Total Energies’ planned exit worsens Nigeria’s onshore oil space
With TotalEnergies planning to sell its stake in a Nigerian oil joint venture, the country’s onshore oil space looks set to take a turn for the worse.
Shell and ExxonMobil had earlier announced plans to sell more onshore assets in Nigeria.
Analysts say while investments have dropped in the global energy sector, Nigeria’s situation is exacerbated by a challenging operating environment, unattractive fiscal terms, limited major project pre-Final Investment Decision (FID) pipeline and divestments by international oil companies (IOCs).
Total Energies’ Chief Executive Patrick Pouyanne was quoted by Bloomberg as saying last week that the energy major was planning to offload its 10 percent interest in a firm that holds 20 onshore and shallow water permits in Nigeria.
According to Renaissance Capital, an emerging and frontier markets investment bank, the mass exodus from Nigeria is disrupting Nigeria’s upstream activity, a sector that was once the most sought-after beautiful bride by many suitors as it commanded a lot of attention within the global oil market.
“Other IOCs such as Equinor, TotalEnergies, Eni and Chevron could potentially have all or some of their assets on the market,” it said.
Findings by BusinessDay showed Nigeria’s onshore oil space is one of the most challenging operationally in the oil and gas industry, with issues such as local opposition, oil spills, militant activity, crude evacuation constraints and logistical bottlenecks.
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The onshore fiscal terms are also some of the least attractive globally, according to Renaissance Capital, with oil royalty at 20 percent and Petroleum Profits Tax at 85 percent.
The Petroleum Industry Bill, now Petroleum Industry Act (PIA), in the making for nearly two decades, resulting in a prolonged fiscally uncertain environment, was only signed into law in August 2021.
“The combination of punitive fiscal terms and fiscal uncertainty deterred investment in both upstream development and exploration, especially in onshore and shallow offshore terrains. The PIA has improved fiscal terms across all terrains, but its implementation is slow and we have not seen yet a positive response from the sector,” Renaissance Capital analysts said.
The limited exploration activity of the past decade has also led to a thin project pipeline, with only a handful of potential new pre-FID oil projects such as Bonga fields, TotalEnergies’ Preowei, Eni’s Zabazaba-Etan, Chevron’s Nsiko and Exxon’s Owowo.
According to Deborah Gordon, leader of oil and gas solutions at global energy and climate think-tank RMI, investors are more likely to back oil extraction in wealthier and more politically stable countries if demand starts to fall.
“It is the smaller petrostates that will particularly struggle,” she said. “Countries that are war-torn, or with non-democratic governance, or a lot of corruption, are probably those that will teeter on the brink if we are successful in reducing our consumption of oil.”
