Dangote moves to dominate oil sector with new stake in upstream 

Aliko Dangote

• To hedge against crude supply to Refinery 

Africa’s richest man, Alhaji Aliko Dangote, has shifted attention to the upstream petroleum sector after establishing a foothold in the nation’s downstream sector through his expansive 650,000 refinery complex in the Ibeju-Lekki area of Lagos.

According to Business Hallmark’s findings, exploration activities at the seven fields at OML 71 and 72 fields owned by Dansa Energy Resources Limited (DERL) have reached advanced stages.

Sources in Dangote Group informed BH that crude oil production at the fields, which began in October has reached 40,000 barrels per day, and is expected to climb to 100,000bpd by the end of the year.

Aliko Dangote, it would be recalled, had last week revealed plans to upgrade the refinery from its original 650,000 barrels per day capacity to I.4 million barrels per day capacity, which will make the refinery the biggest in the world.

The upgrade, which is expected to be completed in three years, will mark a major milestone in Nigeria’s crude refining capacity as it will add another 750,000bpd to the current 650,000bpd capacity of the refinery.

Hedge Against Feedstock

BH reliably gathered that Dangote had anticipated the challenge of sourcing feed-stock for the refinery during its incubation period, hence the decision to venture into the upstream petroleum sector to guarantee crude supply.

In 2015, two Dangote-owned oil companies, Dangote Exploration Assets Limited and Dansa Energy Resources Limited acquired, a 38.25 per cent participating interest in OML 71 and OML 72 from Shell Petroleum and Development Company of Nigeria Limited (SPDC), Total E&P Nigeria Limited and Nigerian Agip Oil Company Limited.

The deal is a joint venture with First Exploration and Production Company (FIRST E&P) under the special purpose vehicle, West African Exploration and Production Company Limited (WAEP).

Crude oil produced from the two oil blocks, OML 71 and 72, are expected to exclusively feed Dangote Refinery.

Speaking shortly after the acquisition of the oil blocks, the Group Executive Director of Dangote Exploration Assets Limited, Edwin Devakumar, said the firm will initially pump around 20,000 barrels a day from the two shallow-water blocks located in Kalaekule in the Niger Delta region.

While noting that DEAL will continue to invest in the upstream sector, Devakumar disclosed that Dangote Group may look for more blocks to produce up to 250,000 barrels a day.

“It’s where the majority of our cash flow from the refinery will go to. We’ll focus on that after we start the refinery,” Devakumar had stated.

But while speaking at a public event in September 2024, Alhaji Aliko Dangote countered his trusted Indian-born executive when he declared that Dangote Group had no intention to invest massively in the upstream petroleum business.

“We are also in upstream business, though not big. We have two oil blocks and we are starting operations this October (2024).

“These are the smaller projects we want to complete in the next one and half years. I don’t want to put too much money into upstream.

“If a cheap asset comes along, we may consider it. But it is not our intention to focus on producing raw materials ourselves or targeting daily oil production of 300,000 or 400,000 barrels. That’s not part of our plans at the moment,” Dangote had declared in September 2024.

Lesson From Unions’ Strike 

But 13 months down the line, the decision to not actively engaged in oil exploration seems to have changed as the billionaire is now fully committed to deepening his interests in the upstream petroleum sector. Recent brush with workers’ unions, which threatened shutdown of supply must have provided a learning curve for the business mogul.

The turning point for the billionaire, sources close to him claimed, came after an unplanned glitch. The Dangote Refinery had found it difficult to secure crude supply locally, necessitating its reliance on imported crude, BH learnt

BH findings also revealed that the refinery currently sources more than 50 percent of its crude needs from abroad as local and international oil firms are unable to supply its needs owing to the fact that they had committed their future productions to projects financiers and off takers, who had provided funds in advance.

As a result, the refinery has now jettisoned its former stand not to invest massively in the upstream petroleum sector.

Several sources in Dangote Group informed BH that the refinery plans to produce about half of its crude oil needs, which is about 700,000 barrels per day.

“To achieve this, Dansa Energy Resources Limited plans to acquire more oil blocks where it will explore and produce crude and gas for the use of its refinery,” a reliable source informed our correspondent.

Necessity With Expansion 

Speaking on the matter, an oil and gas expert, Dr. Bolaji Apoeso, said the planned massive upgrade at the refinery will definitely exacerbate the crude supply challenges at the facility.

“The pivot to oil exploration will strengthen his (Dangote’s) hold on the nation’s downstream petroleum sector. However, it will create a major headache – getting crude oil to process.

“Upping his stakes in the upstream petroleum sector will guarantee the availability of feedstock needed to scale up operations at the refinery, which is currently undergoing a major upgrade.

“Aliko is replicating what he did in the downstream sector when he imported over 4,000 fuel tankers from China to checkmate fuel marketers and tanker owners, who had held him to ransom by refusing to buy and lift his refined petroleum products.

“With him venturing into oil exploration, I think his intention is to guarantee the steady supply of crude oil to his refinery.

“Apart from making him richer as an oil well owner, the venture will ensure that he gets the needed crude to keep his refinery running by bypassing the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), which allocates and sells crude oil on behalf of the Federal Government”, Apoeso declared.

The Kalaekule field controlled by Dangote is a conventional fixed platform oil development located in the shallow waters of the Niger Delta. It has water depth of about 243 feet.

The Nigerian National Petroleum Corporation Limited (NNPCL) holds 55.00 per cent of the blocks in trust for the federation, while Dansa Energy Resources Limited holds 38.25 per cent for the Dangote Group.

The third partner, FIRST Exploration & Petroleum Development Limited (FIRST E&P) holds the remaining participatory working interest of 6.75 per cent in the two fields, which are projected to reach their economic limit in 2057.