Let the divestments begin.
Analyzing the importance of a successful divestment campaign in Nigerian oil and gas.
In January we wrote about Shell’s divestment of its onshore business in Nigeria alluding to the larger trend of international oil companies (IOC) exiting the Nigerian onshore oil business. Last month we mentioned that the head of the NNPC declared a state of emergency on Nigerian oil production and announced the approval of two pending divestments of Eni’s and Equinor’s Nigerian Business to Oando and Chappal respectively.
The Eni-Oando Deal was completed this week. Oando paid a total of 783 million Dollars for the assets. The assets come with an estimated 505 million barrels of oil equivalents, 1,490 kilometres of pipelines and a power generation plant in Delta state.
Some concerned stakeholders have raised concerns about the speed of the acquisition process when others like Seplat have been in limbo since 2022. They were insinuating that preferable treatment was given because of the Oando CEO’s tie to the President (Oando’s CEO is Tinubu’s Nephew). However, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) disputed the claims citing Seplat’s previously pending court case as the reason for the delay on its divestment deal with ExxonMobil stating they (NUPRC) have now started the approval process on the deal.
On Monday 26th 2024, there were reports that the NUPRC would not approve the Shell divestment due to litigation and clean-up obligation that the firm was yet to perform.
So What?
The approval is a positive sign that the Nigerian government is serious about turning around the Oil and Gas sector. Despite its potential, the industry has lagged in its output contributing about 6% to GDP on average. It has also failed to hit its Organization of the Petroleum Exporting Countries (OPEC) quotas for the past 4 years.
Investors are looking to this divestment campaign to see how the Tinubu administration walks the talk on the energy sector. More importantly, they want to see how capable the domestic operators are in driving growth in the industry. If the domestic operators can carry out a turnaround and prove to be capable stewards of assets, we would see a rebound in investment inflows to the sector and the economy in general.
Tinubu has made the sector one of the core pillars of his tenure so this is a welcome occurrence. However, Nigerian operators have had mixed results when it comes to operating oil fields, so we must approach with cautious optimism. The success of these divestment campaigns will be measured in increased output and the wider benefits to the larger economy.