Nigeria’s Transforming Oil Industry
The Exit of Foreign Oil Companies
Despite having oil reserves of over 37 trillion barrels, Nigeria has undergone $21.12 billion of divestment since 2006, with over $1.1 billion of divestment occurring in 2020 alone. Since 2023, foreign companies have dramatically accelerated divestment from Nigeria’s oil industry, citing widespread theft and vandalism. The resulting takeovers of foreign subsidiaries by local companies has strong potential to worsen the Niger Delta’s already dire environmental situation due to the inability or unwillingness of local companies to follow sustainability practices. While other multinational companies such as Unilever, GSK, and P&G have also left the country, the oil industry is a particularly extreme example, one which is also likely to have significant environmental impacts.
Equinor ASA, a Norwegian company with a three decade long presence in Nigeria, recently resold its local entity Equinor Nigeria Energy Company to an obscure local corporation, Chappal Energy. During Equinor’s time in Nigeria, it pumped over 1 billion barrels of oil from Agbami field, where it maintained a 20.21% stake. The Agbami field, which holds an estimated 900 million barrels of recoverable oil, is operated by Chevron, which holds a 67.3% interest, and was the largest oil discovery in the world at the time of its opening in 1998. In 2022 Addax, a division of the Chinese oil company Sinopec, sold four oil mining blocs to Nigeria’s state oil company National Nigeria Petroleum Corporation (NNPC). Likewise, Eni, an Italian oil company, announced it would sell its local subsidiary to Oando PLC, a Nigerian company, although Oando’s acquisition has been challenged by the NNPC for failure to obtain prior authorization.
ExxonMobil plans to sell four onshore oil fields for $1.3 billion to Seplat, a company dual-listed in Lagos and London. Seplat is now mostly controlled by UK investors, following prolonged boardroom disputes. ExxonMobil also plans to sell Seplat its equity interest in Mobil Producing Nigeria Unlimited, which held over 90 shallow water and onshore platforms and 300 producing oil wells. The deal was initially approved by then President Muhammadu Buhari, who had appointed himself as the country’s oil minister. However, Buhari reversed course days later, and the deal has yet to be approved. NNPC has also objected to the sale, leading to criticism from ExxonMobil, which states that this is creating uncertainty among contractors and communities dependent on the oil industry. Despite major onshore divestments, ExxonMobil will continue its offshore presence in Nigeria through Esso Exploration and Production Nigeria (Deepwater) Limited and Esso Exploration and Production Nigeria Limited, which include the Bonga, Usan, and Erha developments.
Shell also hopes to divest from its onshore oil fields, potentially resulting in sales of up to $3 billion, but its plan has been delayed by a series of court cases. Shell’s divestment from Nigeria stretches back to at least 2010. Between 2010 and 2014, the company sold off eight oil mining leases, and in its 2022 report it revealed that it had sold over half its Nigerian assets. Currently, Shell is offering to sell its onshore assets to Renaissance, a consortium of local companies, for $2.4 billion, ending its 88 year long presence in Nigeria’s onshore oil fields. Renaissance, which includes the Nigerian companies ND Western, Aradel Energy, First E&P and Waltersmith as well as the Swiss based Petrolin, will purchase Shell’s local subsidiary Shell Petroleum Development Corporation of Nigeria (SPDC). SPDC operates the NNPC/SPDC/NAOC joint venture, consisting of the NNPC Limited (55% holding), SPDC (30%), Total Energies (10%), and Nigerian Agip Oil Company Limited (5%). However, the sale is being resisted by the Petroleum and Natural Gas Senior Staff Association of Nigeria, which has complained of maltreatment of workers by one of the companies involved.
Shell has denied speculation that it will leave Nigeria entirely, and despite divestment from oil it remains highly involved in the natural gas industry. Shell Nigeria Gas currently distributes 60-70 million scuffs (standard cubic feet) of gas daily, and is diversifying into offshore activities. Active in Otta, Aba and Port Harcourt, it also has an increasing presence in Bayelsa state and its currently collaborating with the state government of Oyo.
It is likely that this divestment will severely increase environmental degradation, particularly in the Niger Delta. NGOs focusing on the environment and sustainability should closely watch ongoing developments in the Delta region.
Factors Driving the Exit
Theft and vandalism are the immediate cause of flight by IOCs (international oil companies), with environmental concerns playing a more long term role. Theft and vandalism have significantly increased in the oil rich Niger Delta over the last 5 years. Two years ago, the Nigerian economist Tony Elumelu ignited a firestorm on social media by claiming that oil companies were losing up to 95% of their profits to thieves. While the claim was exaggerated, it illustrates a very real and pervasive problem. Between March 2022 and March 2023, IOCs lost the opportunity to produce and sell approximately 65.7 million barrels of oil due to vandalism and theft. From January to September 2013, 189 crude theft points - holes drilled in pipelines to syphon off oil - were repaired by Shell. In December 2023, NNPC recorded 112 instances of theft within a single week, and has appealed to Nigeria’s Economic and Financial Crimes Commission for assistance in stemming theft. NNPC Chief Executive Mele Kiyari has stated that 6,409 illegal refineries have been deactivated in the Niger Delta, and 4,846 illegal pipelines have been disconnected out of a total of 5,543 illegal connection points. Oil theft became a major issue in the 2023 presidential election, with then candidate (now president) Bola Tinubu promising to utilise technology to reduce thefts, though this promise has largely been unfulfilled.
