Despite PIB, Indigenous oil firms under pressure as IOCs vacate Nigeria in droves

Ilenre Irele

Nigeria’s oil oil and gas industry despite the Petroleum Industry Act is facing some challenges, though given a lifeline with Domestic Oil Companies (DOCs) daily snapping up onshore oil blocks that are being abandoned by exiting International Oil Companies (IOCs).

The industry is bedeviled with a lot of challenges. Only yesterday, Olisa Agbakoba, SAN, dissected the industry and submitted that the PIB has not really addressed the challenges.

The Senior Partner, Olisa Agbakoba Legal and Former President of the Nigerian Bar Association, urged President Bola Ahmed Tinubu to relinquish his role as Minister of Petroleum Resources and implement comprehensive reforms in the oil and gas sector.

The Senior Advocate of Nigeria (SAN) also called for the abolishment of joint-venture operation in sector between the government and International Oil Companies (IOCs), which is based on the ‘Contract Oil’ approach, and called for a paradigm shift towards a ‘Development Oil’ approach, that prioritises people-centric governance, economic growth and energy security.

Speaking during a media chat in Lagos, Agbakoba said, “This move aims to give the oil and gas sector the attention it deserves, driving Nigeria’s economic progress and development.”

According to him, “From the cornerstone of the constitution, oil and gas is something within the control of the government. To emphasise the nature of control, Section 44, sub-section 3 of the constitution says all minerals, mineral resources, oil and natural gas in and upon any land in Nigeria, exclusive, defines the scope, shall be managed by the government of the federation.

“So there’s no question that constitutionally, oil and gas falls squarely within the purview of the government in a way that ownership belongs to it.

“I can understand, say in the early 50s, 60s, as we grappled with the new find, and were inexperienced, and we brought in foreigners to assist. I can understand it. But I cannot understand why today, the federal government abandons its duty.

“What the federal government is doing in the oil and gas field is unconstitutional. And I’m going to challenge it in court. I’m going to challenge the so-called scheme by the federal government, by which they create joint ventures.

Agbakoba demanded for the repeal of Petroleum Industry Act, adding that it has failed to reform the industry for efficiency.
“A joint venture is simply another word for joint ownership. So these joint ventures that the federal government creates with Shell, Chevron, and ExxonMobil, contradict what I’ve just read. It contradicts it because section 44 says, we are the ones, the government, we own it.

“So, a joint venture is between the federal government and an oil company. The federal government tells the oil company, we’re going to manage OML 00, that’s an oil well for instance. So there’s an agreement, they refer to it as a joint venture.

“So my submission here is that the nature of this joint venture or joint ownership contradicts what the constitution says. The constitution does not allow the federal government to invite private participation. And that is the source of the problem.”

Speaking further, he said there was a reason why Section 16 and Section 44 “vest natural resources in us.”

“It’s our inheritance, it’s our sovereignty. We’re giving this for a particular reason. And that’s why he spoke about developing oil, which is what Saudi Arabia uses. In Saudi Arabia, the role of the IOCs is strictly limited.

“You provide a service, you don’t own. There is no ownership. There’s no co-ownership concerning oil and gas in Saudi Arabia between the Saudi Arabian government and any IOC.

“In Nigeria, on the contrary, there is co-ownership. And please, take time to read the Petroleum Industry Act (PIA). There’s not one mention, apart from the host communities, there’s not one mention of us.

“The thing is for us, but nobody refers to us. So, if a law is made, according to the constitutional provisions I’ve read that this is our natural inheritance, why are we not mentioned?

“Why is it that it mentions licences, regulations, compliance, and compliance with whom and for whom? It’s simply about how you, not Nigerians, can access an oil well, and how the government can regulate and control it.

“It’s not about how you can access the oil well for the benefit of Nigerians, which is what Ken Saro-Wiwa fought and died for in vain, as it now stands because it seems to be forgotten.

“Is it not time to dismantle the existing oil and gas legal framework? Is it not the time? Has it benefited us? If it has, how? People don’t get the feeling of the resources coming. Rather, a typical JV would say 60 per cent for you, 40 per cent for you.

“So it’s not about contract, it’s about sharing; sharing between the federal government and the IOCs. What about the people? Where are we in the scheme? It was because the federal government didn’t have money that the clever IOCs now came back with a new scheme, which they called production sharing contract.

