Why is the exodus of oil majors from Nigeria?

Marcel Okeke, a practising economist and consultant in Business Strategy & Sustainability based in Lagos, is a former Chief Economist at Zenith Bank Plc. He can be reached at: obioraokeke2000@yahoo.com; +2348033075697 (text only)

The diverse and divergent views expressed by experts at the just concluded Nigerian International Energy Summit (NIES2022) in Abuja, with the theme, “Strategies for Confronting the Energy Transition”, vividly exposed the uncertain future of crude oil exploration and production in Nigeria. One thing that became glaringly obvious from all speakers was the move by what are regarded as International Oil Companies (IOCs) operating in Nigeria, to sell off their assets under all manner of excuses and embark on an exodus from the country. One of the experts at the event and former Minister of Petroleum Resources, Dr Ibe Kachikwu said, “divestment of assets by some IOCs is beyond the global push for energy transition.” Kachikwu noted that the IOCs, including Shell and ExxonMobil have divested some of their Nigeria assets in the past few years, citing the need to diversify their portfolios, but promptly added that, “there is need for the companies to be engaged in further discussions regarding the move.”

The Managing Director/CEO of Nigeria National Petroleum Corporation (NNPC) Limited, Mr Mele Kyari, also at the NIES2022, said bluntly that the “International Oil Companies are divesting. They are leaving our country. That is the best way to put it.” He added, however, that “they are not leaving because opportunities are not here but because companies are shifting their portfolios where they can add value and not just that, but where they can also add to the journey towards carbon net-zero commitment.”

Put differently, these ‘Oil Majors’ are leaving Nigeria in droves because compared to other environments, the country is no longer conducive enough for them, and for the ‘new businesses’ they might diversify into (including clean/renewable energy transactions). This development, to say the least, is portentous for Nigeria which, in the short-to-mid-term, will still depend heavily on earnings from crude oil production and export for the running of its economy. Unfortunately, this exodus of the IOCs is sector-wide, covering upstream, midstream and downstream operators. Thus, the ombudsman of the extractive industry, the Nigerian Extractive Industries Transparency Initiative (NEITI), says the recurrent issues of oil theft and vandalism were some of the reasons responsible for the gradual divestment by IOCs and big firms in the downstream sector. Executive Secretary of NEITI, Dr Ogbonnaya Orji at NIES2022 in Abuja, lamented that Nigeria lost 260.15 mmbbls to crude theft in the last five years.

He said “this is a huge problem that is currently impacting very negatively and seriously, especially on our downstream and midstream operations,” stressing that many IOCs and big firms are gradually divesting in the downstream sector because the problems of oil theft, vandalism, and deliberate sabotage have been quite difficult to manage.

Giving some insight into its virtual exit from Nigeria, Texas-based IOC, ExxonMobil, said it was choosing to sell the entire ‘shallow water assets’ of one of its Nigerian subsidiaries, Mobil Producing Nigeria Unlimited, to Seplat Energy, arguing that the sale would support the company’s divestment strategy. Specifically, the sale agreement includes Mobil Development Nigeria and Mobil Exploration Nigeria’s equity ownership of Mobil Producing Nigeria Unlimited, translating to a 40 percent stake in four mining licences. This translates to more than 90 shallow-water and onshore platforms and 300 producing wells.

On its part, in 2021, Royal Dutch Shell announced its plan to offload onshore Nigerian oil assets in a bid to move to cleaner energy. Shell said it was discussing with the Federal Government to sell its onshore oil assets in the country. The deal has since come through.

In getting to this point of ‘wilful departure’, it is in order to say that these IOCs that have been operating in Nigeria (especially onshore) for decades, have had ‘raw deals’ in the hands of agents of the Federal Government (including regulatory and supervisory bodies). Operating as Joint Ventures (JVs) with the Federal Government (through the NNPC), meant poor funding of the JVs by the Government interminably. Outstanding JV ‘cash calls’ constituted frustrating drags on the operations of all the IOCs ad nauseam. When the backlog of the JV ‘cash calls’ was practically stalling exploration and production (E & P) activities in the upstream sector, the IOCs came up with the Production Sharing Contracts (PSCs) initiative — meaning they shared income with Government after netting off production costs (which they incurred).

Surprisingly, the E & P funding hitches were supposed to be taken care of by the Petroleum Industry Act (PIA) — the making of which lasted practically for aeons. The process of making the Petroleum Industry Bill (PIB) was frustrating, mired in controversies and bugged by weak political will. Thus, while signing the PIB into an Act on August 16, 2021, President Muhammadu Buhari lamented that Nigeria lost over US$50 billion worth of investment in the petroleum industry since 2011 due to the absence of the PIA. “Nigeria lost [an] estimated US$50 billion worth of investments in 10 years due to stagnation and uncertainty in the industry,” he said. Obviously, these IOCs, while waiting endlessly for the ‘elusive’ PIA, had perfected their business strategies to move to ‘greener pastures.’

Today, even with the PIA in place, new realities and challenges are fast emerging in the Nigerian business environment. And as the NEITI boss pointed out, theft, vandalism, outright sabotage and motley social upheavals are getting worse. Onshore, are IOCs’ personnel safe and secure to cohabit and mingle with the natives of oil-bearing communities — as used to be the case in the past? In recent times, core IOCs staff (mainly expatriates) have become easy ‘prey’ to kidnappers, bandits, armed robbers, buglers, ritualists, etc.

On the other hand, the exodus of the IOCs is a ‘vote of no confidence’ that Nigeria, where they have operated for decades has nothing to offer in the “Energy Transition” journey. Again, is Nigeria wittingly or unwittingly leaving itself behind in the ‘New Energy World’? Even in the subsisting business milieu, the country’s peculiar challenges keep it short-changed by emerging issues in the energy space. For instance, for quite some time now, Nigeria has been unable to meet its allocated Organisation of Petroleum Exporting Countries (OPEC) quota; even as the price of oil is shooting sky-high close to US$120 per barrel. According to the OPEC Monthly Oil Market Report (MOMR) for January 2022, after gaining a six percent rise, Nigeria produced only 1.39 million barrels per day. Just within this week, sequel to OPEC (plus allies) meeting in the face of Russia-Ukraine ‘war’, Nigeria’s oil production quota has reportedly been raised from 1.718 mbpd to 1.735 mbpd; even when Nigeria is unable to absorb its allotted quota.

Unfortunately, even with the skyrocketing price of oil in the international market, the country is in no shape to reap the windfall. The sitting Minister of State for Petroleum Resources has said this much, when he announced that the current oil price rise “is not good for Nigeria”. This is because what is being made from high oil prices is being frittered away through ‘unavoidable oil subsidy’. It must also be pointed out that acquisition of the assets of the fleeing IOCs will in no way improve Nigeria’s E & P debacle. In point of fact, the local E & P oil companies remain marginal operators, who mostly operate in “marginal fields” in the oil sector. They have neither the fiscal nor technical capacity to effectively ‘displace’ the fleeing IOCs.

All said, one cannot agree less with Dr Ibe Kachikwu, ex-Minister of State for Petroleum Resources, when he strongly opined that the government must “engage the IOCs more” with a view to understanding them more and handling their issues judiciously and expeditiously. They must not be allowed to all flee to more comfortable climes in the energy transition journey.