Shell Exits Nigeria's Onshore Oil Sector, Raising Hopes for Local Firms

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Shell Exits Nigeria's Onshore Oil Sector, Raising Hopes for Local Firms

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Illuminated logo of Shell (© Shutterstock/Dom J)
Illuminated logo of Shell (© Shutterstock/Dom J)

Shell, the most prominent Western company operating in Nigeria's oil-rich Niger Delta, has sold its onshore assets to five mostly local firms, marking a significant shift in the country's oil sector.

The move highlights the challenges faced by oil majors in Africa's biggest exporter but also raises hopes that local firms could reverse the decline in production.

Industry officials and analysts say Shell's exit is part of a wider trend of Western energy companies divesting from onshore Nigerian oil fields due to issues like pollution, oil theft, and pipeline vandalism, which have hampered investment and production for years.

The company's sale of its subsidiary to five mostly local firms fits an ongoing trend of Western energy companies divesting onshore Nigerian oil fields. In recent years, Exxon, Italy's Eni, Norway's Equinor, and China's Addax have struck deals to sell assets in the country.

President Bola Tinubu, who took office last May, pledged to address these issues, but the asset sales highlight the ongoing changes in the sector.

Some experts believe local firms, with their deeper understanding of the local context and greater willingness to invest, could be better positioned to tackle these challenges and boost production.

However, others caution that local firms may lack the financial resources and technical expertise of oil majors, which could hinder their ability to develop the assets effectively.

Seplat Energy, a Nigerian independent company, is one firm hoping to capitalize on the opportunity. Seplat's CEO, Roger Brown, believes that local firms are more likely to invest in onshore assets and have a better track record of reducing oil spills.

However, some other local firms have struggled with operational issues, raising concerns about their ability to manage the assets effectively.

Ten years ago, Shell's share of production was as high as 300,000 barrels of oil equivalent per day (boed) in Nigeria. This fell to 131,000 boed in 2022, which the company blamed on sabotage and theft in the Niger Delta, its annual reports showed.

Industry experts said Shell, Exxon and other majors who hoped to divest were not putting much money into developing onshore assets, hastening production decline.

"The majors reduced investments in the onshore for many years," said Roger Brown, chief executive of Nigeria's Seplat Energy, citing a combination of local issues and the fact that major oil companies must compete for cash with their assets in other regions, such as Guyana, that can often look more attractive.

The success of Shell's exit and the future of Nigeria's oil sector will likely depend on a number of factors, including the ability of local firms to secure financing, address operational challenges, and navigate the complex regulatory environment.

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