Total Energies’ planned exit worsens Nigeria’s onshore oil space

With TotalEnergies planning to sell its stake in a Nigerian oil joint venture, the country’s onshore oil space looks set to take a turn for the worse.

Shell and ExxonMobil had earlier announced plans to sell more onshore assets in Nigeria.

Analysts say while investments have dropped in the global energy sector, Nigeria’s situation is exacerbated by a challenging operating environment, unattractive fiscal terms, limited major project pre-Final Investment Decision (FID) pipeline and divestments by international oil companies (IOCs).

Total Energies’ Chief Executive Patrick Pouyanne was quoted by Bloomberg as saying last week that the energy major was planning to offload its 10 percent interest in a firm that holds 20 onshore and shallow water permits in Nigeria.

According to Renaissance Capital, an emerging and frontier markets investment bank, the mass exodus from Nigeria is disrupting Nigeria’s upstream activity, a sector that was once the most sought-after beautiful bride by many suitors as it commanded a lot of attention within the global oil market.

“Other IOCs such as Equinor, TotalEnergies, Eni and Chevron could potentially have all or some of their assets on the market,” it said.
Findings by BusinessDay showed Nigeria’s onshore oil space is one of the most challenging operationally in the oil and gas industry, with issues such as local opposition, oil spills, militant activity, crude evacuation constraints and logistical bottlenecks.

The onshore fiscal terms are also some of the least attractive globally, according to Renaissance Capital, with oil royalty at 20 percent and Petroleum Profits Tax at 85 percent.

The Petroleum Industry Bill, now Petroleum Industry Act (PIA), in the making for nearly two decades, resulting in a prolonged fiscally uncertain environment, was only signed into law in August 2021.

“The combination of punitive fiscal terms and fiscal uncertainty deterred investment in both upstream development and exploration, especially in onshore and shallow offshore terrains. The PIA has improved fiscal terms across all terrains, but its implementation is slow and we have not seen yet a positive response from the sector,” Renaissance Capital analysts said.

The limited exploration activity of the past decade has also led to a thin project pipeline, with only a handful of potential new pre-FID oil projects such as Bonga fields, TotalEnergies’ Preowei, Eni’s Zabazaba-Etan, Chevron’s Nsiko and Exxon’s Owowo.

According to Deborah Gordon, leader of oil and gas solutions at global energy and climate think-tank RMI, investors are more likely to back oil extraction in wealthier and more politically stable countries if demand starts to fall.

“It is the smaller petrostates that will particularly struggle,” she said. “Countries that are war-torn, or with non-democratic governance, or a lot of corruption, are probably those that will teeter on the brink if we are successful in reducing our consumption of oil.”

As Nigeria struggles to attract investment into its energy sector, Namibia, a country of about three million people, recently gained attention from some of the biggest IOCs.

According to the UK-based energy and intelligence provider, Upstream, Shell’s discovery, which was initially thought to hold 400 million barrels, could now hold as much as two billion barrels of oil, while the TotalEnergies well could hold as much as three billion barrels, developments that provide an estimated $3.5 billion annually in royalties and taxes for the Namibian government.

Read also: TotalEnergies to exit Nigeria’s onshore oil fields

It further showed Shell was considering adding a Floating Liquefied Natural Gas vessel alongside a crude FPSO vessel because the discovery could hold up to six trillion cubic feet of natural gas,

Experts said the discovery, coupled with the country’s favourable regulatory environment, would create an influx of new investment, while also positioning Namibia as a highly competitive and increasingly lucrative upstream destination.

“This discovery offshore Namibia and the very promising initial results prove the potential of this play in the Orange Basin, on which TotalEnergies owns an important position both in Namibia and South Africa,” Kevin McLachlan, senior vice president, exploration at TotalEnergies, said on CNBC.

Apart from Nambia, South America’s third tiniest country, Guyana, is attracting a $10 billion investment from America’s biggest energy company, ExxonMobil.

“Guyana’s Yellowtail’s oil development further demonstrates the successful partnership between ExxonMobil and Guyana, and helps provide the world with another reliable source of energy to meet future demand and ensure a secure energy transition,” said Liam Mallon, president of ExxonMobil Upstream in a statement. The new project is expected to come on stream by 2025.

It said that nearly two dozen successful oil wells since the first in 2015 allowed it to so far have access to more than 10 billion barrels of oil in the Guyana Basin.

“We are working to maximise benefits for the people of Guyana and increase global supplies through safe and responsible development on an accelerated schedule,” Mallon said.

ExxonMobil employs more than 3,500 Guyanese workers, up more than 50 percent since 2019. It has spent more than $600 million locally on more than 880 suppliers since 2015.

Although Nigeria, Africa’s biggest oil producer, which sits atop over 36 billion barrels of crude oil reserves, is punching below its weight in terms of foreign investment, according to experts.

Foreign investment into Nigeria’s oil and gas hit a low of $101 million in 2021 which showed a sharp decline compared to $327.30 million recorded just in the fourth quarter of 2016, data obtained from the National Bureau of Statistics show.