Nigeria: NNPC Lists Relinquishment Cost, Legacy Liabilities for Oil Majors' Divestment

press release

The NNPC GMD says oil demand is rising and prices have gone up to pre-pandemic levels, averaging $74/bbl.

As Shell Petroleum Development Company (SPDC) and other oil majors begin divestment of their investments in Nigeria following a growing appetite for cleaner and more environmentally-friendly energy, the Nigerian National Petroleum Corporation (NNPC) on Monday listed various issues that have to be exhaustively addressed before their exit to avoid fracturing the Nigerian economy in hurried exodus.

To this end, the national oil company said that special attention would be paid to abandonment and relinquishment costs; severance of operator staff; third party contract liabilities; competency of the buyer; post purchased technical, operational, and financial capabilities especially in the era of activist investor's sentiments against funding of fossil fuel projects and alignment with Nigeria national strategic interest.

The Group Managing Director of the NNPC, Mele Kyari made the disclosure in Lagos at the 2021 edition of the Nigeria Annual International Conference and Exhibition (NAICE) organised by Society of Petroleum Engineers (SPE) with the theme: "The Future of Energy: A Trilogy of Climate Change, Public Health & Global Oil Market".

He said the NNPC would soon unveil a Comprehensive Divestment Policy (CDP) that will guide the entire divestment process.

According to Mr Kyari, while the NNPC partners reserve the right to divest their interests, the national oil company also has a duty to provide clear-cut guidelines and criteria for such divestment to guarantee a win-win situation for all parties.

He said: "We are seeing a wave of divestment by oil majors operating Nigeria. NNPC as a national oil company cannot stop partners from divesting their interest, even though it creates a challenge for us in ensuring that we get right and competent investors to take position and add value to the assets.

"NNPC will ensure that Nigeria's National strategic interest is safeguarded, by developing a Comprehensive Divestment Policy".

According to the Mr Kyari, the NNPC will, in subsequent deals, tweak its rules of engagement by making clear distinctions between divestment of shares and operatorship agreements under various joint operating agreements, while leveraging its rights of pre-emption as well as evaluating the operational competency and track records of new partners.

Mr Kyari reckoned that the imperatives of energy transition and the influence of activist investors on the global energy industry are making oil and gas companies diversify their portfolio to low-carbon investments by whetting the appetite for investment in cleaner energy sources like; wind, solar, hydrogen, natural gas and bio-fuels.

He added that the new energy sources have obvious wider business implications on the oil and gas industry.

The NNPC boss advised oil-dependent economies to brace up for the bumpy ride ahead, as the global transition to non-fossil sources of energy will mean declining revenue, foreign exchange and weaker funding of projects particularly in the context of green finance and activist investor's action on the boards of major oil companies and global financial institutions.

He, however, asssured that the NNPC would play a key role in the global transition to low-carbon energy in the near future by latching on Nigeria's huge natural gas reserves; which has become the greatest enabler in making the switch over.

"We are deepening natural gas utilization under the National Gas Expansion Programme (NGEP) to earn more carbon credit and create a net zero carbon environment in line with our drive of becoming energy company of global excellence.

"NNPC is currently extending natural gas infrastructure backbone through the OB3 and AKK gas pipelines to deepen domestic gas utilization, support industrial growth and job creation.

Our goal is to take the right quantities of gas to every part of Nigeria at the right quality and the right price.

"NNPC is leveraging technology to achieve better systems and processes optimization to support performance, accountability and value creation that exceeds the simple fulfilment of our business mandates," he said.

He explains further: "However, looking at both climate and population change dynamics, anticipated economic growth and rising global population especially in Asia and Africa will obviously increase energy consumption beyond what renewable energy sources can meet by 2050.

"Building on this convergence, Nigeria as a key player in global energy security is addressing its challenges mainly fiscal, security and cost competitiveness to stimulate investments in the oil and gas industry.

"NNPC as a National Oil company is leading multiple initiatives to address this and other issues.

"As we celebrate the passage of the PIB, we have moved our focus to improving security architecture through collaboration with major stakeholders. NUCOP is working with operators and service contractors to challenge cost of operations and increase profitability and growth in the Nigerian oil and gas sector.

"Industry conversations are dominated by the shift to renewable energy as a source of cleaner and climate-friendly fuel."

Mr Kyari also said that oil demand is rising and prices have gone up to pre-pandemic levels, averaging $74/bbl; as countries gradually overcome the pandemic shocks and economies re-open.

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