By Onyema Dike
As of the time of writing this, several Domestic Oil Companies (DOCs) have made their intentions known to acquire assets being divested by Shell Petroleum Development Company (SPDC).
ExxonMobil has also put its onshore shallow water assets for sale with Seplat and Chappal in contention.
Away from onshore and shallow waters, Total and Chevron are planning to sell their shares in OML 118, as well as OMLs 82, 85, 86, and 88 respectively.
Divestments by International Oil Companies (IOCs) are not new. Beginning around 2010, IOCs have been offloading their onshore assets because of varying concerns many of which include community restiveness, environmental issues, insecurity, oil theft, sabotage, etc.
The Africa Report, in a recent piece, noted: “Shell, like Total for several years, has been concentrating its investments in Nigeria on its offshore activities and had, in fact, invested little in recent years in the blocks in question in a region faced with security risks (including armed groups and smugglers).”
That wave of divestments gave rise to DOCs like Seplat which acquired Oil Mining Licences (OMLs) 4, 38 and 41 from SPDC in 2010; Aiteo which acquired OML 29 from SPDC in 2015; Neconde which snapped up OML 42 from SPDC in 2011; First E&P which acquired OMLs 83 and 85 from Chevron in 2015; the SPV Eroton which grabbed OML 18 from SPDC in 2018 and even Trans-Niger Oil and Gas (TNOG) which concluded a deal with SPDC for OML 17 in 2021. The gale of divestments has also helped to improve the portfolio of other indigenous players like Sahara Energy, Oando and Conoil amongst others.
Ten years down the line after the first divestment, the critical question is how has the industry, the nation and economy fared? To help us answer the question, let us look at some numbers.
In the past 11 years, IOCs have divested 26 OMLs. The OMLs are in the prolific Niger Delta basin with Delta state, infamous for its history of agitations and pipeline sabotage contributing the bulk with 10; Akwa Ibom (1), Bayelsa (4), Edo (1) and Rivers (6).
Nigeria produced an average of 1.9m barrels of oil per day in 2020 and 4.6bcf gas from over 220 fields and 160 operators, with over 260 companies with upstream interests according to figures from Wood Mackenzie
Currently, 5 IOCs operate in Nigeria and they include SPDC and TotalEnergies, Chevron and ExxonMobil as well as Eni. These five IOCs are also responsible for 45% of Nigeria’s oil production and 40% of gas.
The 113 OMLs are split almost in half with 57 located onshore and 56 located offshore. 47% of those are operated by IOCs while DOCs operate 45%. That ratio is about to be skewed more in favour of the DOCs with SPDC set to sell off 19 more assets which are expected to fetch the Anglo-Dutch giant an estimated $2.3bn, another significant windfall for a company that just pocketed $1.1bn from the TNOG deal. What will the Nigerian oil and gas industry look like when the DOCs take over? To consider that question, we must look at the success stories from past divestments.
The first example is Seplat which, if we overlook its ongoing boardroom shenanigans, qualifies as a major success story and case study for the IOC divestment program especially with its growth trajectory driven largely by acquisitions, its focused gas policy, and global investor confidence evident from its landmark dual listing on the London and Nigerian stock exchanges.
It is interesting to note that indigenous players have focused on growing production levels thus improving revenue and royalties due. Their ability to negotiate with local communities has helped provide right-of-way and access hitherto denied the IOCs. This has had the salutary effect of reducing insecurity and sabotage.
Training and working with contractors from the host communities, in line with the provisions of the Local Content Act of 2010, has also helped build indigenous capacity in the oil services and support ecosystem.
Remarkably, with IOCs divesting their onshore and shallow water assets, energy infrastructure and development companies like Century Group (Century), which have already established significant footholds, would be in prime position to join this league of companies; considering its antecedents driven by cost efficiency and safety.
Century has provided significant support to SPDC by providing critical infrastructure during its first round of divestments especially with OMLs 26, 30, 34, 40 and 42. The company also reopened and successfully operated Kidney Island for SPDC after 10 years of non-operation due to challenges posed by the government and the community. Century has also supported frontier exploration activities for Aje field (OML 113) and deepwater development support for the OYO and Ebok fields (OML 120 and OML 67 respectively).
To really step up and make an impact, these oil servicing and support companies must show that they can support the new owners in resolving community issues, proffering training solutions that are fit for purpose especially for local contractors, show a commitment and capacity to solve the emerging challenges; prove their technical competence, and of course, show that they have the financial capacity to execute big-ticket transactions.
Finally, there must be official support from a policy perspective and it is instructive that NNPC’s Group Managing Director, Mr. Mele Kyari, has made the point that learning from past experience, the corporation is putting together a comprehensive divestment policy that will guide the process and provide clear guidelines and criteria for exiting of partners’ interest while addressing some of the issues that range from “abandonment and relinquishment costs; severance of operator staff; third party contract liabilities; competency of the buyer; post-purchase technical, operational, and financial capabilities.”
That is the only way we can look back in 1o year and say yes, the divestments have worked.
*Dike, a public analyst, lives in Lagos.