Shell’s recent departure from Nigeria’s onshore oil sector is seen as a pivotal moment, raising optimism among local firms to rejuvenate production in Africa’s largest oil exporter. Industry insiders and analysts emphasise the challenges faced by oil majors in the region but foresee opportunities for indigenous companies to reverse the output decline in the Niger Delta.
A Reuters report notes that Shell, a pioneering force in Nigeria’s oil industry, has sold its subsidiary, marking a significant withdrawal from the Delta, an area plagued by pollution, theft, and vandalism. The exit underscores the persistent issues hindering investment and constraining production and government revenues.
“It explains a significant portion of the decline in oil production in recent years,” notes Andrew Matheny, senior economist with Goldman Sachs, referring to policy problems and FX policy concerns in Nigeria’s oil sector, prompting majors like Shell to divest.
President Bola Tinubu’s administration, inaugurated last May, vowed to address obstacles faced by producers, aiming to curb crude theft and pipeline vandalism. However, the ongoing asset sales, initiated before his tenure, signal ongoing shifts in the country’s oil landscape.
“If companies are now leaving the less capital-intensive onshore operations to focus on offshore operations, it sends a perfect picture of the risk involved in doing business in Nigeria,” says Seyi Awojulugbe, a senior analyst at security consultancy SBM Intelligence in Lagos.
Shell’s share of production has dwindled from 300,000 barrels of oil equivalent per day (boed) a decade ago to 131,000 boed in 2022 due to sabotage and theft in the Niger Delta, according to its annual reports. Major oil companies, including Shell and Exxon, reduced investments in onshore assets, expediting the decline in production, experts say.
Roger Brown, CEO of Nigeria’s Seplat Energy, highlights the reluctance of majors to invest in onshore assets amid local challenges and competing opportunities elsewhere. He believes independent companies like Seplat could bolster production more effectively due to their investment appetite.
Although some local firms have successfully raised production and minimised spills on assets purchased from Shell, others have encountered challenges with leaking pipelines and spills. Richard Bronze, head of geopolitics at Energy Aspects, warns that local firms may lack the financial muscle of oil majors, potentially affecting future output.
However, Brown remains optimistic, noting that indigenous businesses can afford development at current oil prices, leveraging funding from local banks, international lenders, and oil traders.
