Oil Majors Operating in Nigeria are Divesting at Rapidly Accelerating Rate, SDN Report Shows

A seeming worrisome report by Stakeholder Democracy Network (SDN), a civic group operating in the Niger Delta has shown that divestments by oil and gas majors which according to the group, have been ongoing for decades, is rapidly accelerating currently.

The report explores the trends, drivers, and implications of international oil companies (IOCs) selling off assets to Nigerian domestic oil companies (DOCs).

For the first time since production began 60 years ago, the DOCs are about to surpass IOCs in the proportion of oil blocks where they are operators and own equity, the report says.

The changing context is driving divestments, particularly the rising costs of operations, increasing likelihood of legal action for environmental pollution, and intensifying international pressure to cut emissions and decarbonise the economy.

Yet these factors are arguably caused, or at least exacerbated, by the operations of IOCs.

The transition therefore raises several questions about the responsibility to address the toxic legacies, and the implications for communities in the Niger Delta, and Nigeria writ large.

This includes whether DOCs can improve on the performance of the IOCs, or if new dynamics could emerge, exacerbating the impacts on citizens, the environment, and the economy.

Given the significant impact of this changing dynamic, we are calling for a comprehensive and urgent discussion on what needs to be done to ensure that historic injustices experienced by communities are addressed, that an exit from operations is done responsibly including proper provisions for clean-up and decommissioning, and that whatever comes next does not result in a worsened situation for host communities.

Key messages:

IOCs are selling onshore assets in the Niger Delta at an accelerated rate, and leaving without adequately addressing the legacies of environmental pollution, social strife, and governance problems created by their operations over the past 60 years.

DOCs are taking over, with less experience and resources. There are already signs that the environmental, social and governance (ESG) performance could be worse, so the problems that communities face will continue, and they will have fewer options to seek accountability and justice in international courts.

The Federal Government of Nigeria is facilitating the divestments, and doubling down on oil and gas, when in reality, there is an urgent need to design strategies to manage the industry’s decline, and take actions to protect communities in the Niger Delta, and hold IOCs accountable for their historic liabilities.

Insisting, SDN in its daring report said divestment from onshore oil and gas operations in the Niger Delta by international oil companies is accelerating, pointing out, ‘’this is a major shift in the Nigerian oil and gas industry, requiring an equivalent shift in the thinking and actions of government, civil society and the international community.

This report assesses the drivers of this dynamic, and analyses some of the existing and emerging implications, particularly for the Niger Delta and its citizens, with the aim of provoking and informing action on this issue.

Its analysis shows that: IOCs are leaving toxic legacies of environmental pollution, social strife, and economic damage in the communities where they operated.

Domestic oil companies are taking over, and they will soon become the dominant owners and operators. However, they are starting operations from a difficult position, with less experience and resources to handle the toxic legacy of IOCs, which raises a number of concerns around the next phase of oil and gas production in Nigeria.

IOC divestment will not mean an end to the challenges communities face. There are open questions around how DOCs will perform on environmental, social, and governance (ESG) issues in comparison to IOCs.

There are signs that DOCs with high levels of local ownership can get off to a good start on community relations, however unfulfilled promises and poor practices are also easy to find.

Past SDN research shows that DOCs pollute more for every barrel of oil they produce, and may not face the same pressures from shareholders and the FGN to improve their practices, or be held to the same standards of transparency that international initiatives require.

IOCs are divesting for a range of reasons, including insecurity and oil theft, that ultimately contribute to the high costs and risks of continued operations. They publicly disclose that these issues are making their Nigerian assets a divestment priority when rebalancing their international portfolios.

But IOCs have played a role in creating the conditions which perpetuate many of these issues over the past sixty-five years of operations onshore across the Niger Delta. Recent progress in the ability of communities to seek justice for historical oil spills could be reversed.

International courts are starting to hold IOCs accountable for past spills, but will lack jurisdiction over DOCs solely registered in Nigeria, or potentially over the subsidiaries of IOCs if they are sold, an option Shell is exploring.

The only option for communities will be the Nigerian legal system, which has repeatedly failed to enforce judgements of this kind. As the global energy transition takes shape, the Federal Government of Nigeria remains heavily reliant on oil and gas revenue, and is prioritising further growth, through a domestic oil and gas industry which is highly indebted.

This is out of step with Nigeria’s climate commitments, distracts from efforts to diversify the economy, and exposes Abuja to a very high level of risk. If DOCs cannot maintain the production levels of IOCs, for example, this will put a strain on government finances, and an oil-fuelled system of patronage which maintains a delicate peace.

The divestments are a reminder that the global economy is decarbonising, and hydrocarbon resources will be worth less in future.

SDN says Abuja needs to redirect resources towards diversifying from oil and gas, investing in renewable energy, and standing by impacted communities as they seek justice from the IOCs, arguing however, that if Abuja continues forging ahead on the current path, the role of an independent environmental regulator for the oil and gas sector is needed more than ever to monitor the transition, and enforce safeguards for communities and the environment.

In the meantime, the IOCs must not be permitted to simply ‘buy their way out’ of the problem, for example by using subsidiaries to agree cash settlements with communities. They have a responsibility to fund environmental remediation, decommission disused infrastructure, and pay fair compensation for other damages, whilst ensuring proper consultation and thorough consideration of community needs throughout this process.

As the domestic oil companies are taking over the country’s onshore oil and gas industry, while international oil companies are steadily moving offshore, or out of Nigeria altogether, the transition, according to SDN, has justified a lot of attention, since the industry has been immensely profitable for IOCs and Abuja over the past six decades.

But, IT has failed to improve economic, social, and environmental wellbeing for the majority of citizens in the Niger Delta. The report discuss the legacies that IOCs are leaving behind, and whether DOCs can improve on their performance, or if new dynamics could emerge, exacerbating the impacts on citizens and the environment in the Niger Delta.

Globally, divestment campaigns have recorded enormous achievements by encouraging investors – such as pension funds, investment banks, and universities – to withdraw an estimated USD$14.6 trillion in funding to the extractive industries.

As a result, the IOCs are changing their operations, and divesting from oil and gas fields worldwide. In Nigeria, and the Niger Delta specifically, there are also a host of other factors that are driving divestment by the oil majors.

Yet while this is reducing the role of the IOCs in the sector, it does not guarantee that fossil fuels will remain in the ground. In Nigeria, despite the departure of the IOCs, the government is doubling down on oil and gas, and is incentivising DOCs to lead the expansion of the industry.

The environmental, social, and governance (ESG) problems that the IOCs created are not going away with their exit, but rather the entry of new companies is creating new dynamics for host communities to confront, entrenching Nigeria’s dependence on the oil and gas sector, and complicating the global effort to decarbonise.

Given the significant impact of this changing dynamic, a comprehensive and urgent discussion is needed among citizens, government, civil society, the international community, the oil and gas industry and others.

On what needs to be done to ensure historic injustices experienced by communities are addressed, that an exit from operations is done responsibly including proper provisions for clean-up and decommissioning as relevant, and that whatever comes next does not result in a worsened situation for host communities.

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