Exit of IOCs From Nigeria Could Reverse Oil Output Decline: Report

A report by Reuters has hinted that Shell and other oil multinationals’ exit from Nigeria’s onshore oil sector may have raised hopes that local firms could reverse the output decline from the Niger Delta, quoting industry officials and analysts.

Shell is the most prominent Western company to exit the Delta, a region where there’s rampant pollution, oil theft and pipeline vandalism, which have for years stifled investment, hobbled production as well as government revenues.

The oil multinational recently announced the sale of its subsidiary, the Shell Petroleum Development Company (SPDC) to five mostly local firms, joining the ongoing trend of Western energy companies divesting onshore Nigerian oil fields.

Exxon, Italy’s Eni, Norway’s Equinor and China’s Addax had struck deals to sell assets in the country in recent years.

Industry experts told Reuters that Shell, Exxon and other majors who hoped to divest were not putting much money into developing onshore assets – hastening production decline.

“The majors reduced investments in the onshore for many years,” said the Chief Executive of Nigeria’s Seplat Energy, Roger Brown. He cited the combination of local issues and the fact that major oil companies must compete for cash with their assets in other regions, such as Guyana, that can often look more attractive.

“I think the independent companies will get production up more than the International Oil Companies (IOCs) will, because they do have the appetite to invest,” Brown added.

Seplat is still awaiting regulatory approval of its own deal, announced in February 2022, to buy Exxon’s assets onshore.

Nigeria’s Minister of State for Petroleum (Oil), Senator Heineken Lokpobiri, recently said Shell’s asset sale would be quickly approved once all paperwork was received, adding that local companies would be able to step up to fill the void.

Some local firms, including Seplat, First E&P and Heritage have managed to raise production and reduce oil spills on assets purchased from Shell. But it has not worked for others, including Aiteo Eastern E&P and Eroton Exploration, which have struggled with leaking pipelines and oil spills.

“Nigeria has had well-established problems in policy in the oil sector, and the FX policy concerns have put constraints on investments. That’s probably partially why you have seen the majors pulling out, and disinvesting to some extent,” said a senior economist with Goldman Sachs, Andrew Matheny.

“It explains a significant portion of the decline in oil production in recent years,” he noted.

President Bola Tinubu took office last May pledging to remove obstacles faced by producers, including ending crude theft and pipeline vandalism. But seven months into his presidency, the asset sales, which were well underway before his election, highlight the inexorable changes to the country’s oil sector.

“If companies are now leaving the less capital-intensive onshore operations to focus on offshore operations, it sends a perfect picture of the risk involved in doing business in Nigeria,” said a senior analyst at security consultancy, SBM Intelligence in Lagos, Seyi Awojulugbe.

Ten years ago, Shell’s share of production was as high as 300,000 barrels of oil equivalent per day (boed) in Nigeria. This fell to 131,000 boed in 2022, which the company blamed on sabotage and theft in the Niger Delta, according to its annual reports.

But the head of geopolitics at London-based Energy Aspects, Richard Bronze, said local firms lacked the financial heft of oil majors, which could affect future output.

Still, Brown said that if oil majors aren’t investing, their access to cheaper capital is irrelevant. Local banks, some international lenders, and oil traders, are also sources of cash for local companies.

“It will be available, but it won’t be cheap,” he said. “But at these oil prices, indigenous businesses can afford to develop it,” he stated.

Emmanuel Addeh

Follow us on: