In recent times, international oil companies IOCs) have started divesting from Nigerian crude oil and gas. They are in the process of selling off their assets and exploring alternative sources of revenue. This trend has been triggered by several factors top among them being the global energy transition. Other reasons can be attributed to an unfavourable regulatory framework, COVID-19, and security concerns around crude oil infrastructure in the country.
Since Nigeria is a fossil fuel-reliant economy, the impact of crude oil and gas divestment on the country is already having some negative ramifications. One of OPEC’s leading oil producers with oil reserves totalling 37 trillion barrels, Nigeria has since the beginning of the exercise in 2006 suffered more than £16.6 billion worth of divested assets. Moreover, steep competition from its regional counterparts has led to a reduction in the proportion of investment in the initial stages of oil and gas exploration and production that Nigeria would normally attract.
The woes occasioned by oil divestments from Nigeria are even more significant, with very dire consequences for the environment being reported. Despite the IOCs’ efforts to divest away from crude oil activities, host communities and watchdogs have decried worsening environmental conditions following the sales, caused mainly by the activities and operations of indigenous oil and gas firms. Moreover, while some of the oil assets have been divested, the sale of the oil infrastructure by the IOCs or the taking over of such holdings by indigenous players is lagging behind. This has been reported as being due to bureaucratic protocols, and the cloud of litigations hanging over the divestment processes.
Current divestment realities
Nigeria currently has five IOCs still operating in the country: Shell Producing Development Company (SPDC), Chevron, TotalEnergies, ExxonMobil and Eni. An analysis carried out by British research and consulting firm Wood Mackenzie indicates that divestments in Nigeria since 2020 amount to US$1.1 billion.
However, the IOCs are reported as wielding only a minority control (about 45 per cent) of Nigeria’s oil production assets, compared to the amount held by the operating indigenous companies (about 47 per cent). Most of the oil and gas assets that have been divested so far are onshore properties situated in shallow waters. In the past decade, a total of 26 oil mining licences have been divested by the IOCs in the Niger Basin area of Nigeria, with even more to be sold in the near future.
Shell intends to sell off approximately US$2.3 billion worth of oil and gas assets, while Eni’s divestment plan amounts to about US$5 billion, with ExxonMobil looking to offload US$15 billion of its assets. On the other hand, both TotalEnergies and Chevron plan to sell their shares in the current Oil Mining Lease (OML) 118 including the stakes held in OML 82, 85 and 88.
The waves of assets divestments by the IOCs have triggered a flurry of interest from indigenous oil companies like Seplat, the Aiteo group of companies, Eroton, Neconde, First E & P and various other local players. Within the last decade alone, Shell has sold off its shares in OMLs 4, 38 and 41 to Seplat, OML 29 to Aiteo, OML 42 to Neconde, OML 18 to SPV Eroton and OML 17 to Trans-Niger Oil and Gas (TNOG). Meanwhile, First E&P have acquired OMLs 83 and 85 from Chevron. Other local oil companies such as Sahara Energy, Oando and Conoil were recently reported as nearing some form of takeover of assets from the IOCs.
The waves of assets divestments by the IOCs have triggered a flurry of interest from indigenous oil companies.
The oil divestment efforts have been greatly encouraged by the Nigerian government as they have paved the way for further acquisition of oil assets by interested indigenous players. In the past few months, the government has succeeded in leading the bidding rounds for 57 marginal oilfields with approximately 130 firms being granted Petroleum Prospecting Licences (PPLs) to develop the fields.
Impact on climate change
The sale of oil assets and infrastructure by the IOCs in Nigeria is in keeping with their obligation to ensure energy transition mainly as a result of campaigns from several quarters to further curb climate change. Evidence of this is seen in their various official corporate pledges to reduce their share of carbon emissions and eventually reach net zero by 2050. For instance, as stated in its 2020 Sustainability Report, Shell considers divestments to be a crucial aspect of its strategy to renew and enhance its portfolio, as it works towards its objective of becoming a net-zero emissions energy company. In addition, the company is exploring low and zero-carbon alternatives to reduce emissions from the fuel it offers to consumers.
Nonetheless, numerous indigenous communities in the region have decried the extensive damage inflicted on coastal and marine ecosystems due to oil divestments. Many of these communities have attributed much of the harm to the indigenous companies that currently possess a controlling stake in the oil assets. There is a lack of sustainability practices, environmental commitments and fewer reporting standards by the local oil and gas players especially in the Niger Delta area located in the south of the country.
For instance, in the Nembe region, where settlements tend to emerge from dense mangrove swamps, locals reported that an oil spill was left unattended for more than a month before measures were put in place to stop the leakage. Also, despite the clean-up operations that followed, water in the region remains contaminated with the mangrove roots covered in a black film. As a result, fishermen are now bringing in only a negligible fraction of their prior catch. The situation has persisted since the Aiteo Group acquired Shell’s local oil licence in 2015. And although both Aiteo and Nigeria’s regulatory bodies have attributed the spill to sabotage, residents, local authorities, and environmental organisations in Nigeria have pointed to defective infrastructure as the underlying cause. Data from the Stakeholder Democracy Network indicates that Nigerian companies are responsible for 35 per cent more oil spills compared to international companies.
Also, following the acquisition of oil assets by Nigerian companies, there has been a significant rise in greenhouse gas emissions caused by gas flaring, which involves the combustion of surplus natural gas extracted during oil production. This is supported by data from the flare tracker and reports from the Environmental Defense Fund and the Stakeholder Democracy Network.
Some IOCs such as Shell, have recently boasted in their yearly stakeholders’ reports of their commitments and achievements in curtailing gas flaring. However, Capterio’s FlareIntel tracker reported that the Nigerian firm Heirs Holdings, which purchased the oil license, witnessed an over eightfold surge in flaring the year following the acquisition. In 2021, the flaring produced emissions equal to those of at least 18,000 cars.
Following the acquisition of oil assets by Nigerian companies, there has been a significant rise in greenhouse gas emissions caused by gas flaring.
The Stakeholder Democracy Network has gathered data indicating that Nigerian companies tend to flare a lot more gas per barrel of oil extracted than the IOCs. The report also disclosed that domestic firms flare over 10 times more gas per barrel of oil produced, and even if the two companies with the highest flaring are excluded, the local firms still flare nearly five times more.
Therefore, while divestment of IOCs from Nigerian crude oil and gas may appear to be positive for the environment, the indigenous oil and gas firms taking over the assets and infrastructure lack environmental credentials and are facing increasing criticism for their negative impact on the environment.