Shell's Exit from Nigeria's Onshore Oil Sector Raises Concerns and Opportunities

Shell's recent departure from Nigeria's onshore oil sector highlights the risks oil majors face in Africa's largest exporter. The Niger Delta region, plagued by pollution, oil theft, and pipeline vandalism, has long hindered investments, leading to a decline in production levels and government finances.

As the foremost Western company to exit the Delta, Shell's move underscores the ongoing trend of Western energy companies divesting from Nigerian onshore oil fields. Reuters noted that Exxon, Eni, Equinor, and Addax have all sold assets in the country in recent years.

Production Decline Accelerated by Limited Investments

As per Yahoo, Shell's production share in Nigeria peaked at 300,000 barrels of oil equivalent per day (boed) a decade ago. However, due to sabotage and theft in the Niger Delta, that figure plummeted to 131,000 boed in 2022, as indicated in the company's annual reports. Industry experts note that major oil companies like Shell and Exxon diverted investments away from onshore assets, hastening the decline in production levels.

One key factor contributing to the divestment from onshore operations is the environmental impact. Addressing pollution, implementing sustainable practices, and rehabilitating affected areas in the Niger Delta will be paramount in revitalizing the region and regaining international investors' trust.

The challenges facing Nigeria's oil sector, including policy issues and concerns over foreign exchange policies, have significantly impacted investments. Andrew Matheny, senior economist at Goldman Sachs, noted that these factors have contributed to the major oil companies' decision to exit and disinvest to some extent. These departures have played a substantial role in the decline in oil production in recent years.

The sale of Shell's subsidiary to mostly local firms signifies a potential opportunity for Nigerian companies to reverse the production decline in the Niger Delta. While Western energy companies are pivoting away from onshore operations, it opens doors for domestic players to step in and harness the region's resources.

President Tinubu's Promises and Ongoing Changes

President Bola Tinubu, who assumed office last May, pledged to remove obstacles to oil producers, including addressing crude theft and pipeline vandalism. However, the ongoing asset sales, already in progress before his election, symbolize the inevitable transformations in Nigeria's oil sector.

Analyst Seyi Awojulugbe from SBM Intelligence stated that divesting less capital-intensive onshore operations demonstrates the risks associated with doing business in Nigeria and the shifting focus towards offshore operations.

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