Oil assets divestment and the economy
The oil and gas industry in Nigeria has, in the past couple of years, witnessed a gale of divestment by the International Oil Companies (IOCs), apparently creating opportunities for local operators and hope for the economy.
Aside the expected economic growth which, in essence, is the aim of the divestment exercise, it will also serve to enhance the profile of indigenous participation in the county’s oil and gas industry and also boost the marginal oil field programme.
It is estimated that the IOCs have sold, at least, 300,000 barrels per day (bpd)-worth of equity in onshore and shallow-water producing assets in the oil-rich Niger Delta region. This, by any standard, is a huge asset that can be further developed to boost the country’s production base.
Shell Petroleum Development Company (SPDC), for instance, sold off eight oil blocs for a total of US$2.7 billion by 2012. In the same year, US oil firm, Conoco Phillips, sold its stake in the Brass LNG project, other upstream assets and a power plant to Toronto-listed Oando Energy Resources (OER) for $1.79 billion.
Chevron is now on a divestment programme involving five shallow water blocks estimated to hold as much as 250 million barrels (bbl) of oil reserves. These blocks are OMLs 52, 53, 55, 83 and OML 85 .
The first set of oil fields sold by SPDC were oil mining leases (OMLs) 4, 38 and 41 acquired and operated by Seplat Petroleum Development Company while OMLs 26, 30, 34, 40 and 42 were acquired by NPDC which is also the operator.
These were followed recently by Midwestern Oil and Gas/Mart Resources/Suntrust Oil, under the Erotron Consortium which won the bid for OML 18 while Aiteo/Taleveras in partnership with four other companies made up of a consortium that won bid for OML 29 and the Nembe Creek Trunk line.
We consider these very positive developments, but we have our worries that whatever the aims of these multi-dollar transactions, are far from being realized due largely to what has come to be known, unfortunately, as ‘Nigerian factor’.
Interestingly, some of the aims of the divestment are to increase the participation of the local indigenous operators in the industry, create jobs for Nigerians, increase the level of crude oil production, increase oil reserve and investment and check capital flight.
It is however, sad to note that even though a good number of the oil blocs are currently in the hands of Nigerians, there has not been anything to show that these aims and aspirations are being achieved.
Of the lot that won the oil blocs, Seplat Petroleum can be said to have made significant improvement in its production and it is argued that not much investment is seen so far due to insufficient financial capacity by these locals that won the oil blocs.
The enormous challenges faced by these locals have made capital flight the order of the day as the blocs winners have resorted to borrowing from abroad and, to achieve this, many of them are forced to enter into partnership with the creditor-foreigners.
That the exercise has not been properly coordinated by government is unacceptable and lamentable given that the divestment exercise is so important to national growth that no responsible government should look the other way while the programme is adrift.
We call on the government to step in because, in our view, failure to do so in order to address the challenges faced by indigenous companies, translates to missing the opportunity to realize their full potentials. It would also deny the country the desired benefits from the sale of these assets.
Infrastructure deficit is endemic in this country and it cuts across all sectors of the economy. Its integration is another big challenge that these indigenous companies have been contending with and, sadly enough, the IOCs deny some of the local companies access to their pipelines needed to evacuate their crude oil.
We recognise the divestment exercise as a deal-making opportunity for genuine Nigerian investors at home and in Diaspora, more so now the sector is today a seller’s market.
We solicit government encouragement for these locals, believing that this is the only way to enable them to increase the countries crude oil reserve. This must go hand-in-hand with creating the right environment for a positive impact on the economy.
For too long, government has ignored the complaints raised by these investors. With a new government in view, we recommend that in the spirit of the Buhari change mantra, time is now to look into the problems and challenges facing the investors with the aim of providing solutions by way of empowering the investors.