Business
IOCs divestments worsen naira woes
BY EMEKA EJERE
Huge capital flight arising from the spate of divestments by the international oil companies (IOCs) from the Nigerian oil and gas sector is compounding difficulties faced by the Central Bank of Nigeria (CBN) in its strive to achieve stability in the foreign exchange market.
This is even as total dependence on import for gasoline and humongous oil theft conspire to deny Nigeria full benefit of the current global oil windfall occasioned by the lingering Russia-Ukraine conflicts, in the face of eroding foreign reserves.
Although the CBN has made numerous attempts to defend the naira, the currency depreciated by N29 in the second quarter of 2022, the second-worst quarter depreciation after the worst quarter seen in Q3 2021 when it (naira) fell by N44.
On a year-to-date basis, the reserve has lost $1.37 billion from $40.52 billion in December 2021 to $39.16 billion in June 2022. In the month of June, the external reserve gained $671.63 million, following a $1.1 billion decline in the previous month. This can only get worse with the wave of divestments by the oil majors.
There are five IOCs operating in Nigeria – Shell Producing Development Company (SPDC),
TotalEnergies, Chevron, ExxonMobil and Eni. According to energy report of a major national newspaper, these five companies are collectively responsible for producing 45 per cent of oil and 40 per cent of gas in the country.
Reports indicate that most of the assets targeted for divestment by the IOCs are the onshore properties located mostly on the shallow waters or land. A report in the Africa Report, a journal on African politics and business, stated that in the past 11 years, the IOCs have divested a total of 26 Oil Mining Licences (OMLs) in the Niger Delta Basin with more set to be sold.
It is estimated that as far back as 2013, Nigeria had suffered capital flight in excess of $10 billion (N159 trillion) in four years as a result of divestments by some IOCs.
At the Nigeria International Energy Summit (NIES2022) held in March, in Abuja, the Group Managing Director Nigeria National Petroleum Company (NNPC), Mele Kyari, stated that IOCs are divesting from Nigeria to meet net-zero commitments and shift their investment portfolios.
“Companies are divesting’’ he said. “They are not leaving because opportunities are not here but because they are shifting their portfolios where they can add value and not just that, but where they can add to the journey towards carbon net-zero commitment.’’
However, findings show that beyond the drive towards renewable sources of energy, the IOCs are mainly divesting from areas where they have been facing more operational challenges, in form of pipeline and facility vandalism, community restiveness, sabotage, oil theft, insecurity and environmental issues.
About five decades of industry dominance saw Shell, ExxonMobil , Chevron , Total and Eni pumping roughly 97 percent of Nigeria’s oil output at a point. But the figure has fallen steadily overtime due to divestments into indigenous players like Seplat, Aiteo, Oando, Sahara Energy among others.
However, the NNPC on Monday (July 11) won a court decision temporarily blocking Exxon Mobil from selling assets in Nigeria to Seplat Energy Plc. Seplat had agreed to acquire the United States oil major’s subsidiary for at least $1.28bn in February.
The acquisition would have given Seplat additional production of about 95,000 barrels of oil equivalent a day from shallow-water assets that Exxon operated in a joint venture with NNPC. A similar court order had also forced Shell Plc to pause its plans to sell all of its remaining onshore permits in Nigeria.
Liquidity crisis
Recently, the Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB), Mr. Simbi Wabote, lamented that the divestment by the IOCs and their reluctance to make fresh investments in the nation’s oil and gas industry have worsened incidence of capital flight out of Nigeria.
Wabote, who was delivering a convocation lecture at the Federal University of Petroleum Resources (FUPRE) Effurun, Delta State, titled “Defining the Value of Local Content in Petroleum Education” noted that the trend is stifling the nation’s economy of the much-needed foreign exchange with funds used as loans to acquire oil and gas assets leaving the country instead of being used to develop new production facilities in-country.
A slump in crude prices and an economic downturn arising from the coronavirus pandemic curbed foreign currency flows into Africa’s largest crude producer and has continued to pressure its foreign reserves. However, oil price has since rebounded but has made little or no difference.
It is unlikely that Nigeria’s lenders have enough dollars to fund clients seeking to acquire the oil assets put on sale by IOCs. Late last year, Guaranty Trust Bank Plc (GTBank) said it did not see the likelihood of any client raising the estimated $2.3 billion needed to purchase the Shell assets.
The Chief Executive Officer of the financial group, Segun Agbaje, told an investor conference call in Lagos that such a deal would require a syndication of up to $1.8 billion, and it “can be very tough to raise this kind of funding locally at the moment.”
“When I look at the books of Nigerian banks today, I don’t see a lot of dollar liquidity,” Agbaje had said, adding that “it’s becoming a very difficult deal for people to pull off.”
Nigerian banks, which in 2013 syndicated $3.3 billion debt to Dangote Industries for a refinery and petrochemical plant and financed Heirs Holding’s $1.1 billion acquisition of OML 17 last year, have seen their capacity to take on such deals wane considerably.
The lingering scarcity of the greenback saw the naira falling to N620 per dollar at the parallel market on Thursday. The figure represents a depreciation of N5 or 0.8 percent from the N615 it traded last week. At the official market, the naira also depreciated by 0.36 per cent to close at N424.58 to a dollar on Wednesday, according to FMDQ OTC Securities Exchange.
Some stakeholders are worried that the IOCs that have been an integral part of the Nigerian oil and gas sector for decades would seek to divest at a time the need for them to partner with the country into the next important stage of the development of the sector cannot be over-emphasised.
This is more so as the Domestic Oil Companies (DOCs,) which now own the assets being divested by the IOCs, would still require technical support to operate them.
Recently, the Petroleum and Natural Gas Senior
Staff Association of Nigeria, PENGASSAN, expressed fears over the increasing divestments by the IOCs from Nigeria, asking the federal government to provide more incentives to the IOCs to remain in Nigeria.
“While we are not averse to indigenous participation in the Nigerian Oil and Gas industry, we will not fold our arms and allow mediocre to take hold of our national assets and ruin the fortunes of future generations for immediate gains”, the oil workers said in a statement.
“It is on record that since IOCs started divestment in 2012; most of the companies that purchased such assets do not have and cannot attract the requisite finances for capital expenditures in such fields or have made reasonable efforts to provide the required human and technical developments of Nigerians within their establishment”, the statement also said.
Meanwhile, latest updates on Nigeria’s cash call arrears repayment showed that the country has so far repaid a total of $3.72bn to the five IOCs, leaving an outstanding balance of $971.8m.
The federal government through the NNPC had over the years piled up unpaid bills, referred to as cash calls, which it was obliged to pay the IOCs with which it had joint ventures (JVs) for oil exploration and production.
In 2016, the national oil company signed the cash call repayment agreements with the five IOCs to defray the cash call arrears within a period of five years after many years of its indebtedness to JV partners.
Also, the government through the Federal Ministry of Petroleum Resources negotiated a discount with the five IOCs in December 2016, leading to the reduction of the debt from about $5.1bn to $4.68bn, which the NNPC has continued to reduce in instalments.
