Upon the inauguration of the present administration on May 29, 2023, there was a pervading expectation of movement towards far reaching economic reforms to urgently address Nigeria’s ailing economy.
This was associated with the fact that the Tinubu regime campaigned on a “Renewed Hope” theme and was expected to move to stem several years of perceived poor management against the backdrop of historical success running Lagos state as governor.
Earlier this year, the President issued five executive orders whose main objective was to reduce time and cost of finalising and implementing oil and gas projects to unblock and set the industry on the path of growth.
“The directives aim to immediately unlock up to $2.5bn in new oil and gas investments in the country,” the Special Adviser to the President on Energy, Olu Verheijen, declared in Washington DC.
The Special adviser Verheijen who spoke at an event organised as part of the inaugural US-Nigeria Strategic Energy Dialogue, hosted by the US State Department said major energy reforms introduced in Nigeria since June 2023 have deliberately focused on improving energy security, attracting investment, and deepening collaboration with key partners like the United States Government.
The SA Energy added, “I cannot overstate the importance of our longstanding relationship with the US and this inaugural dialogue. The goal of this dialogue is for us to jointly proffer solutions that will close the energy access gap for close to 100 million Nigerians who still lack reliable power.
“We want existing and potential partners to better understand our areas of priority so that our collaboration can be better targeted, and with tangible outcomes.”
Large population, little gain
The World Bank also reports that despite having the largest economy and population in Africa, Nigeria offers little by way of opportunity for the majority of its citizens.
Nigerians born in 2020 are expected to constitute the country’s future workforce. But they will only be 36 percent as productive as they could be if they had full access to education and health, the seventh lowest human capital index in the world.
Weak job creation and entrepreneurial prospects stifle the absorption of the 3.5 million Nigerians entering the labour force every year. The poverty rate is estimated to have reached 38.9 percent in 2023, with an estimated 87 million Nigerians living below the poverty line — the world’s second-largest poor population after India.
The World Bank nevertheless recognises that the implementation of the right reforms could offer a pathway to a new social compass for Nigeria’s development. Strengthening macroeconomic fundamentals will allow structural reforms to be pursued and economic growth to be restored. The current low social and economic equilibrium could be switched to one marked by a better funded and more effective State that provides efficient public services, public goods, and an energised economic environment for the private sector to flourish and boost creation of badly needed Nigerian jobs.
These weighty observations come against the background of several pending key oil and gas divestment transactions being considered for approval by Nigeria’s regulatory authorities.
Read also: Nigeria’s oil divestment: A missed opportunity for reform?
Local oil & gas firms rise to the fore
Following the discovery of oil in Nigeria in the 1950s the industry was dominated by the IOCs but over the last three decades, two broad divestment waves have seen indigenous players take a more significant role in the oil business.
The first wave took place in 2000 with the sale of about 24 marginal fields which were undeveloped by the original lease holders for at least 10 years. The original holders of the leases at the time thought the assets to contain more gas than oil and therefore unattractive for development under the existing fiscal and market conditions. The concerned IOCs had to sign farm out agreements with the successful indigenous players. The expectation was that facilitating the entry of indigenous companies would help grow Nigeria’s oil reserves and production. Whatever the drawbacks of this year 2000 exercise, it armed indigenous firms with the necessary experience to take oil assets to production. Another marginal field bid round involving 31 fields was announced by the government in 2013 but was inconclusive.
The next wave was of a more voluntary nature than the first and involved the IOCs wanting to rationalise their asset portfolios mainly because of third party interference in the operations which had made them cumbersome to operate efficiently. It began with Shell divesting four onshore blocs to indigenous operators.
In retrospect, while the Nigerian divestments have not been perfect, they have introduced significant advancements to the industry. Local content, a generic term for the development of in-country skills and resources, oil and gas technology transfer, and the use of indigenous manpower and manufacturing has received a boost since 2010. Consequently, several of today’s key independents in the Nigerian oil and gas patch are the direct products of previous successful divestment exercises. Among them are entities like ND Western, Seplat Energy, First Hydrocarbon, Shoreline, Neconde, and Aiteo.
