally, a wave of divestment of oil and gas assets previously held by these IOCs will no doubt ignite interest from different stakeholders in the Nigerian oil and gas industry.
Confirming this development, Comrade Sara Igbe, a petroleum expert from Niger Delta, while speaking with The Nation recently, said a constellation of factors could be responsible for the mass exodus of oil multinationals from the oil-rich Niger Delta.
According to him, “The reality today is that many oil majors who hitherto ran thriving businesses in the Niger Delta region are no longer persuaded to continue as before for a good number of reasons.”
The reason for the lull in business is not far to seek. Chief among the reasons, he said, is the problem of diminishing output of marginal fields, insecurity and threat and sabotage to infrastructure as a result of warring communities, to mention just a few.
In a research tagged: ‘Divestment of Nigerian Oil and Gas Assets by IOCs’, carried out by Akintola Williams Deloitte, the foremost accounting firm, made available to The Nation, the firm, while acknowledging that investment opportunities in Nigeria are huge considering the fact that the country is acclaimed to have the largest gas and second-largest oil reserves in Africa, however, observed that: “The oil and gas assets within the divestment programme have largely been those assets notably in the onshore and shallow water areas although Royal Dutch Shell has included two offshore blocks in its divestment programme,” adding matter-of-factly that: “The rationale for the divestment decision is founded on pure economic and quasi-economic reasons.”
Analysts further noted that the reasons given for the myriad of asset sales over the past 36 months have been many and varied.
Among these include the problem of operational and security difficulties of operating onshore in the Niger Delta region as well as portfolio rationalisation to the regulatory uncertainties from non-passage of the hotly debated oil industry law, the Petroleum Industry Bill (PIB).
Onshore security concerns, analysts noted, have been a particular concern for Shell, which has suffered persistent security incidents including pipeline sabotage and oil theft.
Shell has stated that oil theft incidents in the country has cost it an estimated $700m, a figure hotly disputed by the federal government and the NNPC. Overall, many of the assets being sold are mature assets onshore the Niger Delta region, which are naturally more vulnerable to operational and security problems in the region.
Asset sales not an easy deal
However, the IOCs’ attempts to sell their assets to local companies have not always been smooth, particularly where difficult operating or security conditions feature prominently.
Two of four assets planned for sale in a second round of divestments by Shell – OMLs 13 and 16 – are located in Ogoniland in Rivers State in Nigeria’s southern oil region. It may be difficult to attract buyers for these assets given the legacy of operational difficulties in Ogoniland in general.
Although neither the Nigerian National Petroleum Corporation (NNPC) nor its upstream arm, NPDC, plan to bid for the Chevron assets, the involvement of NNPC and NPDC and the exercise of pre-emption rights have also periodically posed a challenge to previous divestment attempts.
NPDC has often encountered difficulty in attracting acquisition finance from foreign backers, due to perceived operator risk, though, arguably this has provided local banks with an opportunity.
In a bid to remedy some of these challenges, NNPC has explored the possibility of seeking technical partnerships for the NPDC to put forward joint bid for future divestments. It is likely that both Chevron and Shell will seek to avoid the problems that clouded the Shell’s previous divestment rounds.
To date, NPDC has acquired more than 55 per cent equity stakes in four onshore oil assets divested by Total, Shell and ENI, including OML 30. With an ambitious plan to increase NPDC’s production from its current 100,000 bpd (according to the NNPC) to around 250,000 by 2015, it would still be fair to assume that NNPC plans to exercise at some point a rights of first refusal, in the near-term or in the forthcoming round of IOC asset divestments.
Meanwhile, the year-long process by Shell Petroleum Development Company (SPDC) and its joint venture partners to divest some of their onshore assets has run into a hitch, as the Nigerian National Petroleum Corporation (NNPC) has moved to stop the sale of Oil Mining Lease (OML) 25 to Creststar consortium, The Nation has learnt.
However, despite the execution of the SPAs between Shell and the buyers, the transactions would only be deemed truly sealed after a ministerial consent is granted by the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, as provided by the Petroleum Act.
The Nation, however, gathered that the NNPC had stopped the sale of OML 25 to Crestar consortium.
Shell’s Corporate Media Relations Manager, Mr. Precious Okolobo, declined to comment on the controversy trailing the OML 25 transaction when contacted.
