Will investment return on FG’s olive branch to oil majors?

Nigeria has withdrawn civil claims against energy giant Eni SpA, and its partners including Shell, ending a long battle in Italian courts over allegations of corruption in an oil field deal, but analysts believe this may be inadequate to halt the exit of investors from the country.

A Bloomberg report last week said Nigeria’s justice ministry will waive the claims before Italy’s highest court “unconditionally” and “with immediate effect”. It also said the country will also “irrevocably” waive the right to any further legal action in Italy against Eni, its affiliates, and current and past officers in regard to rights for the field known as Oil Prospecting Licence (OPL) 245.

Operations at the oil-rich block have been halted for more than a decade by a series of trials and competing legal claims. The area is considered to be potentially one of the richest concessions in the country, with recoverable reserves of 560 million barrels, according to Eni’s estimates.

In 2011, Shell and Italian oil giant Eni paid $1.1 billion for OPL 245, an oil block located on the southern edge of the Niger Delta allegedly knowing that the money would go to a front company secretly owned by a former Nigerian oil minister, Dan Etete, who had been convicted for money-laundering.

Etete was accused of awarding himself the block while in office under the former military dictator Sani Abacha, through Malabu Oil and Gas, a company he owned.

Eni, Shell and some of their former and current managers had already been definitively acquitted last year in a criminal case in Milan, in which they were accused of knowing that much of the $1.1 billion they paid to acquire OPL 245 would be distributed as bribes.

Even after that verdict, a civil suit continued, with Nigeria seeking combined compensation of $3.5 billion from Eni and Shell, claiming the amount reflected the real value of the licence purchased in 2011 by the two companies.

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Nigeria is betting that the withdrawal of the lawsuit would spur oil majors to resume operations in both the OPL 245 and several other fields that have been abandoned by international oil companies (IOCs).

But analysts say the issue is more nuanced. Ending the civil action “is a very good step, especially when you consider that the asset is very prolific,” Ayodele Oni, energy lawyer and partner at Bloomfield Law firm, said. “No one was going to invest with the dispute until the same was resolved.”

He said: “However, that alone is not sufficient to drive the sort of activities we expect in the industry. Investors want to be sure there is certainty and clarity. They want to be clear that they can monetise their investments and enforce their investment rights.

“If all these elements are not clearly and unequivocally present in the country, then we won’t see the sort of volume of activities we want in the industry. With the PIA (Petroleum Industry Act), we now have a measure of certainty but still require more regulatory certainty, especially around the Commission and the Authority.”

Experts who spoke to BusinessDay said the projected gains expected from Nigeria’s oil and gas sector following the passage of the PIA have remained a mirage as poor implementation leaves principal actors in a battle for supremacy and revenue.

“Officials at both regulatory agencies and other agencies still demand bribes to attend to licences and approvals, and the delay in the process and bureaucratic obstacles did not change,” a senior industry source said.

Wumi Iledare, a professor of petroleum economics, said the implementation of the PIA has been so slow and short-circuited, adding that the committee implementing the law was sidetracked in resource mapping, especially for the PIA institutions.

“The suboptimality of PIA is majorly because the new institutions were indirectly handed over the task of human resources mapping to the defunct institutions; the old Petroleum Products Pricing Regulatory Agency became the driver of the Authority and the defunct Department of Petroleum Resources indirectly drives the Commission,” he said.

Most stakeholders appeared to also be voting in the direction of a single regulator as they canvassed for a merger following the loopholes and battle for supremacy being witnessed between the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream Downstream Petroleum Regulatory Authority.

This comes as the Nigerian Extractive Industry Transparency Initiative (NEITI) insisted that the provision in section 64 (m) of the PIA that makes the Nigerian National Petroleum Company Limited (NNPCL) the supplier of last resort and that all associated costs to be borne by the federation is capable of being misinterpreted as it was in the old practice of deducting from revenue source.

NEITI noted that section 64 (C) and 9 (4) of the PIA provides for a 30 percent deduction from profit oil and profit gas by NNPCL for frontier exploration fund and NNPCL management fee, but does not provide clarification as to what percentage goes for frontier exploration fund (FEF) and NNPCL management fee.

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“The federal government should consider reviewing the deductions from oil profit to ensure they are clearly delineated. If the intention is to have one 30 percent retention that covers both the management fee and the FEF, the wording should be rephrased to reflect this clearly. Alternatively, if separate 30 percent retention is required, the language should be revised accordingly,” it said.

Beyond the regulatory uncertainties, experts said the country’s oil production has been blighted by large-scale theft and vandalism, as well as decades of under-investment in infrastructure.

To change the narrative, they advocated for indigenous Nigerian oil producers who currently pump about 10 percent of national output and have invested billions of dollars in the past 10 years, to play a bigger role in the sector dominated by IOCs.

Meanwhile, as Nigeria struggles to attract investment into its energy sector, Namibia, a country of less than three million people, is emerging as a global exploration hotspot over the past two years, primarily due to deepwater discoveries by industry giants such as Shell and TotalEnergies.

Additionally, major oil companies like Chevron, ExxonMobil, and Galp Energia have initiated exploration and appraisal activities in the region.

Read also: Shell to drill two new offshore wells in Namibia, says CEO

Nambia’s state-owned oil company believes that this series of discoveries could position the country among the world’s top 15 oil producers by 2035, offering the nation a unique opportunity to double its gross domestic product per capita in less than a decade.