The Impacts of Oil Major Asset Divestments in Nigeria

New Era Dawns as Local Giants Step Up in Oil Sector

by Oluwatosin Racheal Alabi

The Nigerian oil and gas sector is witnessing a significant transition as Shell, along with other oil majors like ExxonMobil and Nigerian Agip Oil Company Limited (NAOC), plan to exit their onshore operations. This move has prompted Nigerian firms to mobilize substantial financial resources, approximately $4.5 billion, to acquire these assets.

Recently, Renaissance Africa Energy announced its agreement to acquire Shell’s 100% stake in the Shell Petroleum Development Company of Nigeria Limited (SPDC) for $2.4 billion. Concurrently, Seplat is negotiating for ExxonMobil’s onshore assets valued at $1.3 billion, and Oando has secured a $800 million loan to purchase four NAOC onshore blocks (OML 60, 61, 62, 63).

The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) views these developments as an opportunity but insists on rigorous scrutiny of all transactions. The commission has established a new divestment template to safeguard national interests. However, Amnesty International has expressed concerns over Shell’s environmental legacy, urging the Nigerian government to ensure Shell addresses decades of pollution in the Niger Delta before finalizing its exit.

The divestment process exposes various challenges, including abandonment, decommissioning, oil theft, and environmental degradation. These issues, coupled with legal and labor disputes, are causing unrest among stakeholders.

Nigeria’s oil production has declined significantly over the last decade, primarily due to underinvestment. This decline is evident in the drop of the country’s yearly upstream capital expenditure from $27 billion in 2014 to less than $6 billion in 2022, a 74% reduction.

Gbenga Komolafe, Chief Executive of NUPRC, emphasized the importance of a divestment template to protect Nigeria’s interests. He stated that ExxonMobil’s divestment has not been approved due to non-compliance with the necessary criteria. The template includes six pillars: technical and financial capability, legal clearance, decommissioning and abandonment, ESG, and labor issues.

The acquisitions by Nigerian companies like Renaissance and Oando are subject to this new template. Renaissance, comprising ND Western Limited, Aradel Holdings Plc, the Petrolin Group, FIRST Exploration and Petroleum Development Company Limited, and Waltersmith Group, exemplifies the growing involvement of indigenous players in Nigeria’s oil sector.

Mark Dummett, Head of Business and Human Rights at Amnesty International, called on the Nigerian government to hold Shell accountable for environmental damages and human rights violations in the Niger Delta. He stressed that Shell should not be allowed to absolve itself of these issues upon exit.

Shell’s divestment plans have faced legal hurdles, including a recent Supreme Court ruling allowing the sale of its assets. Energy experts like Dan Kunle and industry insiders express concerns that the challenges deterring international players, such as oil theft and vandalism, might impact local investors unless the government addresses these issues.

Wunmi Iledare, a renowned energy professor, noted that while divestment is a standard business practice, Nigeria’s onshore fiscal terms, as stipulated in the Petroleum Industry Act (PIA), are considered harsh. He views the consortium’s bid for Shell’s assets positively, highlighting their potential to enhance energy security.

Ademola Adigun, an energy expert, emphasized the need for the government to allow investors to divest just as freely as they invested. He warned that delays in approving these divestments could tarnish Nigeria’s international reputation.

The unfolding scenario in Nigeria’s oil sector is complex, blending opportunities and challenges. As indigenous companies step up to acquire major assets, the government’s role in ensuring a fair and environmentally responsible transition becomes increasingly critical. These developments not only reshape the Nigerian oil industry but also set a precedent for how resource-rich countries manage their natural wealth and environmental responsibilities in the era of global energy transitions.

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