Why are IOCs walking away from Nigeria’s oil industry?
While some analysts have argued that the divestment or withdrawal of stakes by international oil companies (IOCs) from Nigeria would give a boost to the local content initiative of the government as it gives indigenous companies more opportunities to play a role in the nation’s oil industry, not a few other analysts and stakeholders are raising concerns over the increasing trend of divestment by foreign oil majors and its implications for the country.
In what is the latest of the divestment, Chevron Nigeria Limited recently opted out of the Olokola Liquefied Natural Gas project (OKLNG), one of the biggest proposed LNG projects in the country. This is coming less than two years after BG Group divested its stakes from the project.
Shell, which had already sold off several of its assets since 2010, recently launched strategic portfolio reviews in Nigeria onshore, which it said would lead to further focus and divestments in the country, as it continues to shape the company for the future, according to Peter Voser, Royal Dutch Shell’s chief executive officer.
“Nigeria’s ‘difficult’ operating environment, security concerns and the non-passage of the Petroleum Industry Bill (PIB) all provide useful cover for what may essentially be a portfolio optimisation process,” said Razia Khan, head of Africa Research at Standard Chartered.
The lack of progress on the OKLNG project, it was gathered, largely occasioned the withdrawal by the company as efforts over the last eight years to mature the project had not resulted in a final investment decision (FID), the company had said.
“The business decision to withdraw from OKLNG is based on a review of our investment portfolio, the lack of progress on the project and a reprioritisation of resources to focus on growing domestic gas supply,” Chevron said.
Analysts have also attributed the withdrawal to a lack of commitment on the part of the government to pursue the completion of the project, and also the non-passage of the Petroleum Industry Bill (PIB).
Acknowledging the negative impact of the withdrawal, the Nigerian National Petroleum Company (NNPC) had said: “In a changing global gas market, OKLNG inevitably has suffered a setback as a result of the exit but effort will be intensified to secure other willing investors. NNPC and the Federal Government remain committed to this project,” according to Tumini Green, acting group general manager, group public affairs division, NNPC.
According to industry watchers, if the government fails to overhaul the nation’s stagnating oil industry, it would continue to see more divestments by IOCS with its attendant reduction in direct foreign investment as the trend may serve as a deterrent or disincentive to other foreign investors looking to invest in the country.
“Though Nigeria needs to increase local capacity in the oil industry, we cannot continue to drive away or repel the IOCs from the industry. We need a combination of the foreign investors and the indigenous players to develop the industry. We cannot have the big companies close shop and leave the country. That will be suicidal,” said one analyst.
While analysts expect increased investment in the deepwater space of the industry but they have also opined that this would be subject to the final PIB.
It would be recalled that ConocoPhillips, the initial promoter of the $16billion Brass LNG project, divested its stakes as the nation was said to be foot-dragging on the take-off of the project.
Angola recently hit the international market with its first LNG. The $10bn Angolan plant was bankrolled by Chevron, which according to Bloomberg, plans to spend more than $77 billion on two LNG projects in Australia.
President Goodluck Jonathan was recently reported to have said that investment in the country’s oil industry was falling because of delays in passing the PIB, adding that the conclusion of the bill was critical.
The PIB, which is expected to overhaul the industry, is currently before the National Assembly.
By: FEMI ASU