A New Vista for Nigerian Oil and Gas Independents
International oil companies have hinged their decisions to divest from onshore oil blocks on the need to restructure their asset portfolios as well security concerns in the Niger Delta. This no doubt affords Nigerian independents the opportunity to graduate from mere marginal asset holders to operators of bigger acreages, writes Ejiofor Alike
In January 2010, Nigerian independent companies, which hitherto operated marginal assets moved to the next level when Shell Petroleum Development Company (SPDC) sealed a deal to transfer, within six months, its interest in the three production licences and other related equipment in the Niger Delta to a consortium led by two Nigerian companies and a French firm.
The Anglo Dutch company is the operator of the licences under a joint venture between the Nigerian National Petroleum Corporation (NNPC), 55 per cent; Royal Dutch Shell, 30 per cent; Total Exploration & Production Nigeria Limited, 10 per cent; and Nigeria Agip Oil Company (NAOC), five per cent.
The agreement, which initially covered Shell’s 30 per cent, later included 15per cent interest of Total and NAOC in oil mining leases (OMLs) 4, 38 and 41, covering approximately 2,650 square kilometres in the North-western Niger Delta.
Crude oil production in the licence area includes about 30 wells with a production capacity of approximately 50,000 barrels of oil equivalent per day.
Before the deal was consummated, Nigerian companies were restricted to small acreages referred to marginal assets.
With maximum reserves of about 10million barrels, and daily production capacity of about 5,000barrels per day, marginal fields are considered uneconomical by the IOCs, hence the assignment of 24 of these assets to indigenous companies under the 2003 marginal field programme of the Federal Government.
But SPDC’s decision to sell three onshore blocks with a capacity of 50,000 barrels per day to indigenous companies raised the bar for the Nigerian independents, testing their capacity to manage bigger acreages.
As no single Nigerian company had the capacity to acquire the three blocks, two Nigerian companies, Platform Petroleum and Shebah Petroleum merged to form Seplat Petroleum Development Company, while a French exploration company, Maurel & Prom acquired 45per cent share in the company.
With the successful conclusion of the three oil blocks deal with Seplat in 2010, Shell, Total and NAOC offered additional five blocks to indigenous companies in 2011.
Elcrest Exploration and Production Limited, a joint venture between Starcrest Energy, a subsidiary of the Chrome Group and Eland Oil & Gas acquired 45per cent interest of these partners in OML 40.
First Hydrocarbon Nigeria, a local subsidiary of the United Kingdom-listed Afren Plc acquired OML 26; while Kulcyk-led Neconde Consortium acquired OML 42.
OML 30 was clinched by Shoreline Natural Resources, a special purpose private Nigerian company formed between a subsidiary of Heritage Oil Plc, listed in the United Kingdom and a local Nigerian partner, Shoreline Power Company Limited.
ND Western consortium consisting of an indigenous company, Niger Delta Petroleum Resources (NDPR); Petrolin International and First Exploration & Petroleum Development Company Limited acquired OML 34.
Before the acquisition, NDPR, owned by Niger Delta Exploration and Production Plc (NDEP), operates the marginal oil fields, Ogbele Field, located in the NNPC/Chevron Joint Venture’s OML 54 and Omerelu in OML 53.
Buoyed by SPDC’s success in the sale of oil blocks, Chevron Nigeria Limited, operator of NNPC/Chevron joint venture, has also offered its 40 per cent stake in OMLs 52, 53 and 55 to indigenous companies and the transaction is at an advanced stage of conclusion.
Brazil’s state-owned Petrobras has also revealed its investment decision to sell Nigerian assets to raise funds for projects elsewhere.
United States energy company, ConocoPhillips is also divesting its multi-billion dollar investment from Nigeria.
Official Positions on Divestments
The spate of divestments has no doubt raised concerns that the IOCs might be pulling out of Nigeria for reasons ranging from insecurity of onshore assets to the uncertainty of the operating environment, as a result of the non-passage of the PIB.
But the Managing Director of SPDC and Country Chair of Shell Companies in Nigeria, Mr. Mutiu Sunmonu, insisted that the divestment was a deliberate attempt to grow indigenous participation in the exploration and production (E &P) business.
“We want to create a new set of indigenous players in Nigeria’s oil and gas industry within the next 10 to 20 years from now, while the IOCs concentrate on more difficult issues and also allow us to focus on material oil and gas fields,” Sunmonu had said, debunking claims that his company planned to exit Nigeria.
Re-echoing similar sentiments, the Chief Executive Officer of Total, Mr. Christophe de Margerie, said the divestment was not a deliberate move to exit Nigeria but to give indigenous players the opportunity to grow.
However, the Chief Executive Officer of Petrobras, Ms Maria das Graças Foster, differed from her colleagues as she admitted that selling Nigerian assets would enable the company concentrate on more prolific deep sea region off the coast of Brazil, popularly known as the subsalt, which contains very high quality crude oil.
ConocoPhillips also hinged its decision to sell Nigeria assets to its three year strategic global business restructuring plan, which seeks to optimise its oil and gas assets portfolio, thus implying divesting low revenue-generating Nigerian assets and reinvesting elsewhere where the environment is more profitable.
Real Concerns of IOCs
Though majority of the IOCs claim officially that their decision to divest was to encourage Nigerian independents, investigation revealed that insecurity of onshore assets, crude oil theft, uncertainty of the operating environment and the need to secure funding to finance deep-water projects actually fuelled the spate of divestments by the multinational oil companies.
Nigeria’s oil and gas industry face increasing threats from crude oil thieves, hostile communities and gloomy operating environment, fuelling the need for the international operators to limit their level of investment.
Virtually all the onshore assets offered for sale by the IOCs were shut down as at the time of the acquisition as a result of the militancy in the Niger Delta, which led to attacks on oil workers and facilities.
For instance, the first set of onshore acquired by Seplat, which consisted of 30 wells were shut down at the time of the acquisition, awaiting completion of repairs to an export pipeline damaged in late 2008 by the militants.
Even though the amnesty programme successfully curbed militancy and restiveness in the Niger Delta, the hostile host communities still denied the companies access to their onshore oil blocks.
In areas, where companies have access to their onshore fields, the operations of these companies are often hampered by violent demonstrations and attack from these communities.
With this development, the IOCs decided to sell onshore blocks, most of which are maturing assets that might require sophisticated technology to ramp up production.
Indigenous companies know how best to manage community issues with their clearer understanding of the local communities, hence the choice of indigenous companies as the beneficiaries of these divestments.
After selling off the risky onshore assets, the IOCs plan to concentrate on more secured and more prolific deep-water assets.
A source close to the IOCs told THISDAY that these companies embarked on divestment to raise funds to go into deep offshore where investment is more secured.
He noted that Shell, for instance, planned to raise between $3billion and $4billion from sale of onshore oil blocks to fund deep-water operations.
“They are not happy with the level of crude oil theft and they are tired of repairing damaged facilities,” he said.