Upsurge in investment activities signposts opportunities in Nigeria’s upstream sector

Nigeria’s upstream sector has recorded a flood of activities in the last three weeks. Analysts say these investment activities are a reflection of the opportunities that exist in the upstream sector of the country’s oil industry.

Savannah Petroleum plc last week completed the acquisition of Seven Energy, making it the latest entrant in Nigeria’s exploration field in dire need of investments.

In the month that Seplat announced the acquisition of AIM-listed Eland Oil and Gas, largely for the complementarity of the latter’s Oil Mining Lease (OML) 40 with its base assets, Oslo-listed Panoro Energy ASA agreed to sell its entire stake in OML 113 (Aje field) to another Norwegian Junior, PetroNor E&P Limited.

Canada-based Africa Oil Corp said on November 1, 2019 it would buy all Petrobras’ stakes in producing assets in Nigeria after trading house Vitol and Delonex Energy walked away from a $1.4 billion deal to jointly acquire the interests.

Only two months ago, LEKOIL announced it was acquiring 45 percent interest in Newcross-operated Oil Prospecting Lease (OPL) 276 in the eastern Niger Delta.

ExxonMobil’s divestment of undeveloped discoveries is ongoing while international market watchers are also speculating that Chevron would be divesting more than it previously thought it would, information Chevron has not denied.

“It’s more of market forces-driven actions. Some smart investors are seeing a cash cow that they can leverage on which is why they are positioning themselves early in the sector,” Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers, said.

Ologunro noted that there are market indicators that there might be more of these transactions and deals, especially since the amendment of Production Sharing Contract (PSC), which is a major move that will shape how IOC will reduce or increase their exposure to the Nigeria market.

He advised that for government to unlock the potential in the sector, there was need for more complementary reforms.

Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), said it was more of individual brilliance from companies in the sector than a market reflection of the upstream sector whose credit system will definitely get worse.

“Before the end this year we should see two or three more kinds of these deals because of the new fiscal Deep Offshore Act; some planned investment won’t go ahead until there is more divestment,” Henry told BusinessDay. The mother of these entire asset sales will be Total’s divestment of its 12.5 percent stake in Shell-operated OML 118. Total is seeking to sell its 12.5 percent stake in a major deepwater oilfield off the coast of Nigeria.

The plan is reported to be an effort to adjust the energy company’s Africa portfolio amid a broad expansion. OML 118 hosts the Bonga main field, the Bonga North West, the Bonga North and the Bonga South West structures. The Bonga South West is under consideration for a Final Investment Decision (FID) on a project expected to deliver over 175,000 bpd at peak.

Two of the sources report that the stake in OML 118, which is located some 120 kilometres (75 miles) off the Niger Delta, is valued at up to $750 million.

The move by IOCs to downscale their stakes in Nigeria’s oil and gas industry bodes well for indigenous businesses who have gradually expanded their footprints in the most strategic sector of the economy, according to a research report by Lagos-based CSL Stockbrokers.

“From a macroeconomic standpoint, we believe the implementation of indigenisation policy in the oil industry will ease capital repatriation pressure and its attendant impact on the local currency,” CSL Stockbrokers said in the report.

Nigeria’s upstream sector lies at the heart of the oil and gas industry and is the origin of its ever-shifting dynamics. The sector covers activities relating to exploration and production of crude oil or natural gas either in underground or underwater fields.

“Due to lack of clarity in Nigeria’s fiscal terrain, investors are worried about their margins, most especially getting back their cost of production which is a huge concern for oil exploration,” Mele Kyari, group managing director, Nigeria National Petroleum Corporation (NNPC), said at the 37th Annual International Conference of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos.

PricewaterhouseCoopers (PwC), a multinational professional services network with headquarters in London, said the outlook for the industry is positive and operators can look forward to an exciting and dynamic future with an ever-changing competitive landscape characterised by divestments and new acquisitions as new market entrants continue to seek a share of the industry’s significant growth potential.

“The onus, however, sits with governments to ensure that they continue to provide acceptable regulatory environments with attractive fiscal systems. The main difficulty that investors have is the risk associated with uncertainty,” PwC said.

It said should uncertain regulations persist, especially surrounding the passage of the Petroleum Industry Bill (PIB), the country might become less attractive to new investments which are considered very important in increasing its revenue.

Nigeria has been on a perpetual voyage with PIB, which is one of the most important bills ever to be contemplated in its history in a journey that began 16 years ago with a lot of anticipation and promises.

Today, Nigeria is only capable of pumping some 2.5 million barrels of crude oil per day despite sitting on more than 40 billion barrels of proven reserves, with its mid-stream and downstream infrastructure arguably in worse shape than upstream production while huge gas reserves with an estimated value of $462.5 billion have been left trapped and unproductive for decades.

 

DIPO OLADEHINDE