Johannesburg - For sale: stakes in oil fields. Bids from
world class energy companies preferred. Pipelines and terminals associated with
the deposits only blown up about a dozen times in the past year. Deal may
depend on crude prices.
Nigerian President Muhammadu Buhari’s government on
March 7 proposed a plan to jump start the economy by, among other things,
selling stakes in joint-venture oil projects within the next three years. Given
a militancy escalation that blighted those very assets last year, and previous
struggles to privatize state businesses, analysts inside and outside the west
African country say such sales won’t be straightforward.
“Nigeria’s track record on privatization and divestments
has not exactly been the best, so people are probably going to greet this news
with a certain degree of scepticism and I think rightly so,” Manji Cheto,
a West Africa specialist at Teneo Intelligence in London, said by phone. “I
don’t think this is going to be a process that’s speedy.”
Normally Africa’s biggest producer, Nigeria has been
among the world’s hardest-hit supplier nations over the past year due to the
militant attacks that crushed its output while prices remained half what they
were in mid 2014. At the same time, its reduced flows have helped limit a
global crude glut, bolstering OPEC and other nations dependent on revenue from
selling the commodity.
The oil ministry and Nigeria National Petroleum Corporation
didn’t respond to multiple calls and emails requesting comment.
Smaller stakes
The oil asset-sale plan starting this year through 2020 would
reduce the average 55 percent stake Nigeria holds in joint ventures with Royal
Dutch Shell, Exxon Mobil, Chevron, Total and Eni, which produce about 90
percent of its crude.
Previous privatisations included power assets, a process
that Nigerian Senate President Bukola Saraki said in February had “failed” to
improve domestic access to power as planned. In 2010, the West African nation
halted the sale of Nigerian Telecommunications Ltd., also known as Nitel, and
opted to liquidate the company after failing to find a buyer for the former
monopoly. It’s also struggled to secure outside investment in its refineries.
Read also: Shell reluctant to reopen pipeline
The government has traditionally been reluctant to sell
crude assets. Existing plans aim to increase oil production to 2.5 million
barrels a day by 2020 after falling to about 1.4 million last year, the lowest
level in almost three decades. Such an increase could boost government revenue
by 800 billion naira ($2.53 billion) annually and fund a revamp of domestic
refineries. Lowering its stakes would diminish any windfall from a recovery in
output and prices.
Unwilling seller
“Many within the government do not really want to let go
of oil assets, but the current reality may be slowly beginning to change that
thinking,” said Cheta Nwanze, head of research at Lagos-based risk advisory SBM
Intelligence. “This proposal represents an adjustment to a new economic normal
and not a glowing embrace of market forces.”
Nigeria’s militant threat hasn’t gone away, either. While
the government has stepped up engagement with community leaders and proposed
restoring the budget to pay former fighters, the Niger Delta Avengers
threatened earlier this year to widen attacks. The group was responsible for
most pipeline sabotage last year.
The African country is also part way through five years
of $5.1 billion in payments -- in the form of crude sales -- to oil companies
to reimburse them for past operating costs.
A Shell worker aboard the Bonga offshore oil vessel prepares for an inspection.
“I imagine international oil companies will treat any
additional equity stakes offered to them with a healthy dose of caution given
the severe production disruptions of 2016 and the fact that the NNPC still owes
substantial sums to their venture partners,” said Charles Swabey, an oil and
gas analyst at BMI Research.
Good assets
Nigeria reducing its average stake to 40 percent from 55
percent would be seen as ideal for the government, Pabina Yinkere, head of
institutional business at Lagos-based Vetiva Capital Management, said in an
interview.
The partner companies will receive the right of first
refusal in any sale of the stakes, according to Nwanze from SBM Intelligence.
International oil companies built up the stakes they have today from the late
1970s to the 1990s. So there is precedent for offloading such assets.
“The JV assets are good assets,” Yinkere said. “Nigerian
buyers may be few this time around due to funding as many local banks will not
be so willing to lend toward this. We could see healthy foreign appetite for the
sale, particularly from China and India.”
But while Nigeria thinks about loosening its grip on the
assets, a rebound in crude oil prices could still cause the sale to go the way
of previous divestment plans.
“The need to increase government income is the primary
motivation for these new proposals, and a return to the good times of higher
oil prices and normal Nigerian production will be a formidable disincentive,”
Nwanze said.