Value of divestments by IOCs
As at 2013, IOCs operating in the country had sold at least 300,000 barrels per day (bpd)-worth of equity in onshore and shallow-water producing assets in the oil-producing Niger Delta region, all valued at over $5 billion.
The total number of blocks divested by IOCs and National Oil Companies (NOCs) since 2010 is expected to increase to 22 by the end of 2014.
Corroborating the foregoing, Rolake Akinkugbe, Head of Energy, Oil and Gas Research at Ecobank, pan-African bank, in an article titled: ‘IOC Divestments in Nigeria: Opportunities, Challenges and Outlook,’ while attempting a historical excursion into the basis of these divestments by oil majors, recalled that: “In 2009, UK gas group BG Group kick-started the divestment programme amongst IOCs operating in Nigeria, when it announced a pullback in financing for the Olokola LNG export development on which it partnered with Chevron, Shell and NNPC, and sold rights in three Oil Prospecting Licenses – 332, 286 and 284.”
Shell, she further recalled: “Followed suit in 2010 launching a divestment programme that eventually resulted in the sale of eight Oil Mining Licenses (OMLs) to indigenous Nigerian companies and junior explorers by the end of 2012. The first of these was completed in December 2011 with the acquisition of a 45 per cent stake in OML 26 from SPDC, Total E&P Nigeria Ltd., and Nigeria Agip Oil Company (NAOC), by First Hydrocarbon Nigeria (FHN), backed by London-listed Afren Plc. The last of these was the assignment in November 2012 of OML 30, in the Niger Delta region to Shoreline Natural Resources Limited, a joint venture between Nigeria’s Shoreline Power and UK-listed independent Heritage Oil Plc.”
Continuing, she said: “Since 2012, several oil companies have announced planned asset sales in Nigeria. US IOC, Chevron has also embarked on a divestment programme with five shallow water blocks offer, and that are estimated to hold as much as 250 million barrels (bbl) of oil reserves. We estimate the current value of those blocks – OML52, OML53, OML55 OML 83 and OML 85 – to be in the region of US$1.5 billion. US oil firm Conoco Phillips in 2012 also sold its stake in the Brass LNG project to Toronto-listed Oando Energy Resources (OER) for $1.79 billion.
“However, a very small portion of assets divestments have also extended offshore and have not necessarily been limited to local acquirers. In November 2012, Total sold its 20 per cent contractor interest in OML 138 block in the offshore Usan field to the wholly owned subsidiary of China Petrochemical Corporation (Sinopec), for approximately US$2.5 billion in cash, while in early 2013, Brazil’s National Oil Company, Petrobras stated that it would sell its Nigeria mostly-offshore interests for $5bilion, though it eventually sold its stakes to Brazilian investment bank, BTG Pactual, for only $1.5billion. The momentum continued in 2013, when Shell announced it would divest a further four assets in Nigeria; OML 13 and 16, both onshore, as well as OML 71 and 72, both offshore.”
A blessing in disguise
For the discerning mind, the divestment is largely a blessing in disguise considering the opportunities this has offered local players.
Investigation by The Nation revealed that many local Nigerian companies now own more than 100 blocks across Nigeria’s oil-producing regions, and own at least 30 marginal fields even as the companies have a mandate to deliver on production deadline in order to avoid revocation by the government.
Those figures are likely to double over the next few years, creating new local contractor opportunities and thus new local financing opportunities; at least 19 local banks in Nigeria have access to tier 1 capital worth more than US$1bn.
A document obtained by The Nation from the Department of Petroleum Resources (DPR) confirmed that the deadline for the companies to bring the fields to production is March 2015 and not January 2014, a development which gives enough leeway for the companies to bring the fields to production.
Shedding more light on the reasons for the divestments, Akinkugbe further reiterated that the recent asset divestments in Nigeria are not the result of a single factor, noting that this represent the culmination of several important trends; onshore operational and security risks; a re-balancing of IOC’s Nigerian portfolios towards the offshore; growing regional competition in the West African upstream; global capital re-allocation in the upstream industry; and regulatory uncertainty fuelled by Nigeria’s delayed oil law, the Petroleum Industry Bill (PIB).
“We do not believe that the current wave of divestments portends a mass wave of IOC exits from Nigeria in the near-future. In actual fact, the divestments represent, in our view, a re-balancing of asset portfolios towards the offshore which now accounts for at least 80 per cent of Nigeria’s total production.”
