International energy companies in Angola and Nigeria illustrate importance of enabling environment (By NJ Ayuk)

NJ Ayuk, Executive Chairman, African Energy Chamber.

Last fall I wrote (https://bit.ly/3zPqScP) about the importance of African governments doing everything possible to encourage international oil companies (IMOs) to continue operating in their countries. IOCs play an important role in supporting economic growth, job creation, capacity building and knowledge sharing.

Currently, two IOCs in particular – Azule Energy in Angola and Shell Petroleum Development Corporation of Nigeria (SPDC) – hold enormous promise to deliver these benefits on a long-term basis. Azule Energy, a newly formed independent joint venture between Angola’s BP and Eni, is now a major player in the oil and gas industry. SPDC, the operator of a joint venture agreement between the Nigerian National Petroleum Corporation (NNPC), Shell, Total Exploration and Production Nigeria Limited and Nigeria’s Agip Oil Company, is Shell’s largest company in Nigeria. The potential for the two companies to impact the African economy is so significant that the African Energy Chamber features both in its recently released State of Africa Energy Report for Q2 2022.

Azule Energy and SPDC are hardly the only IOCs contributing to economic growth on our continent, but they are excellent examples of the long-term impact that international companies can have and the need to create an enabling environment for them. I urge the heads of government of Angola, Nigeria and other oil and gas producing nations to continue to take practical steps, from creating favorable fiscal policies to protecting company assets from theft and vandalism, to encourage continued IOC activities.

A new era in Angola

The joint venture between the Angolan operations of UK oil major BP and Italian multinational Eni, completed in early August, is big news in every sense. Azule Energy is now Angola’s largest independent oil and gas producer and, according to our report, is expected to become the country’s second largest producer, behind only state-owned Sonangol. Our report predicts that Azule will produce approximately 22% of Angola’s oil and gas production by 2025, surpassing even industry giants such as Chevron and TotalEnergies.

How much product are we talking about? BP and Eni forecast that Azule will produce 250,000 net barrels of oil equivalent per day (boe/d) from Angola’s mining sector by 2027. Not only that, the company has shares of BP and Eni in 16 exploration licenses, indicating a long-term presence in Angola.

Azule will also play an important role in the development of Angola’s natural gas industry as a member of the New Gas Consortium (NGC). This joint venture was established by BP, Eni, Chevron’s subsidiary Cabinda Gulf Oil Company Limited (CABGOC), TotalEnergies and Sonangol in late 2019 to explore and produce gas in Angola and stimulate economic growth there.

One of the consortium’s initial projects will be the development of the Kiluma and Mabakeira gas fields, Angola’s first non-associated gas development project. Earlier this summer, the consortium partners announced the final investment decision on the field. With first gas production scheduled for 2026, the fields are expected to produce a total of about 4 billion cubic meters of gas per year at peak. The project also involves supplying gas to an LNG (liquefied natural gas) plant in Angola.

Azule Energy’s ongoing operations will have a huge impact on the people and businesses of Angola. The new natural gas joint venture alone is helping to meet domestic needs, starting with new gas-to-electricity programs that will help provide reliable electricity to more Angolans. The gas could also be used as a feedstock for petrochemical plants, leading to greater economic growth and diversification, and could help meet the international community’s urgent need for natural gas, which has increased since Russia’s invasion of Ukraine.

An example for Africa

Angolan government leaders played an important role in making all of this possible.

For example, under the leadership of Diamantino Pedro Azevedo, the Ministry of Mineral Resources and Petroleum prioritized the promotion of exploration and production. One way the ministry chose was to divest Sonangol, the national oil company, of non-core assets. The move gave Sonangol the necessary funds to focus on its upstream, midstream and downstream operator businesses.

Angola also introduced licensing stages a few years ago. In February 2022, ANPG’s third round of bidding resulted in offers from TotalEnergies, Equinor and Eni. As the Energy Chamber noted at the time, the introduction of licensing rounds combined with fiscal reforms — including a halving of tax royalties and a tax on profits from marginal discoveries — sparked a surge in international activity in Angola. And this has created an environment that will foster a long, healthy working relationship with Azule Energy.

