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Thursday, June 20, 2024

Divestment from onshore oil production in Niger Delta: Trends and implications

Most oil production licenses in Nigeria will soon be operated by domestic oil companies (DOCs), rather than international oil companies (IOCs), for the first time in history. This trend of divestment among IOCs – particularly from onshore oil production – has important implications for communities in the Niger Delta, who have borne the brunt of the negative impacts of the industry for more than six decades.

Off-shore oil drilling
Off-shore oil drilling

The Federal Government of Nigeria, civil society organisations and the international community need to adapt to this new reality, to ensure IOCs do not leave without adequately addressing their legacies of pollution and associated negative environmental, health and economic impacts. Foresight and leadership are required to design strategies to manage the industry’s decline, take appropriate actions to protect and compensate communities, and hold all companies accountable for their historic and ongoing liabilities.

New research from SDN documents divestment trends and explores the drivers and implications of IOCs selling their onshore assets in the Niger Delta. It highlights the need for action before they exit to ensure they address the negative legacies of environmental pollution, economic fragility, and social and political strife, created by their operations over the past 65 years.

SDN’s analysis of investment trends illustrates that divestments have been ongoing for decades, but the rate is rapidly accelerating. Between 2010-2021, 26 major divestments were finalised, with all but one involving the sale of equity from IOCs to DOCs. As a result, for the first time since production began, DOCs are on the verge of surpassing IOCs in the proportion of oil blocks where they are operators and own equity. DOCs are involved in the operation of 50 oil blocks, while IOCs are operating in 53 (representing 45% and 47% respectively of all blocks in Nigeria).

Drivers of this divestment trend include the high cost of onshore oil production, domestic security risks, and changing international investment trends because of global heating.

However, while the role of IOCs is reducing, it does not guarantee that fossil fuels will remain in the ground or that the impact on communities will cease. Historic pollution has not been adequately addressed by IOCs; DOCs are now taking over production; and with the passage of the Petroleum Industry Act in 2021 the Federal Government is doubling down on oil and gas, which is at odds with recent climate commitments.

While some will celebrate the departure of the IOCs from the Niger Delta, SDN’s report cautions on the potential implications of this trend. For example:

  • DOCs have relatively less experience, resources, and accountability. There are already signs that environmental, social and governance (ESG) performance could worsen, that communities will continue facing the same problems, be confronted with new dynamics, and have fewer options to leverage international accountability and justice. For example, SDN’s 2018 Environmental Performance Index shows that in the Niger Delta DOCs on average spilled more oil and flared more gas per barrel of oil they produced.
  • Global shifts away from fossil fuels and lower capital and capacity among DOCs raises the question of whether levels of production can be sustained. Given Nigeria’s heavy dependence on revenues from the oil and gas industry, without a plan for managed decline, there could be highly destabilising effects on the economy.
  • Progress made internationally on transparency (e.g., of company payments to governments) and in enabling communities to seek justice outside of the Nigerian court system – as with cases in the UK and Netherlands – could be lost as DOCs take over and international attention shifts away from the Niger Delta.

This report reiterates warnings that continuing to invest in upstream oil and gas projects risks creating stranded assets and wasting capital that would be better spent on developing sustainable new industries. The IOCs are facing this hard truth and rebalancing their portfolios, so the FGN needs to follow, by rebalancing the economy before it is too late, and Nigeria’s fate is locked into a declining industry.

By SDN (Member of the National Coalition on Gas Flaring & Oil Spills in the Niger Delta)

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