“Say, you know what, since you have no money, don’t worry. We, in other words, the federal government have now ceded ownership. We will take over everything.

“I’m telling you, they were laughing at us. We are like monkeys in a zoo. I’m not here suggesting that the IOCs should disappear. No, they have a value. But the point is that the value must not overwhelm our interests. It must not overwhelm our interests.

“Right now, it is overwhelming our interests to our detriment. I don’t see what we’ve gotten. If you go around Nigeria, the whole country is broken down. We don’t have water, we don’t have electricity; rather, we have floods and rains. And so many other things that you begin to wonder, is this a country that is supposedly the world’s number five or number six oil-producing country in the world?”

It’s ensconced in various troubling and persistent challenges, especially the bugbear of insecurity, crude oil theft, deep-seated animosities in host communities and the burgeoning groundswell of advocacy for the reduction in carbon emission, many international oil companies operating in the country have in the last 15 years, moved offshore, or outrightly left Nigeria for economic friendly oil producing nations like Angola, Guyana, Greenland, Costa Rica and Ghana.

The IOCs that have divested from their onshore oil blocks or in the process of doing so, include the five majors, namely Shell, Eni, ExxonMobil, Total and ConocoPhillips.
For instance, the IOC with the largest stake in the Nigerian oil and gas industry, Shell,

divested from four onshore oil blocks in 2010.
The successful sales of these oil assets by Shell triggered a wave of sales by other IOCs.
By the end of 2015, a total of 24 oil blocks had been sold to local oil firms, with the exception of one block sold to Chinese oil giant, Sinopec.

In 2022, Shell also announced that it received four offers for its entire onshore oil and gas portfolio worth US$3 billion it had earlier put up for sale.

According to Shell, it is selling its entire shareholding in the Shell Petroleum Development Company of Nigeria Limited to Renaissance, a consortium consisting of ND Western Limited, Aradel Holdings Plc, Petrolin Group, FIRST Exploration and Petroleum Development Company Limited and the Waltersmith Group.

According to reports, due diligence dialogue between representatives of Renaissance and NUPRC is expected to end by June ending.
In the same vein, Total and ConocoPhillips are divesting and selling onshore assets worth $27.5 billion to Nigerian frms.

Also, American oil giant, ExxonMobil, agreed to sell the entire share capital of its shallow water operations in Nigeria to Seplat Energy for an initial US$1.3billion, and added fees of up to another $1billion.

Other IOCs, including Chevron, have also put some of their oil blocks for sale.
From 2021till now, the worth of oil assets put on sale by the IOCs is over N20.8 trillion.
The trend, meanwhile, is expected to continue, as the top five IOCs and other big industry players like Nigeria Agip Oil Company and Equinor have began the process of divesting their investments in 26 oil blocks in Nigeria to indigenous firms.

“These blocks have an estimated total reserve of 8.211million barrels of oil, 2,699 million barrels of condensate, 44,110 billion cubic feet of associated gas and 46,604 billion cubic feet of non-associated gas. This is a significant contribution to the nation’s hydrocarbon resources.

“Additionally, these blocks contain P3 reserves estimated at 5,557 million barrels of oil, 1,221 million barrels of condensate, 14,296 billion cubic feet of associated gas and 13,518 billion cubic feet of non-Associated Gas

“It is worth noting that a substantial part of the P3 reserves is located in or near producing assets.

“This means that a competent successor could easily mature them to 2P reserves”, the Chief Executive, Nigeria Upstream Petroleum Regulatory Commission (NUPRC), Gbenga Komolafe, had revealed in early May.
According to the NUPRC boss, the average production from the blocks is 346,290 barrels per day.

“The average oil production from NAOC is 28,018 bpd; MPNU, 159,378 bpd; Equinor, 36,155 bpd; and SPDC, 122,739 bpd.
“But the technical production potential is much higher – standing at 643,054 barrels (NAOC -147,481 bpd, MPNU – 244,268 bpd, Equinor – 39,203 bpd, and SPDC -212,102 bpd).

“These blocks have the potential to significantly boost our national production, which would benefit all stakeholders”, Komolafe added.

Owing to the continued divestments and other factors, Nigeria’s oil production crashed from its highest peak of 2.469 millions barrels per day recorded on December 31, 2005, to 1.3 million barrels per day (excluding condensates) at the end of May 2024.

