As the trend of asset divestments by international oil companies (IOCs) operating in Nigeria gathers momentum, oil and gas production from indigenous companies in the country looks set for a significant boost.
By the end of this year, the major divestments by IOCs since 2010 will transfer about 5 billion barrels of oil and 20 trillion cubic feet (Tcf) of gas to indigenous players. However, analysts say that the growing upstream asset base of local players does beg the question whether they have the wherewithal to effectively deliver the goods as much as the IOCs, given the challenges they face plan to divest its 40 percent stake in Oil Mining Leases (OMLs) 52, 53, 55, 83 and 85, estimated to hold as much as 250million barrels of oil reserves.
Local players are stepping up
In what is a drastic shift from what obtained in the past, local Nigerian companies now own more than 100 blocks across oil-producing regions in the country, and own at least 30 marginal fields.
The local players, who are mostly independents or marginal fields’ producers, currently account for 10 percent of Nigeria’s total production.
In the earlier round of Shell asset disposals, Seplat, one of the leading Nigerian independents won three blocks. The company has significantly increased production from the blocks OML 4, OML 41 and OML 38, reporting an increase in production to about 60,000 bpd.
Also, production at Shoreline Natural Resources Limited’s OML 30, which it bought from Shell in 2012, has stabilised at around 35,000 bpd.
“Local operatorship of divested assets, as well as a corresponding boost in local production will be key to assessing the success of the government’s local content policy in the upstream sector,” said Eco¬bank Energy, Oil and Gas Research headed by Rolake Akinkugbe, in a recent report. “If the PIB is success¬fully passed, production growth for junior and indigenous companies is likely to increase.”
Biting more than they can chew?
The current wave of divestment by IOCs has seen several indigenous players angling not just to buy stakes in the assets being divested, but also to win the status of opera¬tors on those assets.
Local Nigerian companies including First Hydrocarbon Nigeria, Seven Energy, Britannia-U and Seplat were the main frontrunners shortlisted for the sale of OML 52, 53 and 55 by Chevron.
Shell’s sale of four additional oil blocks OMLs 18, 24, 25 and 29, with a combined production of 70,000 bpd, has also attracted a number of indigenous companies such Taleveras, IS45, Atlantic Energy, Seplat and South Atlantic Petroleum.
The acquisition of ConocoPhillips’ Nigerian assets will substantially boost the operations of Oando Energy Resources, the upstream business of Oando Plc, with production of about 50,000boepd.
Adeola Adenikinju, director, Centre for Petroleum, Energy Economics and Law University of Ibadan and president, Nigerian Association for Energy Economics, said that the increasing assertiveness and involvement of the Nigerian indigenous companies is an indication of increasing maturity, growing technical and financial capacities and on the long term may be good for the country.
“After 60 years of oil, Nigerians deservedly need to take over greater role in the oil sector. However, many of the indigenous companies may not have the international connection, the wide reach of the IOCs, international experiences, deep financial, technological and technical capabilities,” he added.
Challenges remain
While the divestments by IOCs is widely seen as an opportunity for indigenous firms to up their game, analysts have raised concerns over their capacity to tackle challenges in terms of competence and financing.
“Although competence can be seen as an issue, it is something that can be easily addressed. The bigger stumbling block for indigenous companies is funding. The fluctuating assistance from foreign equity partners and the low funding capacity of indigenous players is an is¬sue,” Claire Lawrie, head, oil and gas advisory, Ernst & Young said.
She said mitigating the challenges can only come by better collaboration, collaboration, better host community management, proper valuation and raising smart financing.
Avuru, who also alluded to the issue of competence, said indigenous production is expected to rise to about 300,000 bpd by the end of 2014. Adebayo Akinpelu, Nigerian Association of Petroleum Explorationists (NAPE) and man-aging director, Fixital Nigeria Limited, said the biggest challenges any indigenous operator will continue to face until the Nigerian banking sector matures to petroleum investment portfolio management will be financing, especially capital financing.
“Continued sourcing of high level technical manpower is also a major challenge. Very importantly, the resources are diminishing and the remaining ones required more innovative technology in the hands of savvy scientists to continue to fill the pipelines,” he said.
The challenges would only be for a limited period of time, says Adenikinju, adding that the indigenous companies would grow increasingly across the various spectrums that will bring them up to par with many of their foreign counterparts.
“However, they need to invest in and partner with relevant universities to develop, adapt technology, infuse innovation and develop new business models and strategies. The linkage between our indigenous companies and the universities in R&D and manpower development is very poor,” he noted.
