IOC divestments in Nigeria’s oil industry beneficial to local players - CNBC Africa

IOC divestments in Nigeria’s oil industry beneficial to local players

Western Africa

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“International oil companies are looking to balance their asset portfolios in the upstream sector more towards the offshore region, which now accounts for around 80 per cent of Nigeria’s total production,” Ecobank group head of energy, oil and gas research Rolake Akinkugbe told CNBC Africa on Monday.

“This trend of divestment is something that started as far back as 2009 and 2010, when Shell first launched one of the largest divestment programmes we've seen in Nigeria as a whole. It also provides an opportunity for local indigenous oil firms to boost their production and play a much more prominent role in the upstream sector in Nigeria.”

According to Ecobank research, by the end of 2013, it is expected that oil companies in Nigeria would’ve sold at least 300,000 barrels of oil equity.

While a number of international oil companies are rebalancing oil portfolios by divesting in Nigeria’s oils sector, this provides an opportunity for local oil players to have a more prominent role in the country’s oil sector.

Local capacity will therefore have to be significantly boosted in order to take full advantage of Nigeria’s upstream sector. Currently, local production in Nigeria accounts for only 10 per cent of total production in the country.

The country’s Petroleum Industry Bill (PIB), which is yet to be implemented, has created uncertainty for local and international oil companies. The longer it takes for the bill to be passed, the greater the uncertainty will grow and possibly increase divestment.

 Divestments in Nigeria’s oil industry are expected to be in the region of at least five billion us dollars.

“If you have a regulatory environment that is in constant flux and is evolving, you don’t necessarily want to commit huge amounts of capital investment into production. Some of these assets were held and acquired even prior to the real momentum we’re seeing in the PIB, so I think for local companies, the real priority now will be demonstrating that they can develop those assets,” Akinkugbe explained.

“But I think one positive sign we’re seeing is a fact that many of them have been able to raise significant amount of capital, not just domestically but also on foreign capital markets.”

International oil companies that have already made divestments include Shell and Chevron, which have announced the sale of a number of oil and shallow water blocks.

By 2014, it is expected that the number of blocks divested by IOCs and national oil companies is expected to surpass 22 since 2012.

“I think that the government’s plan to boost production in Nigeria to above three million barrels a day will increasingly depend on the ability of local companies to come through and successfully play in the upstream,” said Akinkugbe .

“Elsewhere in the region, we’re going to see some winners emerge in places like Ghana, where some of the super independents like Tullow Oil featuring prominently, but also other junior companies.”