Latest Posts

SPDC’S exit from Nigeria: Should we be glad?

[ad_1]

Last week, Royal Dutch Shell announced the divestment of its Nigerian subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC). The company cited various reasons for the divestment, mainly environmental concerns and its need to meet the environmental social and governance (ESG) clamour of its investors.

SPDC had also previously spoken about its desire to work towards net-zero goals, and the increasing security challenges in the Niger Delta. In some quarters, there are equally speculations that the uncertain Nigerian petroleum industry regulatory framework and the general doing business difficulties in the country may have played a role in Shell’s decision to divest.

With Shell’s chequered history in Nigeria since 1956, it is worth asking if this planned exit is good riddance or a heavy loss to Nigeria’s economy.

Needless to restate that Nigeria’s economy is heavily reliant on oil. According to a report by the Nigeria Extractive Industries Transparency Initiative (NEITI), the oil and gas sector represents about 65% of government revenues. The sector also accounts for over 95% of export earnings, according to International Monetary Fund (IMF) statistics.

Nigeria’s oil journey has had Shell with it from ground zero, and as such, a divestment of Shell’s major upstream subsidiary in Nigeria will no doubt deal a significant blow, yet this divestment was not unexpected. Earlier in the year, the company had signalled that it intended to leave Nigeria due to its clean energy transition strategy and pressure from investors in that regard. In May this year, a resolution by the company’s investors for its recently unveiled climate strategy had 88.74% support by shareholders. With Nigeria being one of its largest fossil fuel markets, it was more than likely that it would opt to divest. The sale of the combined interest of 3 major international oil companies (IOCs) in Oil Mining Lease (OML) 17 this year, with Shell holding the largest interest, was also a pointer to this departure.

This is equally the trend in other oil-producing countries. TotalEnergies recently divested its 30.32% stake in Venezuela’s Petrocedeño joint venture due to the high carbon intensity of the oil project, while Equinor divested its 9.67% in the same project.

Shell’s presence has hardly been a pleasant one for its host communities in its more than 6 decades in Nigeria. The company has become synonymous with environmental harm and degradation, human rights abuses and general disregard for law. According to a National Oil Spill Detection and Response Agency (NOSDRA) tracker, Shell was responsible for over 40% of 846 oil spill incidents that happened between January 2019 and May 2021. In H1 of this year alone, the company recorded 51 oil spills in the Niger Delta.

One investigative report by the Guardian revealed that the agony faced by Nigerians in the Niger Delta dwarfs what was experienced during the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. This can hardly be far from the truth if one considers major spills by the company like the Bonga spill, the spills in Bodo, Goi and Oruma, Okordia, Ogale and Bille communities and Ogoni–a spill that reports say could take up to 30 years and $1 billion to clean up–to mention a few.

These spills have devastated communities, resulting in high mortality rates, worsened health conditions, and led to loss of flora and fauna. According to King Okpabi of Ogale community, “Shell spoiled our water and destroyed livelihoods.” The ruin in these communities remains a sour testament of Shell’s presence in Nigeria, most of which fuelled militancy activities in the Niger Delta region.

Mele Kyari, Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC) has responded to Shell’s exit by indicating the NNPC’s management will roll out a Comprehensive Divestment Policy that will set out things divesting companies must ensure, including the provision of abandonment and relinquishment costs, competency of the buyer, post-purchase technical, operational, and financial capabilities, etc.

While this is commendable, it is worth asking why the joint venture agreements (JVAs) and production sharing contracts (PSCs) that contain mandatory provisions on these items for entities divesting are not compelling enough for IOC compliance without the need for an additional policy. Also, the Department of Petroleum Resources (DPR) should be the appropriate body monitoring divestments in the oil and gas sector and ensuring that the necessary clean ups, abandonment and decommissioning procedures and due diligence on acquirers of interest are done, not the NNPC.

In sum, Nigeria should brace itself for the wave of divestments that will follow Shell’s exit, and should begin to take the energy transition seriously. Kyari, speaking at the 2021 edition of the Nigeria Annual International Conference and Exhibition (NAICE) said: “We are seeing a wave of divestment by oil majors operating in Nigeria.” Indeed, the wave is only gathering momentum, and the Nigerian economy will be dealt a heavy blow if it fails to adapt quickly, especially as the uncertainty around the COVID-19 pandemic recovery and its impact on oil prices heightens.

[ad_2]

Latest Posts

spot_imgspot_img

Don't Miss

Stay in touch

To be updated with all the latest news, offers and special announcements.