The long-awaited sale of ExxonMobil’s onshore assets in Nigeria to Seplat Energy has finally received regulatory approval, marking a major milestone in Nigeria’s oil industry. This deal, valued at $1.28 billion, has been under intense scrutiny and awaiting approval for over two years since it was first announced in February 2022. The approval signals the Nigerian government’s willingness to facilitate transactions that will reshape the country’s energy landscape, even amid broader efforts to address the challenges faced by oil majors operating in the region.

Background of the Exxon-Seplat Deal

The transaction involves ExxonMobil selling a 40% stake in four oil mining leases (OMLs) and associated infrastructure to Seplat Energy. The assets included in the deal comprise not only the oil fields but also the Qua Iboe export terminal and a 51% stake in the Bonny River natural gas liquids recovery plant, all previously held by Mobil Producing Nigeria Unlimited, ExxonMobil’s Nigerian subsidiary. These assets are primarily located in Nigeria’s Niger Delta region, known for its rich oil reserves but also for the challenges of sabotage, oil theft, and environmental degradation due to spills.

Nigeria is Africa’s largest oil producer, and the sale of these assets is expected to shift more of the country’s oil production into the hands of local companies. Seplat Energy, an indigenous company, will now hold a significant share of Nigeria’s onshore oil production and infrastructure, a move that aligns with the government’s push for more local ownership in the oil and gas sector. Seplat’s acquisition also signals a broader trend in the Nigerian oil industry where major international oil companies (IOCs) are divesting from onshore operations to focus on offshore investments, which are seen as less risky and more profitable.

Regulatory Hurdles and Delays

The delay in the approval process has been attributed to several regulatory hurdles, including concerns from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Ministry of Petroleum Resources. The deal has been under close scrutiny due to its potential impact on local communities, environmental issues, and the broader Nigerian economy. ExxonMobil’s exit from onshore operations raised concerns about accountability for past environmental damage, oil spills, and community compensation. These concerns were significant in delaying the sale, as regulators sought guarantees that Seplat would assume responsibility for any liabilities associated with the assets.

Additionally, Nigeria’s oil sector has undergone a series of reforms in recent years, most notably with the enactment of the Petroleum Industry Act (PIA) in 2021. This law was intended to streamline the regulatory framework, improve transparency, and boost investment in the sector. However, its implementation has been slow, contributing to the delays in the approval of asset sales, including the Exxon-Seplat deal.

It was not until October 1, 2024, that Nigerian President Bola Tinubu announced that ministerial approval for the deal would be granted “within days.” The final regulatory clearance was confirmed by the NUPRC CEO, Gbenga Komolafe, during a public event in Abuja on October 21, 2024. The approval marked the conclusion of a two-year wait and opened the door for Seplat Energy to take full control of the assets involved.

Strategic Importance of the Deal

For Seplat Energy, the acquisition of ExxonMobil’s onshore assets represents a significant expansion of its portfolio and a critical step in its growth strategy. The company, already a key player in Nigeria’s oil and gas sector, will now have a more prominent role in the country’s energy supply chain. This includes ownership of major oil infrastructure such as the Qua Iboe export terminal, one of Nigeria’s largest crude oil export facilities.

Seplat’s CEO, Roger Brown, has expressed optimism that the acquisition will help the company enhance its production capabilities and contribute to Nigeria’s energy security. The deal also strengthens Seplat’s position as a leading indigenous oil company, helping it to attract further investment and partnerships in the energy sector.

For ExxonMobil, the sale is part of a broader strategy to shift its focus away from onshore operations in Nigeria, which have been plagued by theft, sabotage, and aging infrastructure. The company, like other major international oil companies operating in Nigeria, is redirecting its investments towards deepwater offshore fields, which are less susceptible to security threats and are expected to be more lucrative in the long run.

The Shift from Onshore to Offshore Operations

ExxonMobil’s divestment from onshore assets reflects a wider trend among IOCs operating in Nigeria. Companies like Shell, Chevron, and Total have also been reducing their presence in the onshore oilfields of the Niger Delta. The region has long been a hub of oil production, but it has also been a source of significant challenges for these companies, including frequent attacks on pipelines, oil theft, and legal battles over environmental damage.

In recent years, Nigeria has experienced a surge in oil theft, with millions of barrels of crude oil lost to illegal bunkering and sabotage. This has not only hurt the revenues of oil companies but has also reduced the government’s oil earnings, exacerbating Nigeria’s fiscal challenges. In response, many oil majors have decided to divest from their onshore operations and focus on offshore fields, where the risks are lower and the potential for profit is higher.

Offshore oil production, particularly in deepwater fields, offers several advantages over onshore operations. These include higher security, as offshore installations are harder to access by militants and thieves, and greater production potential, with some deepwater fields capable of producing hundreds of thousands of barrels per day. As a result, companies like ExxonMobil have been shifting their capital towards these offshore projects, viewing them as the future of Nigeria’s oil industry.

Impact on the Nigerian Oil Sector

The approval of the Exxon-Seplat deal is expected to have significant implications for Nigeria’s oil sector. For one, it could encourage other oil majors to expedite their divestment plans, as regulatory approval for asset sales is now seen as more achievable. In recent months, the NUPRC has approved several other deals, including the sale of Eni’s onshore assets to Oando and Equinor’s assets to Project Odinmim, a new entrant in the Nigerian oil industry. These transactions signal a shift in ownership of Nigeria’s oil resources from international oil companies to local players, in line with the government’s local content policy.

However, the increasing dominance of local companies in Nigeria’s oil industry also comes with challenges. Many of these companies lack the financial and technical capacity of the IOCs, raising concerns about their ability to maintain and operate aging infrastructure. Additionally, the environmental impact of oil production in the Niger Delta remains a pressing issue. Oil spills have devastated the region’s ecosystems, and local communities continue to suffer from pollution and loss of livelihoods. Ensuring that companies like Seplat address these environmental concerns will be crucial to the long-term sustainability of Nigeria’s oil industry.

Conclusion

The approval of the Exxon-Seplat deal marks a significant turning point in Nigeria’s oil sector. While it signals the Nigerian government’s willingness to facilitate the divestment of onshore assets by international oil companies, it also underscores the need for local companies like Seplat Energy to take on greater responsibility in managing the country’s oil resources. As the industry continues to evolve, with more focus on offshore investments and local content, the future of Nigeria’s oil sector will depend on how well these transitions are managed. The deal may also set a precedent for faster approvals of similar transactions, providing a boost to the sector at a time when global oil prices and energy transition trends are reshaping the industry.

Nevertheless, the challenges of oil theft, sabotage, and environmental degradation remain, and addressing these issues will be key to ensuring the success of deals like the Exxon-Seplat transaction. As Nigeria moves forward, the success of these divestments will be critical in determining whether the country can continue to leverage its oil resources for economic growth while transitioning towards a more sustainable energy future.

Ready to take your career to the next level? Join our dynamic courses: ACCA, HESI A2, and ATI TEAS 7! 🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

22nd October, 2024