PIA fails to halt oil majors’ divestments
...Local firms in new scramble for TotalEnergies assets
One year after the passage of a law crafted with the objective of attracting new investments, major international oil companies (IOCs) are still selling their assets in Nigeria, validating the views of operators that the law was a little too late as Total Energies progresses its divestment plans.
BusinessDay had reported in August that one year after the new law came into force, the Nigerian oil and gas industry was still struggling to shake off the doldrums caused by the more than decade-long delay in passing the Petroleum Industry Bill (PIB).
On August 16, 2021, the PIB was signed into law by President Muhammadu Buhari and transformed into the Petroleum Industry Act (PIA), which was publicised as the tonic to rewrite Nigeria’s decades-old relationship with its foreign oil partners and alter everything from fiscal terms to the structure of the state-oil firm.
Industry operators say Nigeria’s oil production capacity crisis will worsen with major oil companies exiting their onshore and shallow-water assets as the local firms scrambling to take them over lack the capacity to absorb major shocks including crude theft and financing for big-ticket operations.
Tony Elumelu’s Heirs Holdings, which acquired one of Shell’s onshore oil fields, was sent reeling when oil thieves attacked the pipeline. The company pumps about 40,000 barrels daily of crude into the pipeline but only manages to export 7,000 barrels daily at the terminal.
After years of Nigerian government’s unwillingness to reform, rampant crude theft and sabotage, inability to quickly enact regulatory and fiscal reforms, insecurity and disrespect for contract sanctity, and pressure exacted by climate change activists, the IOCs are departing Nigeria’s onshore space, leaving a gaping hole.
This is why divestment has become a buzzword in the lexicon of the Nigerian oil and gas industry despite the signing of the PIA.
After ExxonMobil’s divestment ran into troubled waters, TotalEnergies is poised to sell a 10 percent stake in 16 Nigerian joint venture assets and several indigenous firms, led by Conoil and Chappal Petroleum Development Company, have advanced to the next stage of the bidding process.
“The race for the purchase of the 10 percent held by TotalEnergies in 16 Shell-operated Oil Mining Leases onshore and shallow water Niger Delta, has reached the second stage,” the latest report by Africa Oil & Gas Report, an energy intelligence publication, says.
Last January, the French multinational oil and gas giant confirmed it was accepting bids for its interest in 13 onshore fields and three in shallow water, producing over 20,000 barrels of oil equivalent per day.
The Africa Oil & Gas Report added, “Conoil, Chappal, Waltersmith, and Vertex, all Nigerian-owned companies, are in on the bid. Data room work should be about to take place by the end of September 2022.”
Experts believe the current dollar-crunch challenge facing Africa’s biggest economy may affect the valuation of some of the oil major’s assets listed for divestment. This development might pose a challenge for local firms’ bidding quest.
“With foreign lenders already resisting funding fossil fuels and the limited capacity of local banks, funding could become the biggest challenge for would-be investors,” Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice, said.
Recent information indicates that Nigeria’s lenders likely don’t have enough dollars to fund clients seeking to acquire the oil assets put on sale by IOCs, according to one of Nigeria’s biggest lenders, Guaranty Trust Bank.
“When I look at the books of Nigerian banks today, I don’t see a lot of dollar liquidity,” the bank’s CEO Segun Agbaje told an investor conference call in Lagos, adding that “it’s becoming a very difficult deal for people to pull off.”
Experts say the delay in passing the PIB created decades of uncertainty during which the IOCs began to look elsewhere, and held back investments. This effectively shut off new discoveries, and production infrastructure was not maintained.
The result is that today Nigeria cannot produce enough to meet its reduced quota from the Organization of the Petroleum Exporting Countries.