IOCs DIVESTMENT: UNLOCKING GROWTH OPPORTUNITIES FOR INDIGENOUS OIL COMPANIES

 Akpandem James contends that while IOCs divestment from Nigeria presentssome challenges, it also offers an opportunity for indigenous companies to emerge as key players in the sector

In recent years, international oil companies (IOCs) operating in Africa have been moving to sell off some of their assets and relocate to more profitable, environmentally and socially friendly operational landscapes. While some considered moving from one jurisdiction to another within the continent, others contemplated a complete exit. About 26 oil blocks were to change hands in the process, amid regulatory scrutiny. However, there appears to be a change in direction, as some companies that were considering large-scale divestment are now looking to refocus on deep offshore terrains and cleaner hydrocarbon resources.

No doubt, the divestment of IOCs from Africa’s hydrocarbon sector has significant implications for the industry, economy and energy security in the continent. It is driven by various factors, including environmental concerns, security issues and a global shift toward renewable energy, precipitating a complex phenomenon that throws up both challenges and opportunities.

The immediate implication is that the exits might lead to a decrease in foreign direct investments, which can adversely affect production levels and revenue generation. It could, as a consequence, impact employment opportunities within the sector and hinder local content development. There is also the concern that a shift in asset ownership may alter the competitive landscape and affect government revenues derived from the sector because IOCs, traditionally, contribute significantly to national income through taxes and royalties. Their departure, therefore, could put a strain on public finances.

The flip side is that such divestments could provide indigenous firms an opportunity to expand their operations and tap into valuable resources previously controlled by IOCs. This transition could unlock substantial reserves and release more than 500 million barrels of oil and three trillion cubic feet of gas if managed effectively. Optimistic as it were, the capacity of local companies to manage these assets generated concerns in some quarters because of the historical lack of investment and expertise by indigenous companies compared to IOCs. This also raised concerns about economic stability, energy security, and environmental stewardship in the region, particularly during the transition period.

These were genuine concerns, but they were not lost on the regulatory authorities in some jurisdictions like Nigeria, as there were moves toward establishing robust regulatory frameworks to effectively navigate the changes and challenges and address the critical concerns, particularly streamlining divestment processes and investing in local capabilities and competencies that will empower domestic companies to not just fill the gap but thrive.

The promptings behind the divestment of IOCs from Africa’s oil and gas sector are multifaceted. A significant trigger is the global trend towards

sustainability, which has compelled many companies to reassess their investments in fossil fuels, a thinking that has remained suspicious within the African and the Gulf hydrocarbon universe. This was given added impetus by local operational challenges, including security issues and environmental concerns that have plagued the sector for decades. Financial liabilities associated with ongoing operations further compounded the situation, leading to a strategic repositioning by IOCs toward greener alternatives.

The interconnected issues of global trends toward sustainability, local operational challenges and increasing financial liabilities reflect both external and internal challenges. The global energy transition, pressures related to environmental and social governance (ESGG), security concerns, regulatory challenges in certain jurisdictions, financial considerations and legal liabilities are often cited as significant factors. As these companies exit certain operational jurisdictions, initial concerns have arisen regarding the capacity of local firms to effectively manage the acquired assets while adhering to environmental standards and addressing community needs.

In Nigeria, Shell was at the forefront of prominent IOCs divesting their assets, selling off substantial portions of its onshore assets due to escalating security risks and environmental accountability pressures. But last week, it announced a final investment decision (FID) on the Bonga North Deep Offshore Field, a project it is in partnership with NNPC Limited, ExxonMobil, Total Energies and Eni. ExxonMobil is finalising the process of divesting its subsidiary in Nigeria. TotalEnergies recently announced the sale of its stake in multiple oil mining licenses (OMLs) to focus on more sustainable operations. This shift, expectedly, reflects a broader movement within the industry as companies respond to both market dynamics and societal expectations.

Though it is normal for concerns to be raised about the capacity of local firms to effectively manage acquired assets, such concerns are being allayed as some of the indigenous companies on the block, who have demonstrated the capacity to fill the void left by IOCs, are already navigating significant areas of potential challenges related to expertise, technology transfer and adherence to environmental standards. Some, like Seplat Energy and Oando, were already key players in the field and are only expanding their scope of investment in the divestment regime.

