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

IS Militants Release 49 Turkish Hostages

Turkey's state-run Anadolu news agency reports that no ransom was paid and no conditions accepted for the hostages' release; few details of the release are known More

Photogallery IS Attacks Send Thousands of Syrian Kurds Fleeing to Turkey

Syrian Observatory for Human Rights says more than 300 Kurdish fighters crossed into Syria from Turkey to defend a Kurdish area from attack by the Islamic militants More

Video Sierra Leone's Ebola Lockdown Continues

Thousands of health workers are going door to door in the West African country of 6 million, informing people of how to avoid Ebola, handing out soap 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.
Fears Ebola Outbreak ‘Beyond Our Capability to Contain’i
X
Jeff Seldin
September 20, 2014 10:28 PM
Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Fears Ebola Outbreak ‘Beyond Our Capability to Contain’

Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Iran, World Powers Seek Progress in Nuclear Talks

Iran and the five permanent members of the U.N. Security Council plus Germany, known as the P5 + 1, have started a new round of talks on Iran's nuclear program. VOA State Department correspondent Pam Dockins reports that as the negotiations take place in New York, a U.S. envoy is questioning Iran's commitment to peaceful nuclear activity.
Video

Video Obama Goes to UN With Islamic State, Ebola on Agenda

President Obama goes to the United Nations General Assembly to rally nations to support a coalition against Islamic State militants in Iraq and Syria. He also will look for nations to back his plan to fight the Ebola virus in West Africa. As VOA White House correspondent Luis Ramirez reports, Obama’s efforts reflect new moves by the U.S. administration to take a leading role in addressing world crises.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid