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

US Imposes Sanctions on Alleged Honduran Drug Gang

Treasury department alleges Los Valles group is responsible for smuggling tens of thousands of kilograms of cocaine into US each month More

At 91, Marvel Creator Stan Lee Continues to Expand his Universe

Company's chief emeritus hopes to interest new generation of children in superheroes of all shapes and sizes by publishing content across multiple media platforms More

Photogallery New Drug Protects Against Virus in Ebola Family

Study by researchers at University of Texas Medical Branch, Tekmira Pharmaceuticals is first looking at drug's effectiveness after onset of symptoms 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.
African Media Tries to Educate Public About Ebolai
X
George Putic
August 20, 2014 8:57 PM
While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls For Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid