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Why Are Oil Companies Suddenly Divesting from Nigeria?

  +Follow June 19, 2013 3:42PM
Tickers Mentioned:

Chevron (CVX) announced Tuesday it was going to start getting out of Nigerian oil. The oil company is expected to sell all or part of its five shallow water oil blocks, aiming to pass them off to local Nigerian oil companies. The Nigerian government has been seeking to take a more vested interest in oil companies setting up shop in their country for some time now, and Chevron oil investors speculate that if Chevron didn’t sell now, they’d eventually get nothing for the oil blocks.

Chevron isn’t alone in divesting from Nigeria. Royal Dutch Shell (RDS), Conoco Phillips (COP), Italian company Eni (E) and French company Total SA (TOT) have all within the last few years sold holdings to local Nigerian companies. The question is: why now? Why are the big oil companies suddenly fleeing one of the most oil-rich countries in Africa en masse?

A look at each American-trading oil company – and their history drilling oil in Nigeria – shed light on some of the answers.

CHEVRON (CVX): Political unrest directed at Chevron has been building in Nigeria (and with US-based Nigerians) for some time. In October 2008, former Nigerian citizens injured by Nigerian military personnel filed a lawsuit against Chevron, alleging the company had backed military operations to ensure the safety of the company’s Nigerian holdings and disrupt local protests against their oil rigs. Thought Chevron was exonerated, relations continued to worsen.
Last week, People of the oil-rich Ondo state petitioned the government to intervene after feeling Chevron Nigeria had ignored implementing a document called the General Memorandum of Understand (GMU), meant to strengthen relations between locals and Chevron and provide “scholarships” for host communities. After feeling ignored by Chevron, the Ondo gave Chevron seven days to implement their demands and stated that “at the expiration of the said ultimatum, no one would be able to guarantee the safety of CNL (Chevron Nigeria Limited)’s offshore facilities.” 
In other words: why did Chevron sell? Because otherwise, the facilities could be taken by force.  

ROYAL DUTCH SHELL (RDS): Royal Shell has been in business in Nigeria since 1937. In the 1990s tensions arose between the local Ogoni people and Shell. The Ogoni maintained that they were not being fairly compensated by Shell, and began organizing protests. The high-profile arrest and execution of activist Ken Saro-Wiwa by the Nigerian government damaged the company’s image even further. Regardless of Shell’s disputed direct level of involvement with the case, the incident turned Nigerian sentiment against the company (Shell eventually settled out of court.)

Since the 90s Shell has been slowly divesting their Nigerian interests. In November 2011 they sold a large chunk of two blocks to the Nigerian National Petroleum Corporation. And in February 2012 Shell reported 7.5 billion in total divestment from Nigeria, though they still control 21 percent of Nigeria’s total oil and gas production.

CONOCO PHILLIPS (COP): Conoco Phillips is near closing a deal to sell the entirety of its Nigerian operations to Oando Energy, for about $1.79 billion. While people questioned whether Oando would have the funds to complete the transaction, Oando is claiming that the deal is good to go, and Conoco Phillips will soon be out of the country. Like with Chevron (but in less direct terms) there has been pressure put on by the government to have an indigenous company control more oil production, and concerns that thefts by local gangs could continue if they didn’t sell. Tough Conoco Phillips is by no means the only victim of theft UN estimates put the amount of crude siphoned off from pipelines at around 7.5 percent of the country’s total production, or about 150,000 barrels of crude a day.

EXXON MOBIL (XOM): Unlike the other major oil companies, ExxonMobil’s presence in Nigeria may actually be increasing. Exxon said in May they plan to invest over $33 billion in Nigerian oil and gas sector over the next five years. What makes Exxon’s presence in Nigeria unique is the fact that all 90 of their oil-producing platforms are offshore. Also, Exxon has managed to largely avoid some of the human rights controversies and political pressure to turn over production to local companies that have dogged other oil companies in Nigeria.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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