Indigenous oil companies in Nigeria are poised to take a larger role in the country's oil industry as international oil companies divest assets worth an estimated $11 billion in 2015. Local firms like Oando, Seplat, and Sahara Group have been acquiring these relinquished assets, expanding their stakes. The divestments represent a major opportunity for indigenous companies to grow substantially and potentially become global players, increasing Nigeria's oil production targets. The changing landscape signals a reduction of foreign control over Nigeria's oil resources and a growing role for domestic energy firms.

1. THE NIGERIA OIL SKYSCAPE 2015:
THE NEW MAJORS ARE COMING
Article written by Kelvin Keshi- Senior Strategy Manager, Zenera Consulting.
The 2015 globaloiloutlookfor major exporters like Nigeria may appearbleakas
prices plummet to below$70/b in June 2014 aftera five-year stability at $110/b;
but peer further into the horizon and the fortunes for Nigeria and indigenous
energy firms in the country are looking promising.
This is just as internationaloilcompanies in Nigeria continue to lose their grip on
the industrywith major divestmentsexpected to hit $11 billion in 2015, and local
oil giants are mopping up the opportunities, moving up the ladder and changing
the cityscape. The interesting scenario is also opening up new vistas for other
small and middle-power Nigerian oil companies.
SOME eight years ago, international oil majors – headlined by Shell and Chevron – began a trend that
has seen them retreating from their dominance of the Nigerian oil industry. The divestments have
increased in subsequentyearsasthey continue to shed their controlling interests, enablinglocal giants
like Oando, Sahara Group and Seplat to expand their stakes in the industry.
The new reality is thatfor a motley of reasons, international energy companiesare now disinclined to
continue their grip on the oil-rich Niger Delta and giving up the onshoreand shallow water fields; just
as indigenousfirmsare filling the emerging vacuumandtakingup increased ownershipof the oil fields.
The trend is expected to climax in 2015 with several rounds of divestments estimated at about $11
billion worth of oil blocks anticipatedto be concluded;thuspresentinga significant yearfor indigenous
oil firms to dominate the industry, through acquisition of these relinquished assets.
A recent report by Bloomberg quoted figures made available by the Nigerian National Petroleum
Corporation(NNPC)assayingthatformorethanfivedecades, RoyalShell Plc, ExxonMobilCorporation,
ChevronCorporation, TotalSAandEni SpA pumpedabout97 percentofNigeria’s oil output. Thefigure
is said to havefallen to 90 percent in 2006 andis set to shrink further to about60 percent in five years
as more International Oil Companies sell off their oil fields.
New Oil Field Landlords
The trends of divestments by international oil majors represent the single most important window of
opportunity for indigenous energy giants with the requisite expertise, partnerships and capital -
towards becoming global brands with firm footprints in the upstream sector and investments even
outside of Nigeria’s shores. At a national level, the change of guard will be instrumental in Nigeria
meeting its output target of 3Mbbl/d by 2020.