The development led to a huge revenue shortfall, resulting in governments at all levels unable to meet its financial obligations.
Meanwhile, there is hope for a positive turn of fate for Nigeria’s struggling oil industry as local oil firms are now snapping up onshore oil blocks dropped by the IOCs and continued to expand capacity.

Indigenous oil firms, it would be recalled, became players in the nation’s oil and gas sector in 2001 when they were given licenses to operate 24 marginal fields.

Another round of oil license bid took place in 2013, with 31 marginal fields licences sold to indigenous oil firms. However, the process was never concluded.

Meanwhile, another round with 57 marginal fields was announced in 2020. This time around, licenses were awarded to successful firms in June 2021 after about a year delay.
According to available data, domestic oil companies currently operate 36 2% of the nation’s existing Oil Mining Licenses (OMLs), followed by the National Oil Company (NOC), 32.7%, while OICs, which used to be the biggest player in the sector, are now left with 31.2% stake.

Before their divestments began in 2010, the five IOCs controlled over 45 per cent of Nigeria’s oil production assets, with the then Nigerian National Petroleum Corporation (NNPC), now Nigerian National Petroleum Corporation Limited (NNPCL) having 51 percent stake and domestic oil companies about 4 percent.

But domestic oil firms are now in the ascendancy. Encouraged by the Federal Government, domestic oil companies daily are taking oil over assets jettisoned by oil majors, and are gradually revving up oil production to the relief of the government and other local stakeholders.

On May 6, 2024, an indigenous oil firm, Natural Oilfield Services Ltd (NOSL), a subsidiary of Sterling Oil Exploration & Energy Production Company Ltd (SEEPCO), successful commenced oil production at Oil Mining Lease (OML) 13 in Akwa Ibom State.
The oil deal is a joint venture between NOSL and NNPC Exploration and Production Limited, the upstream subsidiary of Nigerian national oil company, NNPCL.

At the start of production on May 6, the company achieved 6,000 barrels of oil production. By May 27, 2024, the company had ramped up production to 40,000 barrels per day.

Speaking on the achievement, the company’s management said that it planned boosting its production in the coming years to generate more value for Nigeria’s economy.
“For Nigeria, the first oil from OML 13 holds some significance as it contributes to the country’s efforts to increase its oil production capacity, which is crucial for meeting domestic energy needs and driving economic growth”, NOSL stated.

Also, indigenous oil and gas firm, Oando Plc, recently achieved a production feat of 25,000 barrels per day, while it expects to to attain 50,000 barrels per day of oil by the end of the year with the closure of a landmark deal to acquire upstream assets of Italian oil giant, Eni, in Nigeria.

Speaking recently in Lagos, Oando’s Chief Operating Officer, Alex Irune, said that the firm intends scaling up to 100,000 barrels per day by 2029.

With the agreement, Oando will become one of Nigeria’s biggest domestic producers.
“We are working through the obligations under the Share Purchase Agreement and is on track to close the deal this quarter”, Oando’s COO added.

Another major indigenous player in the nation’s oil and gas sector, Seplat Energy Plc, is currently producing above 52,000 barrels of oil per day.

The oil fim announced in February 2022 that it had purchased ExxonMobil’s 40 percent stake in MPNU, expecting the transaction to be completed in the second half of the year.
Until last month when it was finally approved by federal authorities, the ExxonMobil/Seplat deal was stalled by the failure of NUPRC to approve it, citing ‘overriding national interest’.

While the dispute lasted, output from the controversial oil assets declined from 600,000 barrels per day to 120,000bpd, leaving a shortfall of 480,000bpd, which the Federal Government recently claimed amounted to $34 billion loss at a conservative $80 per barrels in the last two and a half years.
Meanwhile, with the approval of its bid to acquire ExxonMobil’s onshore business, Seplat will emerge as the biggest local player in the nation’s oil and gas industry, with the capacity to produce over 650,000 barrels of crude oil per day.

Other local oil companies at the forefront of raising Nigeria’s present oil production target include Addax Petroleum Nigeria Limited, Aiteo Oil, AMNI International Petroleum Development Company Ltd, Consolidated Oil Limited, Dubri Oil Company Ltd, Emerald Energy Resources Ltd, Lekoil Nigeria Ltd, Yinka Folawiyo Petroleum Company Ltd, and many others.