News / Africa

Oil Giants to Stay Onshore Nigeria Despite Grumbles

A Shell employee is seen aboard an oil vessel off the coast of Nigeria in this December 26, 2011 file photo.A Shell employee is seen aboard an oil vessel off the coast of Nigeria in this December 26, 2011 file photo.
x
A Shell employee is seen aboard an oil vessel off the coast of Nigeria in this December 26, 2011 file photo.
A Shell employee is seen aboard an oil vessel off the coast of Nigeria in this December 26, 2011 file photo.
Reuters
A wave of planned sales of onshore Nigerian assets by major oil companies has prompted speculation that they are finally leaving the Niger Delta because of oil theft, gangsterism and political uncertainty.         

In reality, though, foreign firms such as Royal Dutch Shell, Chevron, Eni and Total are here to stay, industry sources say. The companies are likely to sell only small blocks that are not worth their while; those assets worst affected by theft and sabotage or fields that risk expropriation in a government push to promote local ownership.    

Meanwhile, the large oil producing blocks, huge gas deposits, key pipelines and the export terminals that control the passage of onshore oil to international markets will most likely stay in their hands, enabling them to retain infrastructure for which they can charge rent to other users.

Complaints by oil giants that Nigeria has done little to combat oil theft or end uncertainty over changes to the fiscal regime by passing the Petroleum Industry Bill (PIB) are genuine, but they won't drive the firms away from the country.

“Nigeria's 'difficult' operating environment, security concerns and the non-passage of the PIB all provide useful cover for what may essentially be a portfolio optimization process,” said Razia Khan, Head of Africa Research at Standard Chartered.

The global shale oil and gas boom means there are more exploration opportunities, so it makes financial sense to keep only the most profitable businesses in Nigeria, like gas for LNG export, and expand deep offshore where there is no oil theft.  If anything, they will use their grievances as leverage in negotiations with government over licenses and taxes.

Oil theft headaches

Nigeria's oil production, which fluctuates between 2-2.5 million barrels per day (bpd), is unlikely to be hugely affected by any oil block sales in the short-term and could get an uplift in the future if smaller local companies work harder to exploit reserves or can better stem insecurity with local communities.

Tycoon’s Tony Elumelu and Wale Tinubu, the Oando CEO, both of them negotiating to buy oil blocks off major companies, told Reuters in recent interviews they thought it would be easier for Nigerian companies with a better understanding of local issues to manage often fraught community relations.

But ending oil theft, officially estimated at 250,000 bpd, is a massive undertaking. It is often associated with criminal gangs who tap crude from pipelines for local refining, but most stolen crude leaves the country in large tankers, which could not happen without the complicity of top officials.

Shell, the largest producer in Nigeria, said last week it took a $700 million hit from theft and other issues in Nigeria, as well as the tax impact of a weakening Australian dollar.

Shell's share of output in Nigeria fell to 158,000 bpd in the second quarter, down from 260,000 bpd in 2012.

Shell CEO Peter Voser nevertheless told Reuters this month the company was not seeking to leave Nigeria.

Eni said it had lost 30,000 bpd of output in the first half of the year due to theft and CEO Paolo Scaroni said the company was “reviewing its position” in Nigeria.

Total declined to comment on its plans.

Shell, which has already sold eight blocks in the Niger Delta for around $1.8 billion since 2010, announced it will sell more fields amounting to 80,000-100,000 bpd, although it is not clear if this level of output is yet being produced.

Chevron is also selling five shallow water blocks, but would not comment further on its plans for Nigeria, while fellow U.S. firm ConocoPhillips is selling its Nigerian businesses to Oando for about $1.79 billion.

Political uncertainty

Theft may not be the only reason for selling down.

The PIB, although still in a political deadlock that has lasted five years, could change the terms for foreign companies in Nigeria and will promote local ownership of onshore blocks.

Shell, Chevron, Eni and Total have been in failed negotiations with the Nigerian government for several years to renew expired licenses on many onshore and shallow water blocks.

“Perhaps they would rather sell licenses while they still can rather than having to relinquish them for nothing,” said Antony Goldman, head of Africa-focused PM Consulting.

Yet Shell recently announced it would spend $3.9 billion on a gas project and a reconstruction of a better protected Trans Niger pipeline, one of the country's most important crude oil routes and one that’s often hit by outages caused by theft or sabotage. That suggests it still sees value working onshore in Nigeria.

Shell may even buy one of Chevron's blocks, two sources told Reuters, which would provide the perfect route from one of Nigeria's largest gas fields to its LNG export terminal.

Nigeria holds the world's ninth largest gas reserves, most of which are untapped. Major energy firms are increasingly moving towards gas production instead of oil in the Niger Delta.

Companies such as Shell will likely keep large pipelines and export terminals, so even if local firms are getting the oil out of the ground, where the risks of insecurity are highest, the major companies can make a cut from taking oil to international markets.

