Nigerian Oil Companies Boost Production as Majors Retreat

Nigerian-owned oil companies are boosting their share of the country’s output by taking up fields in restive areas as international energy companies retreat, Ecobank Research said.

For more than five decades, Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total SA (FP) and Eni SpA (ENI) pumped about 97 percent of Nigeria’s output, according to figures provided by state-owned Nigerian National Petroleum Corp. That fell to 90 percent in 2006 and is set to shrink further to about 60 percent in five years “if the current divestment trend continues,” Rolake Akinkugbe, a London-based energy analyst for Ecobank Research, said in an e-mailed response to questions.

Shell and Chevron are selling assets that can produce 300,000 barrels a day from nine onshore and shallow-water oil leases. Stakes in 13 other fields were sold jointly by Shell, Total and Eni since 2010, with most of them bought by smaller Nigerian companies including Seplat Petroleum Development Co., First Hydrocarbon Ltd. and Neconde Energy Ltd.

As international energy companies led by Shell and Chevron give up onshore and shallow water fields plagued by persistent unrest, violence and crude theft in the oil-rich Niger River delta, smaller Nigerian companies are taking over, expanding their output capacity.

Operational Difficulties

“These divestments represent the single largest opportunity for indigenous Nigerian firms with the requisite expertise, partnerships and capital to ascend into the league of major upstream players,” Akinkugbe said. If they overcome the operational difficulties they “will become increasingly instrumental” to Nigeria meeting its output target of 3 million barrels a day by 2020, she said.

Local companies are probably “better off dealing with some of the security challenges in the Niger delta than the foreign companies,” Bismarck Rewane, chief executive officer of Lagos-based Financial Derivatives Co., a business advisory group, said in a phone interview. It’s easier for them to communicate with the communities and win their sympathy , he said.

Nigeria, OPEC’s seventh-largest producer, pumped more than 2 million barrels of crude a day last month, according to data compiled by Bloomberg. The West African nation has Africa’s biggest crude reserves after Libya, more than 36 billion barrels. Crude prices rose 0.8 percent to $106.24 a barrel as of 3:46 p.m. in London.

Shallow Waters

Armed attacks led by the Movement for the Emancipation of the Niger Delta, fighting for the region’s control of oil resources, cut Nigeria’s oil output by 28 percent, mainly from the delta’s swamps and shallow waters, from 2006 to 2009, according to figures complied by Bloomberg. Though the violence subsided after thousands of fighters accepted a government amnesty offer in 2009 and disarmed, a surge in oil theft in recent years by gangs tapping crude from pipelines pushed output down to four-year lows earlier this year.

A proposed law to reform the way the oil and gas industry is regulated and funded has been delayed in parliament for five years, with international energy companies saying its fiscal terms, including taxes and royalties, would make offshore exploration unprofitable. The bill also proposes terms to boost the participation of Nigerian companies in the industry.

If passed, the law could be a “real catalyst for boosting local production, with attractive economics for small and marginal fields which many local companies operate,” Akinkugbe said.

Capital Efficiency

Eleven local companies including Seplat, South Atlantic Petroleum Ltd., Seven Energy Ltd., First Hydrocarbon and Sahara Energy Field Ltd. have been short-listed to buy the Chevron fields on sale, Lagos-based Africa Oil+Gas Report reported on Aug. 29. Nigerian energy company Oando Plc (OANDO), which signed a deal last year to acquire the oil assets of ConocoPhillips (COP) in the country, said on Sept. 16 it will also take up the Houston-based company’s stake in the proposed Brass LNG plant in the Niger delta for $105 million.

Chevron is offering all of its 40 percent stake in each field and aims to complete the transactions before the end of this year, Jim Craig, a Houston-based spokesman, said in an e-mail, without giving details. For Chevron it’s a chance to “enhance capital efficiency” and for the prospective buyers an “opportunity to grow their own assets,” he said.

To contact the reporter on this story: Elisha Bala-Gbogbo in Abuja at ebalagbogbo@bloomberg.net

To contact the editor responsible for this story: Dulue Mbachu at dmbachu@bloomberg.net

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