Monday, 08 August 2022 03:55

Disinvestment worth N20trn is ongoing in Nigeria’s oil sector. Here’s why that’s happening

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Several reports since 2021  show that some of the international oil companies (IOCs) are in the process of divesting assets worth over N20.8 trillion.

For instance, Shell plans to divest about $2.3bn in assets, Eni’s asset divestment is around $5bn and ExxonMobil would offload $15bn in assets.

Rystad Energy, an international energy consulting firm, in its energy transition report, estimated that Total and ConocoPhillips would divest assets close to $27.5bn. 

The five IOCs are major players who currently control over 45 per cent of Nigeria’s oil production assets. 

Reports so far this year indicate that Total and Chevron plan to sell their shares in Oil Mining Lease (OML) 118 and the stakes they have in OML 82, OML 85, OML 86 and OML 88. Already, Seplat, an indigenous firm, is concluding a transaction to acquire a subsidiary of ExxonMobil for about $1.3bn, which will take a 40 per cent stake in four OMLs, including over 90 shallow-water and onshore platforms and 300 producing wells. However, this is met with a legal tussle with the Nigerian National Petroleum Company (NNPC) Ltd and the Akwa Ibom State Government, which hosts most of the assets.

AITEO, another Nigerian firm, is in court with Shell, seeking over $2.5bn compensation over the sale of OML29.  

Also, in 2021, Eni and its partners divested its 5 per cent interest on an onshore asset—OML 17—which could yield over $2 billion.

Climate change, oil theft, regulatory bottlenecks to blame 

Although the entire reasons for the spree of divestments by IOCs may not have been entirely made public, the glaring signs include rising cases of oil theft and regulatory issues.

There is also the most significant hurdle of what some experts have described as a global gang-up against Africa and major fossil fuel-dependent economies in the pretext of actions against climate change or global warming.

At the Nigerian International Energy Summit’s (NIES) held in Abuja in March this year, oil and gas industry operators decried the divestments and a lack of fresh investments in the sector for over 10 years. And just recently, Minister of State for Petroleum Resources, Sylva, at the unveiling of the new NNPC Ltd, said, “While the country was waiting for the Petroleum Industry Act (PIA) 2021 (for over 20 years), Nigeria’s oil and gas industry lost about $50bn worth of investments”.

According to a KPMG report, between 2015 and 2019, only four per cent of the $70bn investment inflows into Africa’s oil and gas industry came to Nigeria, even though the country is the continent’s biggest producer and the largest reserves.

Sylva has also cited security challenges affecting the growth of the petroleum sector, as well as the discouragement of funding for the sector due to a concerted shift to renewable energy.

Also addressing the stoppage of funding for fossil fuel investments with huge implications for Africa, Sylva said Africa should be allowed to champion a gradual energy transition to meet the needs of the over 600million people who lack access to energy.

“We believe that gas is the way to go. It is the way forward and the one access to power,” he said.

On crude oil theft, government officials said it was a factor that had cut short oil production. NNPC Ltd reports show that Nigeria has lost 112m barrels of crude oil between 2020 (39.16m barrels) and 2021 (73m barrels), and is losing about 200,000 barrels per day this year.

Although OPEC gave Nigeria 1.753m bpd quota in May, Nigeria could not meet up due to the theft, as production was at 1.417m bpd. Just this week, OPEC and its allies slightly raised Nigeria’s oil production quota to 1.830m bpd for September from 1.826m bpd this month.

To tackle the oil theft hurdle, William Onuh, a biochemical engineer in Abuja, said only urgent actions from the government could curb the situation.

“It actually requires emergency action because for now, the oil fund is the livewire of the country, and if this sabotage continues, Nigeria is in danger.

“There is the need for more surveillance of oil wells, flow stations and pipelines, and if anyone is caught in the act, there should be stiffer penalties for such person and the sponsor to deter others,” Onuh said.

Experts are also worried about the shaky implementation of the PIA. According to an energy expert, Hassan Abdulrahman, an engineer, the PIA passage was a good initiative, but suspending a significant aspect of its implementation is a blow.

“How can you enact an act, and in just less than a month or two, you are amending, and shortly after, you are suspending the aspect of total deregulation of the downstream petroleum sector. This sends the wrong signal to investors at a time when Nigeria needs Foreign Direct Investments (FDI) in the industry,” he said.

The federal government suspended the total removal of petrol subsidy for 18 months and would spend N4trn in the 2022 fiscal year on subsidy, even as the NNPC Ltd has transited to a company and has become profit-oriented.

An Abuja-based oil and gas governance consultant, Henry Adigun, also raised concerns about how the PIA was enacted and the suspension of some of its clauses.

Adigun said the PIA was solely drafted by the NNPC before it was sent to the National Assembly as an executive bill, adding that the immediate amendment was not healthy for the petroleum industry, and it was causing foreign investors to divest their assets.

“When you amend a law immediately after you sign it, you send a wrong signal to investors,” Adigun noted.

 

Daily Trust