Nigeria’s onshore oil sector, once a thriving cornerstone of its energy industry, is witnessing an unprecedented shift as international oil firms (IOFs) systematically exit their operations.
This trend stems from various factors, including mounting operational challenges, environmental concerns, and global transitions towards cleaner energy sources.
Compounding these challenges is the Nigerian National Petroleum Company Limited (NNPC)’s struggle to maintain operational efficiency and the government’s contentious subsidy removal policy. Together, these issues paint a complex picture of an industry at a crossroads.
The Nigerian onshore sector has long been plagued by problems such as oil theft, vandalism, and community hostilities. In 2023 alone, Nigeria reported losing over 400,000 barrels of crude daily due to pipeline sabotage, amounting to billions of dollars in revenue losses.
Chuks Momoh, an energy analyst, observes, “The operational risk in Nigeria’s onshore oil sector has reached unsustainable levels for international oil firms, prompting them to seek more stable investments elsewhere.”
Further complicating matters is the role of NNPC, which has been criticized for inefficiency and opacity in managing Nigeria’s oil resources. While the company’s restructuring into a limited liability company was intended to promote transparency, tangible improvements remain elusive.
Douglas Adeleye, an oil and gas consultant, notes, “The NNPC’s inefficiencies, coupled with the volatile regulatory environment, deter international investments and exacerbate the challenges faced by indigenous companies taking over these assets.”
The removal of fuel subsidies, though necessary for fiscal stability, has also added a layer of complexity. While the policy aims to redirect resources toward infrastructure and social programs, it has heightened public discontent and increased operational costs for oil companies.
This article looks into the reasons behind the exodus of international oil firms from Nigeria’s onshore fields and examines the far-reaching implications of their departure. From economic impacts to environmental concerns, this shift signals a pivotal moment for Nigeria’s energy sector.
Shell’s Departure from Onshore Operations
Shell, one of the longest-standing players in Nigeria’s oil sector, has been systematically exiting its onshore operations. The company’s decision, finalized in January 2024, involved selling its subsidiary to a consortium of indigenous firms. Shell’s exit reflects its broader strategy to focus on offshore projects with fewer risks and higher returns.
According to reports, Shell cited “residual operational challenges,” including oil theft and sabotage, as key drivers of this decision.
TotalEnergies’ Withdrawal from Onshore Investments
TotalEnergies announced plans to exit Nigeria’s onshore oil market in early 2024. This move aligns with its global strategy of transitioning to cleaner energy sources. Total’s exit underscores the growing unviability of Nigeria’s onshore sector for international firms.
Analysts, however, highlight that community conflicts and operational inefficiencies have pushed TotalEnergies to prioritize offshore investments.
ExxonMobil’s exit amid cleanup demands
ExxonMobil has been negotiating its exit from Nigeria’s onshore oil fields, with a focus on resolving environmental cleanup obligations. The Nigerian government has offered expedited approvals for ExxonMobil’s divestment if it commits to addressing oil spill cleanups. Reuters’ report notes that environmental liabilities remain a significant concern for companies leaving the sector.
Eni’s reduced onshore presence
Eni, the Italian oil giant, has gradually shifted its focus from Nigeria’s onshore to offshore oil operations. The company’s reduced presence reflects its broader risk management strategy, as highlighted in a report by Stakeholder Democracy.
Chevron’s Strategic Reassessment
Chevron, facing similar challenges, has been reassessing its onshore operations in Nigeria. While the company has yet to formalize its exit, its divestment considerations highlight the growing challenges in maintaining viable onshore operations.
Why are oil giants leaving Nigeria’s onshore sector?
The operational risks in Nigeria’s onshore oil sector are a significant deterrent for international oil firms. Oil theft and pipeline vandalism remain pervasive, with losses exceeding 400,000 barrels daily in 2023.
These activities not only lead to revenue losses but also pose safety risks for staff and infrastructure. Shell, for instance, reported recurring pipeline sabotage as a primary reason for exiting its onshore operations in Nigeria.
Environmental degradation caused by oil spills and gas flaring has also led to heightened scrutiny from both local and international stakeholders. Companies like ExxonMobil have faced significant backlash over unaddressed environmental liabilities.
The Nigerian government’s insistence on cleanup obligations before approving divestments has further complicated exit strategies.
Additionally, tensions with host communities over resource control and corporate social responsibility have made operations increasingly untenable. Indigenous communities demand greater compensation and involvement in decision-making, escalating disputes and production halts.
Frequent changes in Nigeria’s oil sector policies create an unpredictable business environment. The Petroleum Industry Act (PIA), introduced in 2021, aimed to overhaul the sector, but its implementation has faced delays and criticisms. International oil firms often find these regulatory ambiguities incompatible with their long-term planning and investment strategies.
Global energy firms are pivoting towards renewable energy sources, aligning with climate change goals. Companies like TotalEnergies and BP have outlined ambitious plans to reduce their reliance on fossil fuels.
For many of these firms, exiting Nigeria’s onshore oil sector is part of a broader strategy to divest from high-risk, carbon-intensive operations.
Implications of International Oil Firms Exiting Nigeria’s Onshore Fields
The exodus of international oil firms has reshaped Nigeria’s oil sector, transferring significant assets to local consortiums. While this shift increases indigenous participation, it also raises concerns about capacity and expertise.
A report by African Business notes that local operators often lack the financial and technical capabilities to manage these assets effectively. This has led to reduced production levels and revenue shortfalls.
The environmental implications of these exits are profound. Many international firms leave behind unresolved environmental issues, including oil spills and land degradation. Local operators, often underfunded and inadequately equipped, may struggle to address these challenges.
According to Climate Diplomacy, the lack of robust environmental safeguards exacerbates the ecological crisis in oil-producing regions.
Security issues, including oil theft and vandalism, remain significant challenges for onshore operations. The departure of international firms has shifted these risks to local operators, who often lack the resources to manage them effectively. The Stakeholder Democracy Network highlights how pipeline sabotage and community unrest continue to disrupt operations.
The exit of international oil firms aligns with a broader global energy transition. Companies are redirecting investments toward renewable energy and offshore projects, which are perceived as more sustainable and less risky. This transition, while beneficial in the long term, poses immediate challenges for Nigeria’s economy, which remains heavily reliant on oil revenues.
The Way Forward
Chuks Momoh, an energy analyst, suggests that Nigeria must prioritize creating a stable and transparent regulatory environment to attract investments.
“This involves fast-tracking the implementation of the Petroleum Industry Act and addressing security issues in the Niger Delta.”
He adds that enhancing community relations and ensuring environmental accountability are critical steps.
Douglas Adeleye, an oil and gas consultant, emphasizes the importance of diversifying Nigeria’s economy.
“The government should leverage the current energy transition to push for more investment in renewable energy and other sectors to mitigate the long-term effects of declining oil revenues,” he said.