Nigeria’s oil sector hit by an exodus of foreign companies

Good morning and welcome back to Energy Source, coming to you from New York.

Negotiators from more than 100 countries are scheduled to wrap up talks at the UN COP28 climate summit today, but clashes over the future of fossil fuels look likely to prolong the debate.

A draft agreement circulated on Monday dropped references to the phaseout of fossil fuels, triggering backlash from countries that accuse Saudi Arabia and other petrostates of thwarting efforts to tackle climate change.

“Clearly there is an emerging proactive fossil coalition,” said one senior EU negotiator after the text was released. Our FT colleagues in Dubai reported the UK government called the draft “disappointing”.

Several negotiators said they expected talks on a final agreement to drag on until Wednesday or Thursday.

The US oil industry appears to be growing more confident that demand for fossil fuels will remain resilient for decades to come with Occidental Petroleum inking a $12bn takeover of CrownRock — the latest in a string of high-profile deals in the sector. The Houston-based company backed by Warren Buffett beat rival bidders to secure CrownRock’s shale assets in the Permian Basin.

But our main item comes from Lagos, Nigeria, where the FT’s west Africa correspondent Aanu Adeoye recently interviewed Africa’s richest man, Aliko Dangote, about his mammoth refinery project which is nearing production after years of delays.

He also writes about the challenges facing Nigeria’s oil industry, where international companies are fleeing because of a deteriorating investment climate. — Jamie

Who will fill the void foreign oil has created in Nigeria’s energy sector?

Over the past year, a new phenomenon has been happening quietly in Nigeria’s oil industry: the exodus of international oil companies from all or parts of their operations in the country.

After months of speculation, Norwegian oil company Equinor announced late last month that it had sold its Nigerian entity to a little-known local company Chappal Energies, the end of Equinor’s three-decade association with Africa’s largest oil producer.

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It is not an isolated incident. Italy’s Eni announced in September it would sell its onshore subsidiary to Oando, a local company. Before that, China’s Addax sold its four oil blocs to state oil company NNPC last year.

Then there’s US giant ExxonMobil’s plan to sell four onshore oilfields to Seplat, a Lagos and London dual-listed energy company, for about $1.3bn. While former president and oil minister Muhammadu Buhari had originally approved the deal in August 2022 — he reversed the decision just days later. The deal remains uncompleted.

Britain’s Shell is in a similar position: it has expressed interest in divesting from onshore fields that could fetch almost $3bn, but remains caught in legal cases that have stymied progress.

In almost all cases, the international oil majors are stepping back from onshore and shallow water assets that have been subject to rampant theft and vandalism that has stalked the Nigerian industry for much of the past five years.

Environmental concerns over spillage — and its resulting economic impact — have blighted these assets for decades. As oil majors conclude that the hassles are no longer worth it, they are turning to more profitable and less-fraught offshore assets.

Analysts see an opportunity for local Nigerian players to increase their market share in acquiring these unloved assets.

“For local companies who don’t have the billions of dollars in capital to invest in offshore assets, buying these assets is a chance for them to expand,” said Noelle Okwedy, an energy analyst at Lagos-based intelligence firm Stears. 

“Local companies might also have an easier time negotiating with indigenous communities because of their local knowledge,” she said.

When will it start?

That is the question many keep asking about Aliko Dangote’s mammoth $20bn refinery project that has been dogged by delays and accusations of favouritism. Abdul Samad Rabiu, founder and chair of the BUA Group conglomerate, a Dangote rival, alleges that Africa’s richest person secured funds at favourable rates from the Nigerian Central Bank under its now suspended former chief. Dangote denies the allegations.

What’s clear, however, is that Dangote is under pressure from almost all sides. The refinery has the potential to transform Africa’s biggest oil producer from importing refined petroleum products to becoming a net exporter.

Just last week the Dangote Group announced it had secured its first ever shipment of crude from Shell’s oil-trading arm. But the fact the first cargo came from Shell and not from the state-owned NNPC will increase speculation that Dangote, Nigeria’s biggest industrialist, is yet to reach an agreement with the state oil company. NNPC owns 20 per cent of the refinery following a $2.76bn acquisition in 2021.

Speculation abounds that NNPC is playing hardball with Dangote over the supplies. The story — as it goes in Nigeria, according to bankers and analysts — is that NNPC would like a bigger stake in the refinery and that for the first time since the country’s return to democracy in 1999, the 66-year-old Dangote is not exactly in the good graces of the government of the day. 

Dangote has rubbished that speculation saying: “I don’t think NNPC needs to buy more shares. I think they’re OK with what we’ve given them”, but it seems clear which way the wind is blowing right now. The company says NNPC’s crude shipment is expected in the next “two to three weeks” with another from ExxonMobil to come at a later date.

The world is watching to see how Dangote’s refinery turns out. It could either be a stroke of genius by an industrialist to transform his country or a hare-brained idea by a conglomerate that bet the farm and spread itself too thin. (Aanu Adeoye)

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Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and David Sheppard, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.