22 September 2013, Lagos – As international energy companies led by Shell and Chevron give up onshore and shallow water fields in the oil-rich Niger Delta, the time has come for Nigerian companies to increase their investment in the upstream sector of the oil industry and fill the emerging vacuum, reports Festus Akanbi As International Oil Companies (IOCs) lose their grip of the upstream sector of the Nigerian oil industry, which they had dominated in the past four decades, there are indications that some Nigerian companies and other minor players have begun to boost their share of the oil output by taking up fields abandoned by the IOCs.
A recent report by Bloomberg quoted figures made available by the Nigerian National Petroleum Corporation (NNPC) as saying that for more than five decades, Royal Shell Plc, Exxon Mobil Corporation, Chevron Corporation, Total SA and Eni SpA pumped about 97 percent of Nigeria’s oil output. The figure is said to have fallen to 90 percent in 2006 and is set to shrink further to about 60 percent in five years as more IOCs sell off their oil fields.
Local Investors to get Abandoned Oil Assets But as concerns mount over the divestment binge by the IOCs, the Federal Government said there is no cause for alarm as local oil firms are ready to fill the gap. Minister of Petroleum Resources Mrs. Diezani Alison-Madueke, who gave the assurance at the recently held Offshore Technology Conference in United States of America, said the Department of Petroleum Resources had listed all the assets that had been neglected by the International Oil Companies, adding that they are receiving presidential attention.
She said as soon as the assets are properly compiled, the bid rounds would start and the assets would be made available to local investors.
“There is no cause for alarm over the ongoing divestment of petroleum assets by multinational oil companies operating in Nigeria, since those assets are readily taken up by indigenous operators.” The minister said the Federal government would make conscious effort to build the capacity and capability of indigenous operators in the upstream sector of the oil and gas industry.
The Sell-offs A research conducted by Ecobank Research said Shell and Chevron are selling assets that can produce 300,000 barrels a day from nine onshore and shallow-water oil leases. The report has it that stakes in 13 other fields were sold jointly by Shell, Total and Eni since 2010, with most of them bought by smaller Nigerian companies including Seplat Petroleum Development Co., First Hydrocarbon Ltd. and Neconde Energy Ltd.
Last month, Africa Oil and Gas Report said 11 local companies including Seplat, South Atlantic Petroleum Ltd., Seven Energy Ltd., First Hydrocarbon and Sahara Energy Field Ltd. have been short-listed to buy the Chevron fields on sale. According to a US spokesman for the company, Jim Craig, Chevron is offering its entire 40 percent stake in each field and aims to complete the transactions before the end of this year. For Chevron, it’s a chance to “enhance capital efficiency” and for the prospective buyers an “opportunity to grow their own assets,” he said.
Also included in the divestment binge was British Gas, which sold its Nigerian oil assets and invested the returns in a productive venture, believed to be producing gas. Recently, Brazilian oil giant Petrobas notified Nigeria to auction 8 percent stake of its Agbami block and 20 percent of the offshore Akpo project for N795billion. Total, the French giant, sold its 20 percent stake in the Usan field of Niger Delta area of the country. ConocoPhillips also disposed its onshore assets and leave the shores of Nigeria.
It is being speculated that more foreign oil companies would join the fray of those that have divested their assets due to the prevailing environment in the country. Last month, Afren, the oil explorer, focused on West Africa, saying it is preparing to snap up more Nigerian oil fields from international operators who are retreating from the country. Osman Shahenshah, chief executive, said Afren could make further Nigerian acquisitions in the first half of this year as it seeks to take advantage of majors such as Shell and Exxon scaling down operations in the country.
“FHN was set up to take advantage of divestment from the majors. We have identified more than 100 fields that have 50m-200m barrels, which is of interest to us but too small for the majors to develop,” Shahenshah said.
In November last year, Total sold stakes in an offshore block for $2. 5 billion to Chinese state oil company Sinopec Corp. In December last year, ConocoPhillips announced that it would sell its Nigerian businesses to Oando Energy for about $1.79 billion.
Brazilian energy giant Petrobras has also set in motion an auction to sell its interest worth $5 billion in Nigerian oil fields.
Petrobras holds eight percent stake in the offshore Agbami bloc located in Oil Mining Lease 127, operated by United States energy major Chevron and a 20 percent share of the offshore Akpo project in 130, operated by French oil firm, Total.
Crude oil production from the Agbami field began in 2008. Output from the project can reach 250,000 barrels per day (bpd) and it holds estimated reserves of 900 million barrels. Akpo began production in 2009, and has plateau output of 175,000 barrels per day of light condensate oil and nine million cubic metres of gas. It has proved and probable reserves of 620 million barrels of condensate and more than 28 billion cubic metres of gas.
But economic analysts insisted the divestment by oil majors had given indigenous and small players the opportunity to take charge of the nation’s oil sector. A London-based analyst for Ecobank Research, Rolake Akinkugbe, said “These divestments represent the single largest opportunity for indigenous Nigerian firms with the requisite expertise, partnerships and capital to ascend into the league of major upstream players,” adding “if they overcome the operational difficulties they “will become increasingly instrumental” to Nigeria meeting its output target of 3 million barrels a day by 2020.
But chief executive, Financial Derivatives Company Bismarck Rewane is of the opinion that local companies are probably “better off dealing with some of the security challenges in the Niger Delta than the foreign companies. It’s easier for them to communicate with the communities and win their sympathy.” Nigeria pumped more than 2 million barrels of crude a day last month, according to data compiled by Bloomberg.
A proposed law to reform the way the oil and gas industry is regulated and funded has been delayed in parliament for five years, with international energy companies saying its fiscal terms, including taxes and royalties, would make offshore exploration unprofitable. The bill also proposes terms to boost the participation of Nigerian companies in the industry.
If passed, the law could be a “real catalyst for boosting local production, with attractive economics for small and marginal fields which many local companies operate,” Akinkugbe said.
Managing Director of International Energy Services, Dr. Diran Fawibe, is of the opinion that the divestment of IOCs would give indigenous oil companies in the country the required leverage.
He, however, said the magnitude of the growth of indigenous companies would depend largely on how well they are able to explore and exploit the fields to the advantage of Nigerians through huge investment in knowledge, research and development.
– This Day