Western Energy Giants Exit Nigeria’s Troubled Oil Sector

Summary

  • Shell, a pioneer in Nigeria’s oil industry and the most notable Western company, is exiting the Delta plagued with pollution, oil theft, and pipeline sabotage.
  • This exit from the region fits a larger pattern of Western energy companies including Exxon, Eni, Equinor, and China’s Addax divesting onshore assets in Nigeria due to restrictive policies and the challenging operating environment.
  • The shift in ownership has local companies like Seplat Energy, First E&P, and Heritage claiming larger stakes in the sector, but they aren’t without challenges like rising oil spills and leaking pipelines.

Shell Exits Nigeria’s Troubled Delta Region

Shell has made the decisive move to leave Nigeria’s Delta, a region that has long been plagued by pollution, oil theft, and pipeline vandalism. These problems have hampered investment, curtailed production, and strained government finances for years. Shell’s exit marks yet another Western energy powerhouse leaving a region that once promised prosperity.

Nigerian Oil Field Divestment Trend

The sale of Shell’s subsidiary to mainly local entities is in sync with a broader trend where Western energy firms are divesting their onshore oil fields in Nigeria. In the past few years, Exxon, Italy’s Eni, Norway’s Equinor, and China’s Addax have concluded deals to offload assets in Nigeria.

Policy Concerns Discourage Investments

Nigeria is grappling with fundamental issues related to its oil sector policies and foreign exchange policy concerns. These challenges have put a damper on investments, causing major companies to reduce stakes and partially withdraw from the region, observes Andrew Matheny, senior economist at Goldman Sachs.

Oil Production Decline Explained

The constraints have explained a significant drop in oil production in recent years. Despite President Bola Tinubu’s promise to remove barriers for producers and curb crude theft and pipeline sabotage, the oil sector’s changes continue to be an uphill battle.

Escalating Onshore Risks

Companies are now focusing more on offshore operations due to increased risks associated with onshore activities paints a telling picture of operating in Nigeria, according to Seyi Awojulugbe, a senior analyst at Lagos-based security consultancy SBM Intelligence.

SPILLS, CASH, AND INCOMING COMPANIES

Shell’s share of production in Nigeria was as high as 300,000 barrels of oil equivalent per day (boed) ten years ago, which fell to 131,000 boed in 2022 due to sabotage and theft issues.

Role of Independent Companies Rising

Independent companies like Seplat Energy are waiting for regulatory approval on purchased assets. Local businesses buying up these assets have managed to raise production and decrease oil spill occurrences to some extent but are also facing issues with leaking pipelines and oil spills.

Financial Concerns and Future Implications

Despite the financial strength of oil majors, the decreased investment from their side makes their access to cheap capital moot. Local firms also have sources of funding from local banks, some international lenders, and oil traders. “The funds will be available, but it won’t be cheap,” stated CEO of Seplat Energy, Roger Brown. At current oil prices, however, local businesses can afford to develop.

With major oil firms pulling back from onshore investments, the shifting landscape of Nigeria’s oil sector could impact international trading, notably crude oil currency futures due to reduced production and increased oil prices. Consequently, this could significantly affect the profitability of international oil firms and foreign investors.

PIP Penguin
Logo