2. In June 2014 in the latest asset disposition by IOCs to indigenous players, US-based ConocoPhillips
successfully concluded the sale of its Nigerian oil and gas business to Oando Energy Resources, the
upstream business of Oando plc, valued at $1.5 billion. The assets purchase was the largest single
upstream acquisition done in the country’s industry by an indigenous company last year.
Also last year, local oil and gas firm, Seplat made a stock market debut in Lagos and London in
preparationfor an IPOand expansionof its capacities to join the ‘Takeover’ fray in what analystshave
described as a defining momentfor thesector in 2015. Thisis just as a few deals are currently awaiting
ministerial consentwhich could see big indigenousplayers control 20 to 25 percent of the nation’soil
fields, up from about 10 percent.
While delivering a keynote address titled: Assets Divestment in Nigerian Oil and Gas Industry:
Opportunities and Challenges at the 2014 Offshore Technology Conference (OTC) in Houston, Texas,
USA, the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, represented by the Group
Managing Director of the NNPC, Engr. Andrew Yakubu informed that the IOCs are expected to divest
over 20 oil blocks with not less than 4 billion barrels of oil equivalent and a monetary value of about
$11.5 billion before the end of 2014.
MaduekesaidtheDepartmentof PetroleumResourcesis currently compilinga list of all assetsthathad
been neglected by the IOCs to begin a round of bids and make the assets available to local investors.
The petroleum minister and current OPEC Chairpersonaddedthat the governmentwould continue to
draw uppoliciesandlaws thatbuildthecapacity andcapability of indigenousoperatorsintheupstream
sector of the industry.
Emerging local brands like Petrolex and Zone 4 Energy have also been busy in the beehive of, albeit,
quiet activities in the Nigerian petroleum industry while keepingan eye on the future. These firms are
partof a cluster of new ‘heavy weights’ acquiringmajorassets andformingstrategic alliances with OICs
and major local firms like Oando, who are inching more towards a preference to play largely in the
upstreamsector and become internationalinvestorsin the mouldof the retreating Shell, Chevronand
Total.
Ina statementlastOctoberonitsplanneddivestmentofsomeof itsdownstream assets, CEOofOando,
Abayomi Awobokun stated that the indigenous energy giant has “procured shareholders’ approval…
for the partial divestment of our downstream assets,” adding that the move is to “enable the Oando
Group unlock value and inject liquidity which would enable us explore the best growth strategy.”
Other major divestment in the last three years, according to a research by Ecobank, include nine
onshoreandshallow-wateroil leases worth 3Mbbl/d;13 otherfields jointly sold by Shell, Total and Eni,
with mostofthemboughtby smallerNigeriancompaniesincludingSeplatPetroleumDevelopmentCo.,
First Hydrocarbon Ltd. and Neconde Energy Ltd.
Inmid-2013,11 localcompaniesincludingSeplat, SouthAtlanticPetroleumLtd.,SevenEnergy Ltd., First
Hydrocarbon and Sahara Energy Field Ltd. Were shortlisted to buy the Chevron fields on sale; while
British Gas sold its Nigerian oil assets and invested the returns in gas production.

3. Brazil oil giants, Petrobas also notified Nigeria to auction 8 percent stake of its Agbami block and 20
percent of the offshore Akpoproject for N795billion;justasTotal, the Frenchgiant, soldits 20 percent
stake in the Usan field in the Niger Delta. Shell also sold its stakes in eight of its onshore interests to
local players in November2012, asit began the process to divest its stakes in four additionalonshore
oil blocks.
But it isn’t just local players that are boosting their stakes in the oil industry; also taking advantage of
the wave of operationsscale-down by OICs are a few small foreign firms, like Afren and Chinese state
oil company, Sinopec Corp which in November 2013 bought $2. 5 billion-worth Total stakes in an
offshore block.
PIB and Other Factors Changing the Cityscape
While offering its entire 40 percent stakein oil fields toa groupof 11 local Nigerian companies in 2013,
the US spokespersonforChevronstated that the deal was to “enhance capital efficiency,” and for the
buyers “an opportunity to grow their own assets.”
Giving her own explanation why the landscape is changingto welcome new indigenousbrandmajors,
petroleum minister, Allison-Maduekweinformed thatthe divestingIOCs were not leaving the country
but only shifting their focus from onshore to the more challenging frontiers of deep offshore which
currently accounts for 60 per cent of Nigeria’s production.
“The IOCsremain very much presentin Nigeria. Shell still retains ownershipof 34 onshoreblockswhile
Total, ExxonMobil, andChevronarestillcommittinglargeamountsofcapitaltoassetsoffshoreNigeria,”
she stated.
Also, in a 2014 research titled: Divestmentof Nigerian Oil and Gas Assets by IOCs by Akintola Williams
Deloitte, the respected accountingfirm stated matter-of-factly that “The rationale for the divestment
decision is founded on pure economic and quasi-economic reasons.”
But observers believe these executive analyses are political-speak for industrial-scale oil theft,
insecurity, sabotagetoinfrastructureandspills thathaveplagued onshoreoperations ofOICs intheoil-
Oando Seplat
Sapetro SevenEnergy
Sahara Energy
Petrolex Zone 4
First Hydrocarbon
Afren Neconde
Sinopec
Shell
ConocoPhillips
BritishGas
Chevron
Total
Eni SpA
Mostactiveinvestingbrands
Asset-sheddingbrands