Also, some Nigerian companies which took over assets divested by IOCs have concentrated on gas reserves and production and have significantly increased their share of gas supply to the domestic market.
Evidence supports the claim that indigenous companies tend to have better understanding of host communities and are therefore better able to resolve potential disputes much easier and quicker than the IOCs would. In effect, the independents who assumed operatorship of divested assets have tended to pay more attention to host community issues with increased flexibility in the MOUs agreed with them, and the result has been fewer disputes related to divested assets.
In contrast to the IOC business model which emphasises upstream operations, the indigenous companies have shown a preference for integrated petroleum operations in their bid to extract optimum value from every locally produced barrel of oil. Some of these independents have therefore invested significantly in gas processing facilities and modular refineries.
There is consensus around the fact that divestments remain crucial for the development of the Nigerian oil and gas onshore business. The need for diversification of the economy for rapid multi sectoral development was recognised early on, hence it was a pillar of the very first National Development Plan 1962-1968.
More recently Chapal Energies sought to acquire 10 percent participating interest in fifteen OMLs within the SPDC JV for an aggregate sum of $860 million. It added that Total would retain economic interests in the assets which produce some 40 percent of Nigeria’s liquefied natural gas supply.
Oando PLC was also working on the acquisition of 100 per cent shares of Nigerian Agip Oil Company Limited and by implication the rights to the balance 20 percent in the NNPC/NAOC/OandO JV. A move which was initially objected to by NNPCL on the grounds that it was not made aware of the deal.
Sometime in 2022 ExxonMobil and Seplat Energy reached an agreement for the divestment of 100 percent of the Exxon’s Nigerian subsidiary for a consideration of $1.28 bn, a move also blocked by the NNPC via a court order which averred that a dispute had occurred between the parties over pre-emption rights and the interpretation of the PIA with respect to divestments. The deal would potentially give Seplat an additional 95,000 barrels of oil equivalent from the shallow water acreage operated by Exxon in a JV with the NNPC.
In January 2024, Shell and Renaissance Africa Energy Limited signed an agreement for the sale of Shell’s onshore subsidiary Shell Petroleum Development Company for the sum of $1.3bn subject to regulatory approval by the authorities.
Some of these divestments have reportedly received consent, the most recent being the Exxon/Seplat deal which the President announced as part of his Independence Day broadcast to the nation saying approval was imminent and signoff on the deal would take place in the coming days.
It is against the glare of such stark socio-economic realities that the chronic inefficiency, foot-dragging and even intrigue which have trailed the ongoing Nigerian oil and gas divestments show up as clearly counterproductive and outrightly harmful to the country’s interests and ability to attract the right investments at a time when the country is in desperate need of new investments.
Many in and outside the oil and gas industry have expressed concern about the management of a transition which has seen more than $20 billion in assets change hands since 2010 but also expected to deepen indigenisation of the industry and open a new vista of opportunity for Nigerian independents and accelerate Nigeria’s growth and industrial development.
The point which has been repeatedly made is that asset divestments are a common streamlined process in the global industry and are frequently managed with much less fuss, time and costs, while upholding the rigour required to assure safety and uphold international operating best practice. Unfortunately, this problem is not exactly new. Unduly lengthy and costly project lead times have been long associated with the Nigerian oil and gas industry. This regrettably manifests as uncompetitive unit production costs and projects which because of numerous bottlenecks fail to make it to maturation.
Read also: Nigeria crude outshines Brent with $4 edge
Investor confidence: Rhetoric vs. action
More troubling is the widely held perception that the problem is rooted in inefficiency, deliberate complexity and corruption by agencies tasked with the important task of ensuring that Nigeria is adequately positioned to compete for investments in a dynamic global energy marketplace. We recently experienced investment flight as mentioned in a quote attributed to the Total group CEO who claims he has been forced to move a $6 billion investment to Angola.
