Chevron, Mobil & Shell Are Selling Off Oil Assets And Ditching Nigeria – These Are The Possible Reasons

By  |  October 30, 2019

Could they be cutting their losses or switching strategy?

Or are they basically fleeing from what is starting to seem like an untenable position given that one ex-Navy officer-turned-inventor just landed a multi-million deal to produce an electric car battery that will take drivers 1,500 miles without needing to charge?

Or are the calls from climate activists finally starting to sink in and nobody wants to be the bad guy?

Well, those are the speculations that have come to the fore since Reuters let the whole world know that Chevron is seeking to sell several Nigerian oilfields.

The report suggested that Chevron was joining rivals, including Exxon Mobil and Royal Dutch Shell, “in a new move by foreign oil companies to reduce their footprint in Africa’s largest oil producer which has been mired in political and security instability in recent years.”

A part of the report implied that Chevron was “partly” ditching Nigeria as part of a global drive to reposition its portfolio as it focuses on growing its U.S. shale output, and banking and industry.

In view of that, Chevron, which is Nigeria’s third-largest oil producer, is looking for buyers for a number of its “onshore and shallow offshore fields, where local producers have expanded their presence.”

Possible Reasons Chevron, Mobil, And Shell Are Considering Selling Off Some Oil Assets In Nigeria

Going by the content on its official website, the Nigerian subsidiary of Chevron operates and holds a 40 percent interest in 8 blocks in the onshore and near-onshore regions of the Niger Delta under a joint venture with Nigeria’s National Petroleum Company (NNPC).

Like its peers, it does own significant onshore oil assets in Nigeria and the decision to divest ought to be with good reasons. And these are some of the possible reasons:

  • From all indications, Chevron and the other International Oil Companies (IOCs) are actually planning to sell off their marginal onshore fields. It might be that such assets are becoming too much hassle for what they’re worth. Thus, the big oil firms have chosen to bet on deep-water offshore fields where there’s high risk and even higher reward.
  • The oil companies are selling off mostly onshore assets. This is because the overall cost of maintenance is high mainly due to issues with host communities. Also, while the oil majors are selling off onshore assets, they are developing new offshore assets. For example, the upcoming Ikike development project for total, the Bonga southwest for SNEPCo and the Zabazaba for NAOC. ExxonMobil also has the burgeoning Idoho offshore project off the coast of Emergency in Akwa Ibom. Total also developed the Egina FPSO some years back. The oil majors may, indeed, be selling off assets but they are mostly onshore assets. The general belief is that indigenous companies will better manage the host communities, mostly due to reduced expectations.
  • Another possible reason is valuation arbitrage, due to statutory tax treatment of IOCs versus indigenous players. Indigenous entities pay less tax to government and can manage “community tax” better than IOCs.
  • It could be that the IOCs are seeking ways for efficient risk transfer whereby the IOC sells these assets and turn around to sign long-term off takes with buyers. In this case, they don’t have to deal with the hassle of operating in Nigeria and can still secure the crude volumes for their business with sister companies.
  • The IOCs may be looking to sell off their onshore assets due to insecurity, pipeline vandalism, community issues. This could spark concentration in deepwater and gas. Other reasons may be policy changes and competition with other projects within the portfolio. Also, deepwater exploration makes more commercial sense for them. The IOCs are known to get the most value from deepwater assets and there’s the talk of fixed oil and gas assets being a lot less valuable in the near future with the awareness created by the climate crisis.

Featured Image Courtesy: OilAndGasPeople

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