As of December 19, 2024, the Federal Government had approved the TotalEnergies/Chappal deal ($860 million), ExxonMobil’s sale of Mobil Producing Nigeria Unlimited (MPNU) to Seplat Energy ($1.28 billion), Eni’s divestment of Nigerian Agip Oil Company (NAOC) to Oando Plc ($783 million) and Equinor Nigeria Energy’s divestment to Project Odinmin Investments ($700 million). The latest is Shell’s $2.4 billion onshore asset sale to Renaissance Africa Energy. In all these, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the foremost industry regulator, emphasised the importance of a transparent divestment process to ensure that local companies are adequately prepared to take over these operations.

While maintaining that divestment is a business decision within the rights of oil companies, NUPRC Chief Executive, Gbenga Komolafe, emphasised that for the process to be successful, due process must be followed to ensure that both the buyer and seller, government and host communities are all on the same page. He explained that what the industry is experiencing in the form of divestment is portfolio rationalisation, which is common also in other jurisdictions. It gives opportunity for more investment as well as increases local participation in the upstream sector of the petroleum industry.

NUPRC therefore emplaced a seven-point mandatory framework to ensure a smooth transition and responsible management of assets. The key criteria for evaluating successor entities cover technical capacity, financial viability, legal compliance, decommissioning and abandonment (D&A), host community trust and environmental remediation fund, industrial relations and labour issues and data repatriation. Successful companies must go through rigorous procedures to obtain the mandate for acquisition. This framework ensures that only viable companies with the necessary competencies are qualified and approved for the divestment exercise.

The framework demands that the successor entity exhibits a proven ability to operate the asset effectively and efficiently, demonstrating competencies that meet or exceed those of the divesting entity. In addition, all production allocation and cost issues in straddled fields must be resolved before divestment. The regulator assesses the financial stability of the prospective buyer, examining their balance sheet and readiness to execute a defined work programme; and performs due diligence to ensure alignment with state interests, reputation and investment objectives. The acquiring entity must be deemed ‘fit and proper’ under legal standards, with clear evidence of resolving legacy debts and legal encumbrances. Mechanisms for managing residual liabilities must be established, and a thorough assessment of D&A costs is required to ensure all outstanding obligations are settled.

One of the most contentious aspects of oil operations has been host community issues. The status of Host Community Trust Fund obligations is assessed to ensure the successor entity has robust social inclusion programmes in line with the Petroleum Industry Act (PIA), 2021. Compliance with decarbonisation plans and adherence to environmental, social and governance (ESG) principles are also evaluated. Also, a robust mechanism is implemented to prevent labour disputes during and after the divestment process. The regulator, NUPRC, mandates that all data collected during the asset’s operational life be repatriated to the National Data Repository (NDR) in accordance with existing regulations.

Last week, Seplat Energy finalised its acquisition of MPNU, marking a significant milestone in the divestment transition and the organisation’s growth strategy. The transaction started in 2022 but was stalled due to a legal challenge by NNPC Limited. The resolution of that matter, approval by President Bola Tinubu and clearance from NUPRC, saw the transaction gaining traction.

An optimistic Roger Brown, the Chief Executive Officer of Seplat Energy, said, “We have acquired a company with one of the best portfolios of assets and related infrastructure in a world-class basin, providing enormous potential for the Seplat Group. Our commitment is to invest to increase oil and gas production while reducing costs and emissions, maximising value for all stakeholders.”

The company’s chairman, Senator Udoma Udo Udoma, addressed some critical areas of concern and welcomed MPNU employees to Seplat. He was excited about beginning a journey in a new region of the country and emphasised Seplat’s commitment to replicating the positive impacts achieved in its current operational areas. He stated that the company’s mission is to deliver value to all stakeholders. He highlighted the importance of maintaining strong relationships with the government, regulators, communities and staff. These remarks by the two principal officers of Seplat reflect the initial concerns over IOCs divestment scare, which led to the emplacement of the strict regulatory framework implemented by NUPRC.

Looking ahead, the future of Africa’s oil and gas sector hinges on several critical factors. Strengthening local capacity through training and development will be essential for indigenous firms to operate successfully in an increasingly competitive environment. Additionally, regulatory reforms that promote transparency and sustainability will be crucial in attracting investment while ensuring that community needs are addressed. By fostering collaboration between government entities, local operators and international partners, Africa can harness its vast oil and gas resources sustainably and responsibly.

While the divestment of IOCs from Nigeria’s terrain presents manifold challenges, it also offers a unique opportunity for indigenous companies to emerge as key players in the oil and gas sector. With strategic planning and investment in local capabilities, Nigeria can successfully navigate this transition effectively and secure a prosperous future for its energy landscape.

 James, a communication strategist, is a Fellow of the Nigerian Guild of Editors