Nigeria – A graveyard for investments

In August 2021, the Nigerian president Buhari, signed the Petroleum Industry Act into law. This was supposed to be an epic accomplishment after failed attempts for two decades.

The new oil law reviewed fiscal rules that made Guyana, Equatorial Guinea and some smaller African countries more attractive for oil investors. It streamlined taxes, revised royalties and clarified collection process and how leases are managed.

It was supposed to be the silver bullet for attracting new investments and halting the exodus of International Oil Companies (IOCs) from the troubled Nigeria Delta.

Barely six months after its enactment, Nigeria is about to scuttle fresh investments into an oil sector where investments have been too few and far between.

The case involving Shell is even more troubling because it demonstrates how state institutions can be perverted towards a parochial interest at a grave cost to the nation

State-oil firm, the Nigerian National Petroleum Corporation (NNPC) Ltd seeks to undo Seplat Energy’s deal with Mobil Producing Nigeria, a local subsidiary of ExxonMobil.

An Owerri appeal court has halted Shell’s divestment deal over a purported oil spill that even the government’s spill detection agency was unaware of.

Seplat/ExxonMobil deal

Seplat Energy, the leading local oil company struck a deal with ExxonMobil Nigerian unit to buy its entire shallow water and onshore assets valued at $1.6billion.

Negotiations which began in 2018 was stalled due to COVID-19. The deal was eventually revived in 2021 and this year, both parties agreed terms.

Then the NNPC which didn’t have a financial war chest until January this year when it secured Afrexim bank’s help to source financing, bullied its way into the deal.

At an energy conference in Abuja in March, Mele Kyari, NNPC CEO, said IOCs rarely decommissioned or properly abandoned assets, a development that breaches existing laws regulating the industry and would not assure its support for new divestments.

Then the corporation went for the jugular. The NNPC said as a Joint Venture partner with MPNU and with a 60 percent stake in the assets, it should have the right of first refusal over any sale or pre-empt the purchase according to industry lingo.

Predictably, this sent the deal into a tailspin. Conversations with officials of Seplat and ExxonMobil Nigeria clearly indicate that the NNPC was fully aware of the deal since 2018.

In fact, the IOCs and local oil companies do not even send a letter to the NNPC or the Ministry of Petroleum Resources, without NNPC officials approving every line of text, a top official of one of the IOCs told BusinessDay.

The relationship private oil companies have with the NNPC is akin to one between a vassal and a sovereign.
“NNPC cannot say it does not know about this deal from day 1, it chose the 11 eleventh hour to scuttle it,” said a source with knowledge of the deal.

The portfolio involved in the ExxonMobil -Seplat deal includes a massive 1.3 billion barrels of oil equivalent (boe) of contingent resources, 75 percent of which is gas. Less than half of its 70 fields have been developed.

MPNU will sell 40 percent stake in four oil mining leases (OMLs 67, 68, 70, 104) and associated infrastructure, the Qua Iboe Terminal, one of Nigeria’s largest export facilities and 51 percent interest in Bonny River Terminal and Natural Gas Liquids Recovery Plants at EAP and Oso.

NNPC is clearly interested in the assets and has written to MPNU saying it wants to exercise pre-emption rights. In reality, the NNPC is a tad too late into the game. It would also need to match Seplat’s offer which could impair it’s ability to compete on the more lucrative and strategic Shell assets.

But Nigeria is getting the short end of the stick. NNPC’s exploration and production subsidiary, the Nigerian Petroleum Development Corporation (NPDC) lacks the competence of other local oil companies to develop assets.

(See chart)

(Chart – Seplat has proven to become an efficient producer while NPDC struggles)

“Why is NPDC who is struggling to keep oil blocs active thinking of buying more when it’s not maximising the ones in its possession,” asked Kelvin Atafiri an investment expert with Cavazanni Human Capital Limited.

Beyond declining oil production, a transparency watchdog, the Nigerian Extractive Industries Transparency Initiative (NEITI) has described the NDPC as inefficient.

