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.
TEXT SIZE - +
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

Multimedia Anti-Keystone XL Protests Continue

Demonstrators are worried about pipeline's effect on climate change, their traditional way of life, health and safety More

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 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.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid