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

    Video As Refugees Perish, Greek Graveyards Fill

    Before burial at overflowing cemeteries, unidentified dead being swapped for DNA, in case some day relatives come to learn their fate

    Russian Opposition Leader Sues Putin for Conflict of Interest

    Alexei Navalny tells VOA in exclusive interview why transfer of $2 billion from country’s wealth fund to company with ties to President Putin’s son-in-law triggered lawsuit

    Clinton, Sanders Fight for African American Votes

    Some African American lawmakers lining up to support Clinton in face of perceived surge by Sanders in race for Democratic nomination in presidential campaign

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

    By the Numbers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    As Refugees Perish, Greek Graveyards Filli
    X
    Hamada Elsaram
    February 11, 2016 8:01 PM
    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video As Refugees Perish, Greek Graveyards Fill

    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video To Fight Zika, Scientists Target Mosquitoes

    Mosquitoes strike again. The Zika virus outbreak is just the latest headline-grabbing epidemic carried by these biting pests, but researchers are fighting back with new ways to control them. VOA's Steve Baragona takes a look.
    Video

    Video Mosul Refugees Talk About Life Under IS

    A top U.S. intelligence official told Congress this week that a planned Iraqi-led operation to re-take the city of Mosul from Islamic State militants is unlikely to take place this year. IS took over the city in June 2014, and for the past year and a half, Mosul residents have been held captive under its rule. VOA's Zana Omar talked to some families who managed to escape. Bronwyn Benito narrates his report.
    Video

    Video Scientists Make Progress Toward Better Diabetes Treatment, Cure

    Scientists at two of the top U.S. universities say they have made significant advances in their quest to find a more efficient treatment for diabetes and eventually a cure. According to the International Diabetes Federation, the disease affects more than 370 million people worldwide. VOA’s George Putic reports.
    Video

    Video NATO to Target Migrant Smugglers

    NATO has announced plans to send warships to the Aegean Sea to target migrant smugglers in the alliance's most direct intervention so far since a wave of people began trying to reach European shores.
    Video

    Video Russia's Catholics, Orthodox Hopeful on Historic Pope-Patriarch Meeting

    Russia's Catholic minority has welcomed an historic first meeting Friday in Cuba between the Pope and the Patriarch of Russia's dominant Orthodox Church. The Orthodox Church split with Rome in 1054 and analysts say politics, both church and state, have been driving the relationship in the centuries since. VOA's Daniel Schearf reports from Moscow.
    Video

    Video Used Books Get a New Life on the Streets of Lagos

    Used booksellers are importing books from abroad and selling them on the streets of Africa's largest city. What‘s popular with readers may surprise you. Chris Stein reports from Lagos.
    Video

    Video After NH Primaries All Eyes on South Carolina

    After Tuesday's primary in New Hampshire, US presidential candidates swiftly turned to the next election coming up in South Carolina. The so-called “first-in-the-South” poll may help further narrow down the field of candidates. Zlatica Hoke reports.
    Video

    Video US Co-ed Selective Service Plan Stirs Controversy

    Young women may soon be required to register with the U.S. Selective Service System, the U.S. government agency charged with implementing a draft in a national emergency. Top Army and Marine Corps commanders told the Senate Armed Services Committee recently that women should register, and a bill has been introduced in Congress requiring eligible women to sign up for the military draft. The issue is stirring some controversy, as VOA’s Bernard Shusman reports from New York.
    Video

    Video Lessons Learned From Ebola Might Help Fight Zika

    Now that the Ebola epidemic has ended in West Africa, Zika has the world's focus. And, as Carol Pearson reports, health experts and governments are applying some of the lessons learned during the Ebola crisis in Africa to fight the Zika virus in Latin America and the Caribbean.
    Video

    Video Smartphone Helps Grow Vegetables

    One day, you may be using your smartphone to grow your vegetables. A Taipei-based company has developed a farm cube — a small, enclosed ecosystem designed to grow plants indoors. The environment inside is automatically adjusted by the cube, but it can also be controlled through an app. VOA's Deborah Block has more on the gardening system.
    Video

    Video Illinois Voters Have Mixed Emotions on Obama’s Return to Springfield

    On the ninth anniversary of the launch of his quest for national office, President Barack Obama returned to Springfield, Illinois, to speak to the Illinois General Assembly, where he once served as state senator. His visit was met with mixed emotions by those with a front-row seat on his journey to the White House. VOA's Kane Farabaugh reports.
    Video

    Video Exhibit Turns da Vinci’s Drawings Into Real Objects

    In addition to being a successful artist, Renaissance genius Leonardo da Vinci designed many practical machines, some of which are still in use today, although in different forms. But a number of his projects were never realized — until today. VOA’s George Putic reports.
    Video

    Video Heated Immigration Debate Limits Britain’s Refugee Response

    Compared to many other European states, Britain has agreed to accept a relatively small number of Syrian refugees. Just over a thousand have arrived so far -- and some are being resettled in remote corners of the country. Henry Ridgwell reports on why Britain’s response has lagged behind its neighbors.
    Video

    Video Russia's Car Sales Shrink Overall, But Luxury and Economy Models See Growth

    Car sales in Russia dropped by more than a third in 2015 because of the country's economic woes. But, at the extreme ends of the car market, luxury vehicles and some economy brands are actually experiencing growth. VOA's Daniel Schearf reports from Moscow.