Ask Nigeria Header Logo

Local firms to reverse oil production decline

Photo of author

By Mercy Kelani

The big players are not investing in the development of onshore assets.

According to industry experts and analysts, the departure of Shell and other international oil companies from Nigeria’s onshore oil sector has created a glimmer of hope for local firms to potentially reverse the decline in oil production in the Niger Delta. This revelation was subtly suggested in a recent report. Shell, a leading Western corporation, has made a significant move by withdrawing from the Delta region. This region has long been plagued by issues such as widespread pollution, oil theft, and pipeline vandalism, all of which have hindered investments, disrupted production, and adversely affected government revenues.

In a new development, the well-known oil conglomerate has revealed its decision to offload its affiliated entity, the Shell Petroleum Development Company (SPDC), to a group of five predominantly domestic enterprises. This move aligns with the current inclination of Western energy corporations to divest their interests in Nigerian onshore oil reserves. In recent times, several major companies including Exxon, Eni from Italy, Equinor from Norway, and Addax from China, have entered into agreements to divest their assets in the nation. According to industry authorities, the big players such as Shell and Exxon are not investing substantial amounts of money in the development of onshore assets. As a result, this lack of investment is speeding up the decline in production.

Independent companies to boost production more effectively.

Roger Brown, the CEO of Seplat Energy in Nigeria, acknowledged that the big oil companies have decreased their investments in onshore projects over a long period of time. Brown attributed this decline to a range of local problems, as well as the obstacle of major oil companies having to compete for financial resources with their assets in other regions, like Guyana, which may appear more appealing. According to Brown, the independent companies are expected to boost production more effectively compared to the International Oil Companies (IOCs). This is primarily due to their willingness to invest in the sector. In February 2022, Seplat revealed its plans to acquire Exxon’s onshore assets. However, the company is currently in a state of anticipation as it awaits the necessary regulatory approval for the deal to proceed.

Shell’s asset sale in Nigeria is expected to receive prompt approval upon completion of the required paperwork, according to Senator Heineken Lokpobiri, Nigeria’s Minister of State for Petroleum. The minister further emphasized that this opportunity will enable local companies to effectively step in and fill the resulting void. While Seplat, First E&P, and Heritage successfully increased production and minimized oil spills on assets acquired from Shell, Aiteo Eastern E&P and Eroton Exploration faced challenges with leaking pipelines and oil spills.

Major companies have been withdrawing and reducing their investments.

As stated by Andrew Matheny, a senior economist at Goldman Sachs, Nigeria has faced persistent and deeply rooted issues concerning the policy in the oil sector. These policy concerns have resulted in limitations on investments, which is likely one of the reasons why major companies have been withdrawing and reducing their investments in the country. He highlighted how it elucidates a substantial segment of the decrease in oil output witnessed in recent times, he pointed out. In May, President Bola Tinubu assumed leadership with a promise to alleviate the challenges faced by producers. This encompassed putting a stop to crude theft and pipeline vandalism. However, after seven months in office, the ongoing asset sales, which had commenced prior to his appointment, serve as a clear representation of the inevitable transformations occurring within Nigeria’s oil industry.

Seyi Awojulugbe, a senior analyst at SBM Intelligence in Lagos and a security consultancy expert, highlighted the inherent risks of conducting business in Nigeria. As companies increasingly shift their focus from onshore to offshore operations, it paints a vivid portrait of the challenges and uncertainties that exist in the country. In the past decade, Shell experienced a significant decline in its production share in Nigeria. Once reaching a peak of 300,000 barrels of oil equivalent per day (boe/d), the company’s output plummeted to 131,000 boe/d in 2022. According to Shell’s annual reports, this decline was attributed to sabotage and theft issues in the Niger Delta.

Related Article: Fast Oil-led Economic Growth Expected in 2024

However, according to Richard Bronze, the leading expert on geopolitical matters at Energy Aspects in London, he pointed out that local companies are at a disadvantage due to their limited financial resources compared to the powerful oil giants. This discrepancy may have a significant impact on their future production capabilities. According to Brown, the availability of cheaper capital becomes irrelevant for oil majors who choose not to invest. Local banks, as well as some global lenders and oil traders, also serve as alternative sources of funding for local companies. He mentioned that although it will be accessible, it will not have a low price attached to it. However, given the current oil prices, he emphasized that local enterprises will have the financial capacity to embark on its development.


Related Link

Wikipedia: Website


The content on AskNigeria.com is given for general information only and does not constitute a professional opinion, and users should seek their own legal/professional advice. There is data available online that lists details, facts and further information not listed in this post, please complete your own investigation into these matters and reach your own conclusion. AskNigeria.com accepts no responsibility for losses from any person acting or refraining from acting as a result of content contained in this website and/or other websites which may be linked to this website.

Fact Checking Tool - Snopes.com

5 1 vote
Rate This Article
4 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
AN-Toni
Editor
27 days ago

Local firms to reverse oil production decline.The big players are not investing in the development of onshore assets.  – Express your point of view.

Taiwo
Member
26 days ago

Local businesses must halt the fall in oil production. The major companies do not have any assets being developed onshore. The major participants in the market ought to start making investments in the shore oil and gas sector’s assets. Local businesses will benefit from this as well.

Kazeem1
Member
26 days ago

While the news is somewhat disheartening, it’s encouraging to see that regional businesses are taking action to stop the oil production decline. The nation needs to make the most of its resources in order to guarantee the industry’s sustainable growth, and one issue that we are currently facing is the lack of investment that is accelerating the production decline.

Adeoye Adegoke
Member
25 days ago

It’s quite concerning that the big players are not investing in the development of onshore assets, which is leading to a decline in oil production. This situation presents an opportunity for local firms to step up and play a crucial role in reversing this decline.
Local firms have a unique advantage in understanding the local landscape and can potentially bring fresh perspectives and innovative approaches to oil production. By investing in onshore assets and exploring new technologies, they can contribute to increasing oil production and driving economic growth in the region.
It’s important for the government to create an enabling environment that supports and encourages local firms to participate in the development of onshore assets. This could include providing incentives, streamlining regulations, and fostering partnerships between local firms and international players to leverage their expertise.
By empowering local firms and promoting their active involvement in the oil industry, we can foster economic growth, create job opportunities, and strengthen the overall resilience of the sector.