Hurdles As Nigerian Companies Take Over IOCs’ Onshore Assets

Senior Advisor Global Affairs to H.R.H. Prince Abdulaziz bin Salman Al Saud, Minister of Energy, kingdom of Saudi Arabia, Dr. Nasser A. Al-Dossary (left); CEO/GMD, NNPC, Mallam Mele Kyari; General Manager for International Relations, Raed Althukair, and Group General Manager, NAPIMS, Mr. Bala Wunti at the opening ceremony of the Nigerian International Energy Summit 2022 in Abuja…yesterday.

 

• $105b oil, gas decommissioning in Nigeria, others create concerns

• Shell, ExxonMobil, Eni, others to sell over $27 billion assets

• Worries over weak infrastructure, legal battles amid energy transition

 

Despite landmark opportunities created from divestment of onshore assets by International Oil Companies (IOCs), oil and gas experts, yesterday, raised concerns about indigenous firms’ preparedness to take over these assets amid lingering challenges.

 

Legal battles, decommissioning worth billions of dollars, weak infrastructure, existing battles on general clean-up and compensation for oil and gas producing communities top challenges that may make or mar most indigenous companies apart from existing issues of vandalism and theft.

 

Already, many of the IOCs have restated their interest in consolidating their offshore capacity, relinquishing the onshore assets to indigenous players.

 

Speaking yesterday in Abuja at the Nigerian International Energy Summit’s (NIES) opening, where President Muhammadu Buhari insisted that with Petroleum Industry Act (PIA) in place, there should be no excuses for the nation’s oil sector not to accelerate investment, most stakeholders were worried about energy transition and divestment from the sector.

 

According to Buhari, who was represented by Minister of State for Petroleum Resources, Timipre Sylva there is now a level of certainty for the regulatory, administrative and fiscal framework and the legitimate grievances of host communities most impacted by activities of the industry has been addressed by the Act.

 

On divestment, recall that, Shell is expected to divest about $2.3 billion, ExxonMobil is expected to divest as much as $15 billion worth of assets. Eni’s figure was put at about $5 billion.

 

An international research body, Rystad Energy estimated other assets including that of Total and ConocoPhillips to be at about $27.5 billion.

At the same time, Nigeria and other oil producing countries across the world are expected to expend about $105 billion on decommissioning in the next 10 years.

 

According to Wood Mackenzie, otherwise called WoodMac, between 2018 and 2022, no less than $32 billion is going to be spent on decommissioning around the world.

 

While the UK, the US and Norway, were ranked the top three decommissioning destinations in the next 10 years, Nigeria followed Angola as the seventh country that would be spending heavily on decommissioning in the next decade.

 

Decommissioning, a process of safe plugging of the hole in the earth’s surface and disposal of the equipment used in offshore oil production, is reportedly becoming a rapidly developing market sector in the petroleum business, with major potential and risks.

 

Coming at a time when Seplat is already concluding transaction to take over a subsidiary of ExxonMobil for about $1.3 billion, the prevailing situation is raising doubts as AITEO is currently engaged in a legal tussle with Shell, seeking over $2.5 billion compensation over the sale of Oil Mining Licence 29.

 

In January 2021, Eni and the partners divested the onshore production and development block OML 17 (Eni’s interest was five per cent). Depending on what Eni decides to sell, the transaction may rise from $2 billion to $5 billion, industry sources note.

 

It could also decide to keep the operations, they said. Reportedly, IOCs in Nigeria may this year consider offshore decommissioning campaign for selected fields even as industry players like Chairman/CEO of International Energy Services (IES) Ltd, Dr Diran Fawibe stressed on the need for the sector regulator, Upstream Petroleum Regulatory Commission (NUPRC) to work with the multinationals in ensuring that the offshore sites were decommissioned.

 

Fawibe was, however, sceptical about the capability of NUPRC to assess the level of assets that the oil firms would decommission.

 

“Decommissioning is one area where regulatory agencies need to properly monitor, especially the state of equipment in the Niger Delta, and then, work with the IOCs for decommissioning,” he said.

 

Chief Executive Officer of the Nigerian National Petroleum Company (NNPC), Mele Kyari admitted that there remained issues associated with divestment.

 

According to him, though Nigeria understands that energy transition agenda is pushing IOCs to change their portfolio, issues on abandonment and decommissioning remain critical.

 

Kyari noted that while companies are leaving Nigeria not primarily because there are no opportunities in the country, the push from fossil fuels, which has in the last 10 year reduced investment in the oil and gas sector, creates very serious concerns for global energy.

 

“We do know that there are issues, we understand that this must take place, but also that it must be done in such a way that we are able to deal with issues around abandonment, decommissioning, and that we align with the energy transition journey,” he said.

 

With the sector becoming extremely competitive, Kyari noted that Nigerian companies must take the lead and become more efficient to compet