The continuing role of the SPDC in Nigeria

At the same time, Nigeria, with more than 4 billion barrels a.d. reserve potential and the ability to maintain production at more than 300,000 boe per day until 2035, SPDC remains very important to the national economy. Our report estimates the company’s current portfolio to be at least $2 billion.

SPDC, which made its first Nigerian discovery in 1956, has been the subject of controversy, primarily due to oil spills in the Niger Delta region. But the company’s presence in Nigeria has also affected lives and society for the better. For example, in 2019, the Nigerian Content Development and Monitoring Board (NCDMB) recognized Shell as the most influential IOC in the country for local content initiatives. Not only is the company known for supporting local vendors and suppliers, but it also makes local employment a priority. It was recently estimated that 96% of the local workforce (currently totaling about 2,500) is Nigerian and 66% is from the Niger Delta.

The chamber is also optimistic about SPDC’s plans to transform Nigeria into a natural gas hub. SPDC Head/Director of Corporate Relations Igo Weli said Shell companies are working with the Federal Government of Nigeria to build a network of gas plants and pipelines that could enable industrial and commercial development and increase LNG exports to meet global demand.

“In Bayelsa State, Shell Nigeria Gas has signed an agreement with the Nigerian Content Development and Monitoring Board (NCDMB) to provide gas infrastructure for the NCDMB Industrial Gas Park in Polak,” Weli said. “NCDMB estimates that the park could create over 30,000 jobs.”

Then there are the company’s education and training initiatives. One example is the NNPC/Shell Cradle-to-Career Scholarship. Since 2010, 708 young people from the impoverished Niger Delta, where most of SPDC’s assets are located, have received scholarships. The program covers the full cost of each beneficiary’s tuition, room, books, clothing, toiletries, health insurance and attendance for six years of high school. And over the past five years, 184 participants have transferred to SPDC’s university scholarship program.

In recent times, Nigeria has seen an increasing number of its MNCs divest of Nigerian assets, with more than 25 oil licenses in the Niger Delta basin in the past 11 years. In fact, Shell also planned to sell its offshore assets in Nigeria to help it meet its emissions reduction targets. However, the company shelved those plans in June to comply with a Nigerian Supreme Court ruling that would have to wait for SPDC’s 2019 oil spill appeal before selling the Nigerian assets.

It would be a good time for government leaders to do what they can to make staying in Nigeria more attractive for Shell after the court case is concluded. One way to do this is to help the company significantly reduce the vandalism and oil theft that affects its operations. As recently as this summer, the company said it had lost more than $1 billion in revenue in recent months to oil theft and vandalism in Imo, Rivers, Abia and Bayelsa states.

It’s an issue that should concern the government as much as Shell, Weli said, because theft is directly responsible for most of SPDC’s oil spills.

“If over 90% (of) spills are caused by people with axes, saws and even explosive weapons, then you’re creating a problem that will eat up budgets that you would use for education, health care, etc.,” he said. he . “When you break pipes, and the pipes lead to spills, and the cleanup is very expensive, and the government had to clean up the environment to make it safe for us, then you’re diverting resources to that that are needed for other things.”

I understand that addressing the socio-economic issues that contribute to these crimes, including unemployment and fuel shortages, is not an easy task. Despite this, the Nigerian leadership should do everything possible to help SPDC keep its assets safe in the short term so that the opportunities the company creates can strengthen local communities in the long term.

Worth the time and resources

Large international companies such as SPDC and Azule Energy affect both national governments and small communities. They add to the coffers of countries and help young people acquire the necessary skills for a prosperous and fruitful future.

The African Energy Chamber is optimistic about both companies and we hope to see more like them across the continent.

However, this will largely depend on African governments. By creating operator-friendly policies and working together to help IOCs address challenges, our leaders can help ensure far-reaching benefits for their countries and populations.

Distributed by APO Group on behalf of Africa Energy Week (AEW).