She was, however, quick to admit that the nation’s oil production has declined in recent months to below two million bpd and the country will need to retain a competitive edge upstream, given the emergence of new exploration and production frontiers in the Africa region; namely Ghana, and the Gulf of Guinea pre-salt plays (Angola, Gabon, Congo) and East Africa, which has rapidly gained world-class hydrocarbons status. Thus, the attractiveness of fiscal terms for offshore exploration within the delayed PIB could be crucial, given operators’ commercial shift towards the offshore.
“In the near-term, Nigeria’s oil and gas industry – public and private – may take comfort from the fact that the continued oil and gas discoveries (most recently by UK-listed Afren and Lekoil), the ability of these junior explorers to successful tap foreign equity capital for their Nigeria activities, the country’s still robust crude oil reserves base (37 billion barrels), and the relative stability of offshore production, signal or at least guarantee that investor appetite for the country’s oil sector will remain resilient despite the operational and regulatory challenges.
“We do not believe that the current wave of divestments portends a mass wave of IOC exit from Nigeria. In actual fact, it appears to represent a shift in IOCs’ strategy towards the offshore which now accounts for at least 80 per cent of Nigeria’s total production. While the pace and volume of sales have also suggested a wider IOC gradual exit from Nigeria and fed much media frenzy on this issue, a closer examination of the upstream asset landscape and development plans of various IOCs paint a slightly less dramatic picture.”
Shell, for instance, still retains ownership in 30 onshore blocks, while Total, ExxonMobil, and Chevron are still likely to commit large amounts of capital to Nigeria’s offshore region in the next decade. For instance, within a year of announcing that it was selling its 20 per cent operating stake in its Usan field in OML 38 to China’s state-backed oil firm, Sinopec, for US$2.5 billion, French IOC, Total, in June 2013, announced that it had begun development of its offshore Egina field for US$15 billion in a bid to boost its production base.
The new kid on the block
It is a twist of irony that while many of the IOCs are opting out of the business, the development, more reassuringly, is serving as a fillip for local players to thrive.
For instance, oil giant Royal Dutch Shell has agreed to sell a prolific Nigerian oil block, Oil Mining License 29, and an associated pipeline, for $2.5 billion to a consortium led by Taleveras Group, an oil trading firm founded and owned by a 39 year-old Nigerian multi-millionaire, Igho Sanomi, according to the Wall Street Journal.
Shell had been looking to divest from four of its onshore Nigerian assets since last year – OMLs 18, 24, 25 and 29, as well as the Nembe Creek Trunk line, a 60-mile aging pipeline which has served as Nigeria’s major crude oil transportation channel- moving oil through the Niger Delta to the Atlantic coast, but which has been beleaguered by leaks stemming from oil theft for many years.
Taleveras will be getting a sweet deal. Of all the assets Shell put up for auction, OML 29 was the most coveted. The Africa Oil & Gas Report magazine reports that OML 29’s remaining reserves (P1+P2) are about 2.2billion barrels of oil equivalent (BOE), while its hydrocarbon fields could deliver as much as 160,000 barrels of oil per day and 300MMscf/d at peak, with focused, aggressive work programme. The Nembe Creek Trunk Line is also an extremely valuable asset as many other oil exploration companies in Nigeria pay to use it to transport their oil to international markets.
Taleveras Group, the company acquiring OML 29, is owned by one of Nigeria’s most successful young entrepreneurs, Igho Sanomi. Sanomi, 39, founded the Taleveras Group in 2004 at the age of 29 as an energy trading company. Today, the company trades over 100 million barrels of crude oil as well as several million tons of gasoline, LPG and jet fuel annually. In April 2012, Sanomi’s company acquired production sharing contracts (PSCs) for three offshore oil blocks in Ivory Coast.
Like Sanomi, a few upwardly mobile and high-heeled Nigerians have also invested heavily in the downstream oil and gas sector, a move, industry analysts have argued, that signposts progress for the sector.
While many would rather the country retains the IOCs in major commanding heights of the economy, especially oil and gas, which they reckon requires high level expertise, others, who are persuaded largely by patriotic fervour, want Nigerians to participate more in the nation’s bourgeoning oil and gas industry.