4. rich Niger Delta region of the country, with consequent diminishing output of marginal fields. In
contrast, they believe local operatorswould fare better with some of these challenges especially with
regard tosecurity asit is easier for themto communicateandrelate with indigenous communitieswith
greater empathy.
But thebiggest disincentive tothe IOCsmay be the current uncertainties surroundingtheintroduction
and operation of unfavourable industry policies and reforms, especially the Petroleum Industry Bill
(PIB). This plays out well with regard to government’s long-term interest as public policies have been
geared towards ending decades of industry control by foreign majors and increasing the role of local
players through reforms like the PIB and the National Content.
The bill itself hasdraggedon for over five years because of conflicting political andeconomic interests,
thereby denyingNigeria about$37 billioninprivate sectorinvestmentsintheoil andgas industry inthe
last five years, according to data released by Wood Mackenzie in 2013.
If passed, the law will further incentivise local operators for more active roles in the industry and
increase government earnings; but international energy companies say the fiscal terms of the law
would make oil exploration, including offshore, unprofitable.
Bright Forecast
The recent crash in world oil prices may have cast dark clouds on the Nigerian oil industry prospects
this year, but there are silver linings, says a new report titled: Nigeria’s renewal: Delivering inclusive
growth in Africa’s largesteconomy by theMcKinsey Global Institute(MGI). Oil prices are also expected
to bounce back by the end of second quarter of the year.
According to the 124-page report, although the Nigerian economy entered 2015 on precarious
economic conditions as a result of falling price of crude oil and consequently falling revenue into the
federation account (in addition to other negative economic indices), with the right reforms and
investments the country could become one of the world’s leading economies by 2030.
How Passage of PIB Will Restructure Oil Sector
o Local content: More jobs for Nigerians, as it will become illegal to employ
foreigners for certain skills that can be sourced locally. Where such skills are
unavailable locally and has to be sourced from abroad, a local understudy to the
expat is a compulsory.
o Contractors/vendors: The law also requires that materials are sourced locally,
which means more jobs for Nigerian local contractors, especially indigenes of oil
producing regions.
o Gas: Maximisation of Nigeria’s gas potentials to boost power supply.
o Government earning: Increased government revenue from oil industry.
o Deregulation: Full deregulation of downstream sector.
o Sustainability: Environment protection will be enforced.

5. The reportstates thatshouldNigeriareachits full potential, thenation’s annualGDP would exceed$1.6
trillion in oneand half decade, andthe country could be a top-20 economy. Thiswouldbe a significant
leap from the current GDP of $510 billion, which already ranks Nigeria as Africa’s largest economy.
Thepromisingeconomicforecast isbasedonabottom-upanalysisofthepotentialforfivemajorsectors
of Nigeria’s economy, viz trade, agriculture, infrastructure, manufacturing and oil and gas.
The document projects that with renewed investments - as is currently ongoing led by big and
competentindigenous energy brands - , andthe right reforms, production declines of recent years will
be reversed and liquids production could increase from an estimated 2.35 million barrels a day, on
average, in 2013 to a new high of 3.13 million by 2030.
This will see the sector contributing108 billion annually to the economy, comparedwith $73 billion in
2013 and enabling the rise of a new economically-empowered middle class and triggering growth in
other sectors.
The biggestbeneficiary by sector would be trade which wouldfeed off theanticipated expansionofthe
consumer class, thereby tripling consumption to almost $1.4 trillion a year in 2030, at an annual
increase of about 8 percent.
“This would maketrade the largest sector of the economy and providea particularly goodopportunity
for makers of packaged foods and fast-moving consumer items such as paper goods; categories that
could grow by more than 10 percent a year,” the MGI report forecasted.
0
20
40
60
80
100
120
140
160
180
200
Trade Agriculture Infrastructure Manufacturing Oil and gas
279
263
257
144
108
Sector GDP contribution by 2030, $ billion
2013 annual GDP Increase in annual GDP by 2030