Nigerian Crude Oil
Crude oil and gas divestment in Nigeria is a trend that denotes the selling of assets by oil majors or international oil companies (IOCs) operating in the country. In recent times, this trend has been triggered by several factors top among them being the global energy transition. Some of the other reasons for this action are attributable to the unfavourable regulatory framework, Covid-19, and security concerns around crude oil infrastructure in the country.
Since Nigeria is mainly a fossil fuel-reliant economy, the impact of crude oil and gas divestment on the country has been acknowledged as being very significant. Nigeria, one of OPEC’s leading oil producers with oil reserves totalling 37 trillion barrels (seen as the 10th according to global rankings) has already witnessed $21 billion worth of assets being divested. Moreover, Nigeria’s annual capital expenditure in the upstream arm of the oil sector was reduced by over 70% within eight years. The country’s total yearly upstream capital expenditure was reduced by 74% from $27 billion in 2014 to less than $6 billion in 2022. Competition from its regional counterparts has also led to a reduction in the proportion of the overall upstream investment which Nigeria would normally attract.
The tale of the woes of oil divestments from the shores of Nigeria is reported as being even more significant with very dire consequences for the environment. Despite the efforts to divest away from crude oil activities by the IOCs, host communities and watchdogs have decried the worsening conditions of the environment brought on after the sales. This has been due mainly to the activities and operations of indigenous oil and gas firms. Furthermore, although some of the oil assets have been divested, there are still reported cases of a lag in the selling of some of the oil infrastructure by the IOCs or the taking over of such holdings by indigenous players. This has been reported as being due to bureaucratic protocols, and the cloud of litigations hanging over any effort in divestment processes.
Current divestment realities
Nigeria currently has five IOCs still operating in the country and these are Shell Producing Development Company (SPDC), Chevron, TotalEnergies, ExxonMobil and Eni. An analysis carried out by Wood Mackenzie, a British research and consulting firm indicated that divestments in Nigeria have amounted to $1.1 billion since 2020.
However, the IOCs are reported as wielding only a minority control (i.e., about 45%) of Nigeria’s oil production assets especially when compared to the amount held (i.e., about 47%) by the operating indigenous companies. Most of the oil and gas assets that have been divested so far are onshore properties situated in shallow waters. In the past decade, a total of 26 Oil Mining licences have been divested by the IOCs in the Niger Basin area of Nigeria with even more to be sold in the near future.
Shell intends to sell off approximately $2.3 billion worth of oil and gas assets, while Eni’s divestment plan amounts to about $5 billion, and ExxonMobil is looking to offload $15 billion of its assets. On the other hand, both TotalEnergies and Chevron have so far planned on selling their shares in the current Oil Mining Lease (OML) 118 including the stakes held in OML 82, 85 and 88.
The waves of assets divestments by the IOCs have triggered a flurry of interest from indigenous oil companies like Seplat, Aiteo group of companies, Eroton, Neconde, First E & P and various other local players. Within the last decade alone, Shell has sold off its shares in OMLs 4, 38 and 41 to Seplat, OML 29 to AITEO, OML 42 to Neconde, OML 18 to SPV Eroton and OML 17 to Trans-Niger Oil and Gas (TNOG). Meanwhile, First E&P have acquired OMLs 83 and 85 from Chevron. Only recently, other local oil companies such as Sahara Energy, Oando and Conoil have been reported as nearing some form of takeover of assets from the IOCs.
The oil divestment efforts have been greatly encouraged by the Nigerian government as they have paved the way for further acquisition of oil assets by more interested indigenous players. In the past few months, the government has succeeded in leading the bidding rounds for 57 marginal oilfields with approximately 130 firms being granted Petroleum Prospecting Licences (PPLs) to develop the fields.
Impact on climate change
The sale of oil assets and infrastructure by the IOCs in Nigeria is in keeping with their obligation to ensure energy transition mostly as a result of campaigns from several quarters to further curb climate change. Evidence of this is seen in their various official corporate pledges to reduce their fair share of carbon emissions and eventually reach net zero by 2050. For instance, as stated in its 2020 Sustainability Report, Shell considers divestments to be a crucial aspect of its strategy to renew and enhance its portfolio, as it works towards its objective of becoming a net-zero emissions energy company. In addition, the company is exploring low and zero-carbon alternatives to reduce emissions from the fuel it offers to consumers.
Nonetheless, numerous indigenous communities in the region have recognised the extensive damage inflicted on coastal and marine ecosystems due to oil divestments. Many of these communities have attributed the majority of the harm to the indigenous companies that currently possess a controlling stake in the oil assets. There is a lack of sustainability practices, environmental commitments and fewer reporting standards by the local oil and gas players especially in the Niger Delta area located in the south of the country.
For instance, in the Nembe region, where settlements tend to emerge from dense mangrove swamps, locals recounted that oil spewed uncontrollably for more than one month before some interventions were put in place to halt the leakage. Also, despite the clean-up operations that followed, nearby water is still known to be bearing some oily film while mangrove roots remain shrouded in black. As a result, fishermen are now catching only a negligible fraction of their prior hauls. These circumstances have persisted since the Aiteo Group, a Nigerian company, acquired Shell’s local oil license in 2015. Although Aiteo and Nigeria’s regulatory bodies have attributed the spill to sabotage still, residents, local authorities, and environmental organisations in Nigeria have pointed to defective infrastructure as the underlying cause. Data sourced from the Stakeholder Democracy Network indicates that Nigerian companies are responsible for 35 % more oil spills compared to international companies.
Also, following the acquisition of oil assets by Nigerian companies, there has been a significant rise in greenhouse gas emissions caused by gas flaring, which involves the combustion of surplus natural gas extracted during oil production. This has been supported by data from the flare tracker and reports from the Environmental Défense Fund and Stakeholder Democracy Network.
Some of the IOCs like Shell, have recently boasted in their yearly stakeholders’ reports of their commitments and achievements in curtailing gas flaring. However, Capterio’s FlareIntel tracker reported that the Nigerian firm Heirs Holdings, which purchased the oil license, witnessed an over eightfold surge in flaring the year following the acquisition. In 2021, the flaring produced emissions equal to that of at least 18,000 cars.
Stakeholder Democracy Network has gathered data indicating that Nigerian companies tend to flare a lot more gas per barrel of oil extracted than the IOCs. The report also disclosed that domestic firms flare over 10 times more gas per barrel of oil produced, and even if the two companies with the highest flaring are excluded, the local firms still flare nearly five times more.
Author bio:
Dr. Eyo Eyo is a lecturer and researcher in sustainable geotechnical engineering at the University of the West of England, United Kingdom. He is a sustainability advocate and has been applying artificial intelligence (AI) and machine learning to solve the challenges of climate change for nearly 10 years. He has many publications in top ranking journals on the use of AI to tackle issues of climate change and sustainability.
