Foreign oil companies are exiting the Nigerian oil market, after operating in the market for over 60 years, as the passage of the Petroleum Industry Act is failing to entice them to continue operation.
Within one year, two foreign oil companies have sold their assets and discontinued business in Nigeria. The first was UK-based Royal Dutch Shell in July 2021, just one month before the PIB was signed into law by President Muhammadu Buhari.
Seven months after it was signed, another oil major, based in the United States, Exxon Mobil Corporation (ExxonMobil) has joined Shell to quit the Nigerian oil market, by taking out its investment in Mobil Producing Nigeria Unlimited.
Exxon sold its asset to Seplat at a price of $1.3 billion, according to a statement released on Friday, although the deal is still subject to Ministerial Consent and other required regulatory approvals.
This reflects the statement made by Group Managing Director of Nigerian National Petroleum Corporation (NNPC) Limited, Mele Kyari, that, “We are seeing a wave of divestment by oil majors operating in Nigeria.” he said during the August 2021 edition of the Nigeria Annual International Conference and Exhibition (NAICE).
So these are worrying times for Nigeria, considering that between 2015 and 2019, only $3 billion was channelled into Nigeria out of the $70 billion voted for new oil projects in Africa – this represents 4% of the fund, according to Theniche.
With the number of foreign firms declining in the country, this fund is likely to depreciate, considering there were six foreign oil companies operating in Nigeria; Shell, Exxon Mobil, Chevron, Agip, Texaco and Total, but the number is down to three.
Texaco sold off its assets to Chevron in 2000, 15 years before the administration of Buhari, who doubles as Petroleum Minister, started, while Shell and Exxon Mobil divested during his tenure.
Chevron is also looking for buyers for its OMLs 86 and 88, which the firm has been trying to get rid off since 2016, but couldn’t find a buyer. The assets are still up for sale, after the oil major sold its OMLs 83 and 85 in 2015.
Meanwhile, Total Nigeria has been forced to deny it is quitting its Nigerian operation twice in ten years, first in 2012, while the second denial came in 2017.
What you should know
Before the signing of the PIB, Nigeria was said to have lost an estimated $50 billion worth of investments in 10 years, according to President Buhari, but it seems his signature on the paper will not stop the loss of investment anytime soon.
This is because there are reasons forcing the companies out, some of which includes:
External factors: Increasing security challenges and sabotage has been dampening production in host communities, affecting turnover of these firms in the upstream and midstream market.
In 2020, Ripples Nigeria had reported that Eni, parent company of Agip, had announced a force majeure due to vandalisation caused by explosives in the Niger-Delta region, affecting 30,000 barrels of oil equivalent per day in total.
TotalEnergies EP Nigeria Limited had also declared a force majeure in January 2022, for the same reason. This is a common occurrence experienced by the oil firms.
Green energy: Oil companies are embracing green energy production, which is compelling some of them to reduce their investment in fossil fuel markets like Nigeria.
This is one of the reasons given for Shell pulling out its investment in Nigerian subsidiary, as its investors want it to transition into energy as rivals are positioning for revenue in the green economy.
Rising cost affecting revenue: Chevron had admitted in 2021 that the company is facing tough times, and this has forced the U.S firm to consider laying off 25% of its workforce, in a bid to reduce increasing cost.
The rough period boils down to the COVID-19 outbreak that dragged demand for fuel usage down across various sectors and households in Nigeria and knocked crude oil price down to as low as $20 – this depreciated revenue of oil companies.
Conclusion
The Petroleum Industry Act is meant to make Nigeria competitive by attracting foreign investment, not usher in the exit of investors.
With the exit wave expected to continue, NNPC is drafting a divestment criteria or guideline to ensure Nigeria is not at the losing end when more firms announce their exit from the country’s oil market.
“NNPC as a national oil company cannot stop partners from divesting their interest, even though it creates a challenge for us in ensuring that we get right and competent investors to take position and add value to the assets.
“NNPC will ensure that Nigeria’s National strategic interest is safeguarded, by developing a Comprehensive Divestment Policy”. Kyari had said last year.
Although such guidelines haven’t been announced, but Kyari believes the criteria will ensure a win-win situation for Nigeria and exiting firm.
– Ripplesnigeria