Patrick Pouyanne, the chief executive officer of TotalEnergies, said recently during the Africa CEO event in Rwanda that the company is investing $6 billion in energy projects in Angola over Nigeria, highlighting the policy inconsistency which has been a feature long associated with Nigeria as driver for the French energy giant’s decision.
He added: “Nigeria loves to open topics without closing them. You love to debate. There is always a new legislature in Nigeria about a new petroleum law. When you have such permanent debates, it’s difficult for investors looking for long-term structure to know what direction to go.
“In reality, the Niger Delta is the most prolific part of West Africa. But if you look at what happened, because of these debates, there has not been a single exploration in Nigeria for 12 years. It’s important to have a debate and then settle it and put a framework on the table that investors can trust.
NGOs, Civil Society organisations, professional groups and the media have all taken a decidedly stronger stand, demanding greater accountability and transparency from regulators and other agencies of government as was witnessed during the recent Dangote/NMDPRA/NNPC controversy. This has got to be seen as a clarion call for action to clean up the industry and unshackle it from the chains of bureaucracy and inefficiencies.
If Nigeria ever believed that it could exist in isolation, then there is the energy transition phenomenon to transport us back to reality. A reality signposted by a world which has served notice of its aspiration to decarbonise and shift away from fossil fuels to cleaner more sustainable energy sources. The moral of this narrative is that the window of opportunity currently open to resource rich nations like Nigeria is not permanent and both seriousness and urgency are required to help Nigeria fully actualise its potential and achieve accelerated industrial development.
The national oil company and its affiliates have produced plenty of platitudes about commitment to ensuring that Nigeria is able to maximise the opportunities before it and transform the economy for the benefit of a population experiencing the worst inflation and grinding hardship in a generation.
Because of global business dynamics and Nigeria’s regulatory and operating environment, divestments are likely to be with us for some time to come. But they are also considered most crucial, because of the impact on the economy, the environment and the well-being of the citizenry. Transparency is also the reason that the Petroleum Industry Act (PIA) (itself 20 years in the making) prescribes that the Minister must give consent within 60 days of recommendation by the Nigerian Upstream Petroleum Regulatory Commission. If the Minister does not give consent within the statutory period, it would be deemed to have been given. The PIA is however silent on the remedy in a situation where the President is also Minister.
President Tinubu must lead from the front
Beginning with the President, who is also Petroleum Minister and final authority on matters involving the oil industry, Nigeria must take more decisive action and demonstrate concrete commitment to do more than simply verbalising its commitment to evolving a more investor friendly outlook for the country. Enough of the rhetoric; it’s time for evidential action to give the market and investors confidence again that Nigeria is serious about doing good business knowing that we are running out of time while the rest of the world moves on.
In the many calls for a systematic overhaul of the oil and gas regulatory system, reference is made to the Nigerian reality, where the transfer of privately held oil and gas assets has become bedevilled by bureaucratic red tape. The advocates for reform call out the manner in which the recent divestments have been handled. They claim it raises serious underlying questions about capacity and transparency of the regulatory framework and insist that there are no substitutes to this rectification, if Nigeria wishes to restore its reputation, win international confidence and trust and compete for investments.
Nigeria continues to be heavily dependent on oil revenues with oil exports accounting for about 90 percent of foreign exchange earnings and advice offered by experts at several recent industry events in and outside Nigeria continue to reinforce the view that increased oil and gas output offers the most realistic solution to Nigeria’s current economic challenges.
It is therefore obligatory for President Tinubu to decisively intervene to renew hope for Nigeria’s critically important oil and gas industry in his capacity as the Petroleum Minister. President Tinubu should quickly end the posturing of the regulator, sanction the divestment by Shell to pave way for the restreaming of the assets in the national interest. A stitch in time they say saves Nine!!
