• Tuesday, May 28, 2024
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BusinessDay

IOCs pullout underscores Nigeria’s shrinking oil fortunes

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The end of Nigeria’s oil industry might be far away, but data accumulated by BusinessDay research suggests it is a sector ailing and contracting as a result of persistent poor management and rising global competition.

A string of forced departures by global oil and gas players whose entry into Nigeria was highly celebrated is one clear evidence that rather than attract badly needed investment, Nigeria’s oil industry is not even placed to play catch-up any longer.

Anglo-Dutch giant, Shell set off the alarm bells two years ago, when it began to sell off its on-shore assets in the Niger Delta in what was seen as an attempt to rebalance its risk and prepare for a future offshore and with its eyes on gas.

British Gas, the global player was forced to sell its Nigerian assets two years ago and invested the proceeds where it is now producing gas.

Total, the French giant ,sold its 20 percent stake in the once-thought-lucrative Usan field and the proceeds were not invested in Nigeria. The departure of Total from Usan caused great concern because no major oil firm sells a prolific asset like Usan barely a year into production. Exxon Mobil and Shell are also equity holders in the Usan field but none of them offered to pick up the shares Total was offloading.

ConocoPhillips, another world player, sold its onshore assets after 46 years of operation in the country and chose to pack its bags and head away from Nigeria.

Petrobras, the giant Brazilian oil firm which came into Nigeria with fanfare some years ago, was recently reported to have commenced moves to sell off its Nigerian assets, hoping to put the cash to work in more exciting locations abroad, although the company later said it had not made any decision yet on the potential sale of the assets.

At the weekend, word was leaked to BusinessDay that a major European oil firm in Nigeria is currently pondering a possible sale of some of its Nigerian assets.

A senior oil industry source who asked not to be named, told Business

Day that whereas “entry and exit from an industry is standard, the worrying thing about the Nigerian case is the reason for the exit– government’s poor management of the industry.”

According to him, if care is not taken, we could easily be in the same position in crude oil, as we are in palm oil, where Nigeria occupied the front position only to lose same to countries who looked up to Nigeria at the beginning.”

BusinessDay investigation showed that because the International Oil Companies (IOCs) are not engaging in new ventures that will involve award of contracts, local and indigenous contractors have become the worst hit, despite government’s local content policy enacted three years ago.

Added to this is the disruptive effect of the Petroleum Industry Bill (PIB) and the growing global competition with even African countries aiming to outpace Nigeria in the battle for investment dollars.

Bimbo Kolawole, Business Development Manager, Africa, Rystad Energy, suggested that the above-ground risk, which includes fiscal terms, in the Nigerian oil and gas sector, might be a key reason for the divestments by the IOCs.

Kolawole said: “Perhaps, the IOCs are going to other countries especially in East Africa, which is becoming an emerging frontier. Maybe, it is a lot easier for them to do business there because above-ground risk is probably a lot easier to deal with in those regions as opposed to Nigeria.”

She explained that some of the IOCs see deepwater investments as better and safer for them, adding “but for those who are leaving the country, it might also be because they are not making enough profit.

“I think Shell divested because it wanted to leave onshore for deepwater where there are less challenges of pipeline vandalism.”

Speaking on the possible impact of the divestments by IOCS on the local content development initiative of the government, she reckoned that there would still be opportunity for local content to thrive as the NNPC and other local players would rise to fill the gap in terms of contracts for local oilfield service companies.

Emmanuel Usanga, Controller, Subsurface, Peak Petroleum Industries Nigeria Ltd, said the exit of the IOCs from the industry might lead to a dearth of requisite technology, human capital and other resources, and depression of international demand for the nation’s crude oil, adding that exports of crude from the country to the United States have reduced significantly.

Nigeria’s crude exports to the US were less than 500,000 barrels per day (bpd) in 2012, a sharp drop from over one million bpd in 2005.

He said: “I foresee a period of depression in the sense that the efficiency that normally comes along with technology, human capital and external resource of the IOCs will be missing for a while, but after the period of depression, I expect that Nigerians should be able to also bring in the experience and capacity they have built over the years as professionals.”

He continued: “Very often, the IOCs are also limited by slow input of cash call by NNPC. I do not foresee that NPDC will be able to fill the gap.”

He however added that more opportunity would be created for local service providers to demonstrate their capacity and expertise as they might not have been trusted by the IOCs.

Uju Ifejika, managing director, Brittania-U Nigeria Ltd, one of the successful operators of the marginal oilfields awarded in 2013, disagrees that the departure of IOCs would enable more local players to come in, citing that out of the 24 indigenous companies who were awarded licences in 2013 only six are operational.

She stated that if IOCs continue to leave the industry, it would be difficult for local companies to develop the muscle to start operating on their own because of the challenges in the industry.

 

BY OUR REPORTER