7 April 2013

Nigeria: Divestment of International Oil Companies' Assets Unsettles Stakeholders

Lagos — The frequency of divestment of equity by some multinational oil companies in the midst of the nation's drive to reform its petroleum industry has raised concerns on whether Nigeria will get the sector on track

Brazilian oil company Petrobras, which began operations in Nigeria less than 20 years ago, last week put the country on notice of its intention to auction its stakes in Nigerian oil fields to raise cash for domestic projects.

The company will sell its eight percent stake in the Nigerian offshore Agbami block, which is operated by US energy firm Chevron and its 20 percent share of the offshore Akpo project, operated by France's Total.

To demonstrate its determination to auction the stakes, the oil company has hired Standard Chartered Bank to manage the process, which will kick off in the next two months. The value of the a deal may fetch up to $5 billion or N795billion which is bigger than the amount earmarked to four juicy sectors of the economy under the 2013 budget.

There are fears that if the plan eventually sails through, Nigeria would eventually be the loser as it may puncture federal government's drive to attract fresh investments into the nation's petroleum sector.

Shell started divestment

Shell was said to have commenced divestment in Nigeria in 2010 with the Seplat and FHN/Afren deals. Last year, the Anglo-Dutch oil company and partners, Total and Agip Oil sold 45 percent interest in the onshore block Oil Mining Lease (OML) 40 to Elcrest Nigeria Limited.

Shell also sold its 30 percent interest in OML 30 with share production of 11,000 barrels per day in the Niger Delta to Shoreline Natural Resources Limited.

Total, sold its 20 percent stakes and operating mandate of its Nigerian offshore project to a local unit of China Petrochemical Corporation for $2.5billion.

Besides, United States of America's oil company, Conoco Phillips disposed its assets in the country to indigenous oil company, Oando Plc. The deal is said to have jerked up Conoco's assets sale to $11 billion last year.

It is said that International Oil Companies (IOCs) in the country have sold close to 50 percent stakes in over seven concessions with huge financial returns.

IOCs explain

But the companies explained that they sold the assets in order to help grow the country's petroleum sector. Mutiu Sunmonu Managing Director of Shell Petroleum Development Company (SPDC) said part of the reasons for divestment of his company's assets was a deliberate measure to indigenous participation in the upstream oil and gas industry.

"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 explained.

Total's Chief Executive Officer Christophe de Margerie said the disposal of his company's assets does not mean it is leaving the shores of Nigeria. The divestment, he explained, was to give room for indigenous players in the nation's petroleum sector to grow.

Chief Executive Officer, Petrobras, Ms Maria das Graças Foster explained that divesting from the oil blocks will help the company concentrate more on exploration activities in a vast deep sea region off the coast of Brazil known as the subsalt, believed to contain dozens of billions of barrels of high quality oil.


But observers are of the opinion that the divestment of stakes may be linked with the fact that IOCs are considering some of the onshore assets as not commercially profitable as some of the oil fields are gradually becoming infertile. According to industry players, the divestment allows the companies to prioritize the most attractive opportunities and reconfigure or exit from less attractive ones.

In addition, incessant crises between the host communities and the oil companies operating with OMLs would have prompted the divestment for deep water prospect where there are fewer crises and less financial expenses on conflict resolution.

They said the decision could be linked with what the industry players considered as unfavorable profit-sharing agreement, high royalties, taxes and insecurity, considering the production output of the fields. Managing Director of Seplat Petroleum Company, Austin Avuru said Joint Venture (JV) terms meaning taxes, royalties etc in Nigeria are some of the highest in the globe, with risks such as oil theft and insecurity.

Managing Director of International Energy Services, Diran Fawibe told our correspondent that the decision of the companies should not be blamed on them. He explained that the frequency of attacks on facilities of the companies in the onshore area of Nigeria puts investments and stocks of the companies in danger. He however said divestment is not bad as it will give indigenous companies opportunity to have a good stand in the petroleum sector.

He said the magnitude of this opportunity depends on how well the local players who take over the assets are able to exploit the fields to the advantage of Nigerians through investment in research and development.

Former president of the Nigerian Association of Petroleum Explorationists (NAPE), Afe Mayowa told our correspondent that divestment will aid the development of marginal fields in the country. Citing examples of companies like Seplat which acquired some stakes of Shell and now doing well, Mayowa said the future is bright for indigenous companies. He said divestment will jerk up the country's daily oil production.

No, it's an escape route

But the coordinator of Oil Watch International, Mr Nnimmo Bassey said the ongoing divestment of assets of IOCs is a smokescreen. In a chat with our correspondent Thursday he hinted that the foreign oil companies designed such divestment as a strategy to escape from taking responsibility for the rot caused communities in the country.

"There is a generally deep displeasure by the communities whose environments they have damaged without redress. This dislike or disdain posses a peculiar risk to companies that had entered those communities on the crest of expectations and promises," Bassey noted. Bassey said the companies are eager to shake off accountability for the damage they have done and their unwillingness to clean up their mess. Rather than stop the gas flares they may prefer to move offshore or elsewhere. Same with cleaning the spills.

According to him, the IOCs may be unready to adjust to a regime that may require that they publish what they pump. He said, "A situation where oil theft and frequent leakages do no result in reduction in official oil production levels clearly shows that far more than officially acknowledged volumes of crude oil are being extracted from these fields. So, these corporations are trying to avoid responsibility."

He said the oil companies are playing an arm twisting game with a government that relies heavily on oil rents. "Threats of divestment can affect the passing of the PIB [Petroleum Industry Bill] and if passed, its implementation. These fellows are playing games. They cannot run away from the incredible gains they make here," he expressed.

Poisonous tonic

Ifediora Amobi who is Executive Director African Heritage Institution, reasoned that the auction of these oil blocks and their gas resources will threaten government's power sector reform agenda by jeopardizing domestic gas supply for power generation. According to him, it will lead to job losses and insecurity, as "we hope that some of the displaced workers from Shell, Total, etc., who will be absorbed by the local firms, have the same working conditions they were used to under the oil majors".

Labour perspective

Oil workers are of the opinion that divestment has never brought good tidings to them. That is why the president of NUPENG, Comrade Achese Igwe, at a joint press conference in Lagos penultimate week, warned Petrobas of the severe implications of divesting its assets in the country.

Last Tuesday, oil workers in the employ of Brazilian firm demonstrated against the plan to divest. The workers protested at the Lagos office of the company and wondered why Petrobas is planning divestment at the time when their stakes are high. They said the decision of the company to leave the shores of the country means they would be out of job with severe economic implications to their families and the nation. They also criticized government for not doing enough to guarantee them job security in the hands of the foreign oil companies.

Lagos Chairman of Petroleum and Natural Gas Senior Staff Association (PENGASSAN), Reverend Folorunsho Oginni, told our correspondent that the decision to divest is not in the interest of workers and the entire country. He lamented that expatriates in the employ of the multinational oil companies repatriate several millions of dollars annually to Brazil at the expense of Nigerians.

He said his union has also written protest letter to the Ministers of Petroleum Resources, Labour and Productivity to caution multinational oil companies on the wave of divestment of their assets.

According to him, the union would not hesitate to mobilize members to embark on national strike if the two ministries fail to act on their grievance at the appropriate time.

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