“Oil majors want to keep control of this infrastructure as it means they will have a large degree of control of onshore assets and derive revenue from transportation,” said Kayode Akindele, partner at Lagos-based investment firm 46 Parallels.

There is no guarantee that deals on assets that the major firms do want to sell can be easily or quickly completed - Nigeria has one of the world's slowest oil contract approval times, experts say.

Some of Shell's previous divestments took years to negotiate. Buyers will also be wary of the state oil company's production arm NPDC taking over the operating rights - as it has on previous Shell field sales where the private buyers were expecting to operate them.

Yet for the all the pitfalls, Nigeria will be keen to close the deals, which please the political elite and public alike.

“The divestment is a positive step for all the major players involved ... (it) will have a positive knock-on impact on production longer-term,” said Martin Kelly, Wood Mackenzie's lead analyst for Sub-Saharan Africa Upstream Research. “But ... in order to make a noticeable difference other challenges need to be addressed - like the PIB and security,” he added.

You May Like

Analyst: Joint-Arab Military Force Poses Perilous Challenge

Although international forces are desperately needed to counter the threat of the Islamic State group, analysts say conflicting alliances could escalate fighting More

Asia’s Middle Class Changes Demand for Wheat Grain Exporters

Changes in tastes and diets are boon for wheat exporters such as Australia and the United States More

S. African Comedian Taking Over Popular TV Show

Mixed-race comedian Trevor Noah, who is loved for his edgy jibes about race and language, is taking the helm from Jon Stewart at The Daily Show in US More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Film Tells Story of Musicians in Mali Threatened by Jihadistsi
X
Greg Flakus
March 30, 2015 6:48 PM
At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video Film Tells Story of Musicians in Mali Threatened by Jihadists

At this year's annual South by Southwest film and music festival in Austin, Texas, some musicians from Mali were on hand to promote a film about how their lives were upturned by jihadists who destroyed ancient treasures in the city of Timbuktu and prohibited anyone from playing music under threat of death. As VOA’s Greg Flakus reports from Austin, some are afraid to return to their hometowns even though the jihadists are no longer in control there.
Video

Video With Coalition Airstrikes, Iraq Entering 'Last Page' of IS Battle

American warplanes joined Iraq's battle against the so-called 'Islamic State' in northern Iraq late Wednesday, as Iraqi ground troops launched a massive assault on Tikrit. Analysts say the offensive could take the coalition a step further towards Mosul, the largest city held by Islamic State forces. Others say it could also deepen already-dangerous sectarian tensions in the region. VOA's Heather Murdock has more from Cairo.
Video

Video Philippines Wants Tourists Spending Money at New Casinos

Tourism is a multi-billion dollar industry in the Philippines. Close to five million foreign visitors traveled there last year, perhaps lured by the country’s tropical beaches. But Jason Strother reports from Manila that the country hopes to entice more travelers to stay indoors and spend money inside new casinos.
Video

Video Civilian Casualties Push Men to Join Rebels in Ukraine

The continued fighting in eastern Ukraine and the shelling of civilian neighborhoods seem to be pushing more men to join the separatist fighters. Many of the new recruits are residents of Ukraine made bitter by new grievances, as well as old. VOA's Patrick Wells reports.
Video

Video Islamic State Prisoners Talk of Curiosity, God, Regret

Islamic State fighter, a prisoner of Kurdish YPG forces, asked his family asking for forgiveness: "I destroyed myself and I destroyed them along with me." The Syrian youth was one of two detainees who spoke to VOA’s Kurdish Service about the path they chose; their names have been changed and identifying details obscured. VOA's Zana Omer reports.
Video

Video Germanwings Findings Raise Issue of Psychological Testing for Pilots

More is being discovered about the co-pilot in the crash of Germanwings Flight 9525 in the French Alps. Investigators say he was hiding a medical condition, raising questions about the mental qualifications of pilots. VOA's Carolyn Presutti reports.
Video

Video Hi-tech Motorbike Helmet's Goal: Improve Road Safety

In cities with heavily congested traffic, people can get around much faster on a motorcycle than in a car. But a rider who is not sure of his route may have to stop to look at the map or consult a GPS. A Russian start-up company is working to make navigation easier for motorcyclists. Designers at Moscow-based LiveMap are developing a smart helmet with a built-in navigation system, head-mounted display and voice recognition. Zlatica Hoke has more.
Video

Video DOJ: Illinois National Guard Soldier Tried to Join ISIS

U.S. federal law enforcement agents arrested two suburban Chicago men accused of trying to join ISIS overseas, while also plotting attacks in the United States. As VOA’s Kane Farabaugh reports from the Midwest state of Illinois, one of those arrested is a soldier of the Illinois National Guard.
Video

Video New Wheelchair Is Easier to Use, Increases Mobility

Traditional push-rim wheelchairs create a lot of stress for arm, shoulder and neck muscles and joints. A redesigned chair, based on readily available bicycle technology, radically increases mobility while reducing the physical effort. VOA’s George Putic reports.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.

VOA Blogs

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More