Delayed IOCs’ divestments in Nigeria worries investors

The delayed divestments by international oil companies (IOCs) from Nigeria’s oil and gas sector is creating uncertainty among investors, a development that does not bode well for the country’s troubled oil sector.

For more than a decade, oil majors operating in Nigeria have pursued divestment strategies, focusing on exiting the shallow water and onshore while maintaining interests in the deep waters and downstream sectors.

The complexities surrounding abandonment, decommissioning and the surge in environmental issues, legal crises, labour conflicts, vandalism, capital and technical challenges for Nigerian companies are upsetting stakeholders.

“The current status where the sellers have signalled a full intention to leave, whereas the buyers are yet to effectively take over the operations of the assets is very detrimental to the sector and the country,” Abdulrazaq Isa, chairman of Independent Petroleum Producers Group, said on Tuesday at the opening session of the seventh edition of the Nigerian International Energy Summit in Abuja.

“The industry will be most appreciative of the prompt intervention of the government to untangle all issues and diligently fast-track all relevant approvals,” he said.

Seplat Energy announced an agreement in February 2022 for the acquisition of ExxonMobil’s entire share in its shallow water business — Mobil Producing Nigeria Unlimited (MPNU).

But more than two years later, the government has not approved the deal, as such transactions are often subject to ministerial consents and other regulatory greenlights.

Also, Oando, in September 2023, disclosed that it had signed a deal to acquire 100 percent of Eni’s shares in Nigerian Agip Oil Company Limited (NAOC Ltd).

Days after Oando announced the deal, the Nigerian National Petroleum Company (NNPC) Limited said it could lead to legal issues, adding that Eni and Oando overlooked certain terms in their joint operating agreement.

Norwegian oil company Equinor announced late last November that it had sold its Nigerian entity to a little-known local company Chappal Energies, the end of Equinor’s three-decade association with Africa’s largest oil producer.

“Divestment is being handled carefully by this government to ensure the country remains globally competitive,” Heineken Lokpobiri, minister of state for petroleum resources (oil) said at the event.

“All the issues with divestment will soon be resolved within a very short term,” Lokpobiri added.

Mele Kyari, the group chief executive officer of NNPC Limited, said the state-owned company will facilitate the sale of any assets in Nigeria, however, all exits must be mutually beneficial to exiting partners, incoming partners and NNPC Limited.

“It’s not enough to exit; every arrangement must guarantee incremental production from these assets and we must see this on the table. We are working with all our partners to ensure more resources are optimally utilised,” Kyari said.

“The president has given a clear directive that Nigeria’s business environment must be friendly for investment and anyone who wants to divest is free to divest,” he added.

Other industry stakeholders and watchers said delayed oil majors’ exits could limit the ability of the sector to attract fresh investments.

“Global investors always require an exit option. When this appears muddied, it is another headwind for new investors to consider,” Kunle Agboola, an investment risk analyst operating in sub-Saharan Africa, told Businessday.

“The most attractive oil and gas basins have great deal flow but if it takes three years to exit, this is a significant downside to investment,” he added.

Findings by BusinessDay showed section 95 subsection 10 of the Petroleum Industry Act states that “where the application for an assignment or a transfer of a petroleum prospecting licence or petroleum mining lease is refused, the commission shall inform the applicant of the reasons for the refusal and may give reasonable time within which further representations may be made by the applicant or by third parties in respect of the application”.

“By fighting hard to scuttle IOCs’ quest to leave the onshore and shallow waters where their operations are threatened by oil thieves, whom the government and the regulators have failed to curb, the government is proving their case that Nigeria is unsafe for investments,” Agboola said.

Aisha Mohammed, an energy analyst at the Lagos-based Center for Development Studies, argued that it was in Nigeria’s interest to have a thriving energy sector, particularly at a time when investors prefer other destinations.

“For example, Nigeria is the only major oil producer where the IOCs are leaving despite the threat of energy transition. Globally underinvestment into oil projects is challenging but it is worse in Nigeria,” Mohammed said.

ExxonMobil is investing millions of dollars in Guyana where the oil they discovered in just one field in 2015 is more than all the oil they have found in Nigeria since the 1960s. Shell made so much more in 2023, it gifted $23 billion of the profits to shareholders as dividends and these were profits largely made outside Nigeria.