NEITI in a recent report said NPDC has not paid $3.925 billion for the 12 oil blocks transferred to it by NNPC which accounts for NNPC’s 55 percent shares in the Shell joint venture and NAOC JV.

“The process for the transfer of federation’s assets to NPDC does not seem to pass the transparency test. One of the upsides of this is the undervaluation of these assets, thereby depriving the federation of optimal value for the assets,” NEITI said.

NEITI insists NPDC has refused to give accounts of its operations and refused to cooperate with audits ordered by the auditor-general of the federation in 2015 and only partially cooperated during the 2013 and 2014 audits.

Read also: ExxonMobil-Seplat deal: NNPC misfired

The Shell oil spill saga

The case involving Shell is even more troubling because it demonstrates how state institutions can be perverted towards a parochial interest at a grave cost to the nation.

On November 27, 2020, Justice T. G. Ringim of the Federal High Court, Owerri, Imo State, ruled that Shell Petroleum Development Company (SPDC), Shell International Exploration and Production Company (SIE&P), and the NNPC were liable for a purported oil spillage from their facility in Ejalawa community in Oken-Ogosu swamp farmlands in Egbalor of Ebubu/ Eleme Local Government Area of Rivers State.

The ruling was delivered on a suit brought by a local community leader, Isaac Torchi, and 87 members of the Ejalawa community against SPDC, SIE&P and NNPC, dated January 16, 2020, over oil spillage which they claimed damaged the environment as well as their source of livelihood.

Other defendants are Shell International Company Limited and the Attorney General of the Federation (AGF).
Part of the reliefs sought includes a declaration that plaintiffs are entitled to compensation to the sum of N800 billion for damages done by spillage caused by the defendants.

They also sought another order directing shell to depollute and rehabilitate the destroyed farmland, ponds, and agricultural products, as well as a 10 percent post-judgment interest from the date of the judgment and litigation cost of N1 billion.

Delivering judgment, Justice Ringim held that there was evidence of rupture at the defendant’s Akuka/Ebubu flow line named AKA-EBU-ONU-BAN 55 situated in the plaintiff’s land.

According to the judge, there was convincing evidence that the narrow diameter 4-inch pipes laid by the defendants in 1970 and which had a lifespan of 15 years and which was suspended above the earth were abandoned by the defendants, adding that the abandoned 4-inch pipes ruptured and spilled large volume of crude oil into the Oken-Ogosu swamps/farmlands.

SPDC and other defendants appealed the judgment of the Federal High court asking for a stay at the Court of Appeal, Owerri Division on January 25, 2022.\

The defendants denied the occurrence of spills on the alleged dates before the court. They further argued that the court was duty-bound to hear evidence to determine, first, if the spill occurred and the alleged cause before proceeding to fix liability and compensation, which it noted, didn’t happen in the case.

SDPC’s legal team stated that the pollution claim was largely unsubstantiated and that the purported evidence presented by the plaintiffs was not subjected to the appropriate legal scrutiny.

On February 24, the appeal court said it would rule on a later date and on March 11, the Appeal Court in Owerri ordered Shell to deposit the judgment sum in a court-controlled account within two working days and halted divestments on these assets.

“We are disappointed at this outcome. We have a strong belief in the merit of our case and will take immediate steps under the law to appeal and stay the execution of the decision until the appeal is determined,” a Shell spokesperson said.

The particulars of the case have left many concerned. The prosecution of an alleged oil spill was moved from jurisdiction it supposedly occurred. The oil spill was not recorded by Nigerian Oil Spill Detection and Response Agency (NOSDRA) and a disgruntled former Shell employee is leading the charge to extract compensation from SPDC.

On flimsy back of this claim, billions of dollars’ worth of asset sales have been disrupted with significant loss of revenue to Nigeria.

These cases shine a light on why investments are not coming to Nigeria as the government’s cavalier attitude towards investors deny the sector badly needed investments. Government officials act as though only Nigeria has crude oil but one of Exxonmobil’s oil wells in Guyana is bigger than all its production in Nigeria.