Indigenous Oil Firms Take Over from International Companies in Nigeria’s Oil Sector
The recent sale of Equinor’s Nigerian assets, including its stake in the Agbami oil field, to Chappal Energies, a local oil producer, has significantly highlighted the increasing prominence of indigenous companies within the country’s oil industry. Following Equinor’s agreement to sell Equinor Nigeria Energy Company (ENEC), which holds a 53.85 percent ownership in oil and gas lease OML 128, to Chappal Energies, it is evident that local companies are assuming a more prominent role in the sector. This development follows a similar transaction by Oando, which recently acquired all of the stakes of Italian oil major, Eni, in Nigerian Agip Oil Company Ltd (NAOC Ltd).
The sale of these assets to local players holds the potential to have a positive impact on the sector. Energy partner, Ayodele Oni, of Bloomfield Law Practice, is of the opinion that this presents an opportunity for indigenous companies to enhance their production capabilities and collaborate with other local entities interested in major oil and gas operations. Given the growing emphasis on local content development in Nigeria, there may be more favourable regulatory and political considerations for these indigenous companies.
Nonetheless, there are several challenges associated with this transition. Investment in oil and gas, particularly in upstream activities, demands substantial capital and technical expertise. While international oil companies (IOCs) benefit from robust financial and technical support from their offshore parent companies, indigenous companies may not have the same level of access to resources. Consequently, these local companies will need to explore available financing options for their operations. Furthermore, the formation of joint ventures with other interested entities and engagement in service-based arrangements with international companies is deemed essential for their success.
It is also imperative to carefully consider the political and regulatory implications of these acquisitions. The issues surrounding the ExxonMobil and Seplat deal underscore the importance of adherence to contractual obligations, regulatory requirements, and political considerations. Any divestment would necessitate the process of ministerial consent and must duly consider the interests of stakeholders involved.
Nigeria, as a member of the Organisation of Petroleum Exporting Countries, has witnessed substantial divestments in its oil assets, amounting to $21 billion according to Oilprice. These divestments carry the potential to impact the country’s future in the oil sector. A British research and consulting firm, Wood Mackenzie, disclosed that divestments in Nigeria have reached £871 million since 2020.
Despite the challenges associated with the transition from international to local ownership, there is optimism for the Nigerian oil sector. Indigenous operators in Nigeria are already producing a noteworthy amount of crude oil and gas. While some local companies may encounter inefficiencies in managing and operating assets, others are performing admirably. If these local companies can enhance their capacity for proper operatorship and escalate production, Nigeria has the potential to exceed its current daily output of 1.35 million barrels.
The sale of assets to indigenous companies presents both challenges and opportunities. With the appropriate support and strategic partnerships, local oil producers in Nigeria have the potential to make a substantial impact in the industry. As more international companies divest their assets, the role of local players in shaping the future of Nigeria’s oil sector will undoubtedly continue to expand.
