Oil majors could divest $100bn worth of assets, but are indigenous companies ready?

Amid massive divestment into cleaner sources of energy, some of the world’s largest oil and gas firms are considering assets sell or swap of more than $100billion, a development which may be a sort of mixed blessings for Africa’s biggest oil-producing country.

Analysis by Rystad Energy, a Norwegian oil sector research firm, indicates that International Oil Companies (IOCS) such as British Petroleum, Shell, Exxonmobil, Total, Eni, Conocophillips, Chevron and Equinor could sell or swap out resources of up to 68billion barrels of oil equivalent, assets worth an estimated $111bn, in a bid to streamline their portfolios, significantly improve cash flow, cost efficiency and competitiveness.

The IOCS account for more than 70 percent of Nigeria’s daily crude production.

Rystad said its key criteria in determining whether a major+ will stay in a country are the cash flow over the next five years, potential growth in its portfolio, and presence in key exploration and production growth countries towards 2030.

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Based on this, oil majors may “seek to exit 203 positions” in 60 countries, reducing their overall number of country positions from 293 down to 90.

Rystad senior vice president, Tore Guldbrandsoy, said “Companies will look to expand in the prioritised countries through exploration, acquisitions or asset swaps with other Major+ players.”

“However, to stay in a country that our criteria exclude, a company may instead seek to grow its local business more aggressively to make sure the portfolio will have a positive and more significant impact on overall performance,” Guldbrandsoy said in a statement.

Naturally, a wave of divestment of oil and gas assets previously held by these IOCS will no doubt ignite interest from different stakeholders in the Nigerian oil and gas industry either in the renewable energy sector or indigenous oil producers.

Ademola Henry Team leader at the Facility for Oil Sector Transformation (FOSTER) said Nigeria needs to put incentives in place to attract investments in the renewable energy sector or value chains of the oil and gas sector beyond oil exploration.

Other experts say the present development presents huge opportunities for Nigeria to attract investors into its renewable energy space which is still mostly untapped.

Buoyed by the high oil price and the need to boost local content in the nation’s oil industry many banks doled out loans to indigenous players for the acquisition of assets being divested by IOCS such as Royal Dutch Shell, Chevron and Total.

Between 2010 and 2018 some indigenous companies including Starcrest Energy, Aiteo, Oando, Seplat, Eroton, First E&P, Neconde, Midwestern, Notore Lekoil, Panocean, Newcross and Shoreline threw in billion dollars cheques in their scramble for assets divested by major multinational oil firms which have recorded mixed performance.

Seplat Petroleum Development Company PLC successful bought assets such as OML 4, 38 and 41 which were producing 15,000 barrels per day (bpd) but today are now producing 80,000 bpd.

Same cannot be said of Oando Energy Resources, a subsidiary of Oando Plc, who incurred a $2.5 billion debt after the 2014 acquisition of oil and gas assets from U.S. giant Conocophillips. While Seven Energy, a Nigerian company founded in 2004, ran into troubled waters after several defaults on its debt servicing obligations.