A swathe of big equity divestments by some multinational oil companies in Nigeria has put fresh pressure on the petroleum industry, causing both anxiety and hope among stakeholders, BusinessDay investigations have shown.
Their anxiety stems from the fact that such wave of divestments may puncture the Federal Government’s drive to attract fresh investments into the sector.
“This is indicative of a troubled industry,” one industry analyst told BusinessDay.
‘If global players in the oil and gas sector are leaving the country’s economy, then there is cause for concern as other big players around the world would begin to think the country is a no go area,” he added.
The stakeholders’ worry that the exit of these companies would create a huge manpower vacuum along with the negative impression. The are fears also that by the time the oil companies leave and independent players take control, it might be difficult for the locals to raise the required funds to finance the development of the assets.
Shell is putting up for sale four onshore oil blocks with a combined production of around 70,000 barrels per day (bpd), which is valued at about $1.5 billion per block, while Chevron is putting out five for sale. Shell plans to sell oil-mining licences (OMLs) 18, 24, 25 and 29, saying in June that it planned a strategic review of its Niger Delta assets. Chevron is said to be considering bids last week from prospective buyers of three oil blocks with total reserves of around 134 million barrels.
BG Group, the United Kingdom’s third-largest natural gas producer, started the divestment move in 2009, reducing funding for the Olokola liquefied natural gas project.
BG, Chevron, Shell and the NNPC were in partnership on the gas project located in Olokola, Ogun State. BG, which invested more than $500 million in its exploration activities on the offshore blocks oil prospecting licences (OPLs) 332, 286, 284 and Olokola Liquefied Natural Gas (OK LNG), pulled out in May 2010.
After that, Chevron announced plans to divest its 40 percent interests in five oil blocks which included OMLs 52, 53, 55, 83 and 85 and which hold oil reserves in excess of 250 million barrels and over 3.5 billion cubic feet of gas. Brazilian oil major, Petrobras, sold off its stake in some oil blocks valued at $5 billion.
Before the Brazilian company sold out, Houston United States-based ConocoPhillips had earlier sold its Nigerian business unit for $1.79 billion to Oando Plc.
Total of France sold its 20 percent stake and the operating mandate of its Nigerian offshore project in OML 138 to a local unit of China Petrochemical Corporation for $2.5 billion.
Stakeholders are worried at the scale at which the big time players in the industry are leaving about the same time and extracting value from the economy. They said even though production on some fields is peaking, operations are plagued by rampant oil theft and fraught community relations, which in themselves are big problems for the investors.
Shell’s five assets alone are said to be worth in the region of $6 billion.
However, some industry operators think the fears entertained by some of their counterparts are unfounded. They say that the divestments would strengthen local operators while sourcing for funds would be made attractive by the propects of obvious profits.
According to Claire Lawrie, partner, Africa Advisory oil and gas lead, Ernest and Young, the assets being put up on offer by Shell and Chevron are mostly onshore oil blocks.
“The major reasons for selling these onshore assets are worries over oil theft, relations with communities living around oil fields and uncertainty over the stalled Petroleum Industry Bill (PIB) to overhaul fiscal terms.”
She said since 2010 Nigeria has had a policy of encouraging local content in the oil and gas industry.
This, according to her, has led to more direct ownership of oil blocks and assets by Nigerians, either through the NPDC –the exploration and development subsidiary of the Nigerian National Petroleum Corporation (NNPC) or independent private firms.
On who would buy the assets, she said many indigenous Nigerian firms are backed/or owned by businessmen that are able to buy these assets. For example, SEPLAT, which is partly owned by French oil explorer, Maurel & Prom and Swiss-based commodity trader, Mercuria, is likely to submit a bid, according to industry sources.
“There are also other independent companies that already manage marginal fields in the Niger Delta area, including Brittania-U, Vertex, Sogenal and Seven Energy”.
On whether Nigerian banks can raise the required finance for these sales, she explained that Nigerian banks have demonstrated the ability to raise the required financing for oil and gas assets through local and foreign collaborative arrangements.
“For instance, at an event themed ‘Raising Equity/Mezzanine Capital for Oil and Gas Companies’, FBN Capital brought together industry players, bankers, consultants, lawyers and other key stakeholders to discuss what it takes for emerging indigenous upstream independent oil & gas companies to raise equity and mezzanine capital for asset acquisition and development”.
Reacting to the development, Seye Fadahunsi, executive director, Pillar Oil said some Nigerian independents in alliance with foreign interests are poised to buy them.
He said local companies can enter into partnerships with foreign interests or if they pool resources together in joint ventures with other independents.
As to whether Nigerian banks can raise the funds required to finance the assets, he said Nigerian banks have of late become more bullish and will want to show capacity by aggressively seeking for funds from international markets to boost their capital base in order to fund the acquisition. “The driver is the high rate of return on investment in this sector”.
Information from Business Day was used in this report.