Foreign businesses and NGOs are advised to pay close attention to rates of oil theft, regional trends around theft, as well as to any potential efforts by the Nigerian government to seriously reduce theft and vandalism.
The Nigerian Government’s Response
While many investors were initially hopeful that President Tinubu would speed up approval for the sale of foreign oil subsidiaries, this has proved not to be the case. Eni, Equinor, and ExxonMobil are all still waiting for their divestment plans to be approved. Many deals are currently held up in court cases surrounding oil spills, and even unexecuted court judgments. While this may cause short term delays, such punitive measures are unlikely to slow the exodus of foreign investors in the long term.
The current exodus of oil companies is ironic in light of Nigeria’s 2021 Petroleum Industry Act, which allowed for greater foreign investment in oil. More recently, Nigeria has tried a number of measures to boost its onshore and shallow water oil and gas industries. In March 2024, President Tinubu signed measures streamlining contracts and providing tax credits to companies in this area. These include a 25% gas utilisation investment allowance in new and current projects in the midstream sector, as well as a measure to increase investment in deepwater. The approval threshold for joint ventures and production sharing will be raised to $10 million. Such measures aim to improve on the 2021 Petroleum law. However, given Nigeria’s failure to improve the security situation in the Nile Delta, it seems likely that these actions will stem the flow of foreign companies overseas.
The Environmental Implications of Foreign Oil Divestment
It is highly likely that the exit of foreign oil companies will significantly worsen the environmental situation of the Niger Delta, already one of the world’s most polluted areas and the site of almost daily oil spills. Approximately 40 million liters of oil are spilled in the Delta each year. While environmental groups state that over $100 billion will be required to clean up the Delta, less than $1 billion has been committed by Nigeria’s government for a clean energy program which began eight years ago (and has since stalled). Environmental damage has had a severe effect on residents' quality of life in the Niger Delta. A study conducted at the University of St Gallen shows that infants are twice as likely to die in the first month of their life if their mothers live near an oil spill, and the region suffers around 11,000 premature deaths per year. Additionally, there is vast damage to local farmlands.
Local companies taking over former foreign subsidiaries often have less willingness or capacity to commit to sustainability. For example, in Bayelsa State’s Nembe Region, a region covered in dense mangrove swamps, severe oil leakage continued for over a month before it was stopped. As a result, local fishermen only catch a small percentage of their previous hauls. These issues have continued since Shell’s local licence was sold to the Aiteo Group, a Nigerian company, in 2015. Aiteo and Nigerian regulators blame the spillage on sabotage, but environmental groups and locals have blamed faulty infrastructure. Moreover, Nigerian companies are responsible for 35% more oil spills than international companies, raising concerns about their takeover of oil fields in the Niger Delta from IOCs.
Gas flaring is a particularly severe example of this concern. Gas flaring is caused by surplus natural gas combusting during production, leading to greenhouse gas emissions. Since the recent acquisition of foreign assets by Nigerian oil companies, gas flaring has significantly increased according to reports by Stakeholder Democracy Network and the Environmental Defense Fund. A Stakeholder Democracy Network report indicates that domestic Nigerian companies flare 10 times more gas per barrel of oil produced than IOCs. Heirs Holdings, a Nigerian company which purchased a licence from Shell, increased its flaring by eight times following the purchase. If the two companies with the highest level of flares are excluded, local companies still flare 5 times more.
Decommissioning infrastructure left behind by departing IOCs presents another challenge. There is no fund to pay for decommissioning the infrastructure left behind by Shell and other companies, and no law required oil companies to maintain a fund of this nature until the Petroleum Industry Act of 2021. Since Shell’s divestments do not fall under this law, new companies will have to pay for decommissioning the infrastructure, but they lack the money to do so.
Local civic organisations have agreed on a series of principles for divestment known as the “National Principles for Responsible Petroleum Industry Divestment”, which were put forth in Port Harcourt on December 6, 2023. The document, which calls for strong government intervention to prevent IOCs from leaving local communities with the decommissioning bill, was put forth together with a report by petroleum industry expert Professor Richard Steiner, based on a fact finding trip involving input with government agencies, local communities, and experts on the industry.
The Role of International NGOs
Environmental and humanitarian NGOs operating in Nigeria are advised to pay greater attention to the Niger Delta in the wake of the IOCs’ exit. Organisations focused on public health should pay particular attention to families facing food insecurity as a result of damage to crops, and related issues such as child malnutrition and infant mortality. NGOs focused on environmental issues should work with local communities to promote the Port Harcourt Principles to Nigeria’s government, while also seeking to partner with local oil companies to implement sustainability measures.