The Economist Intelligence Unit (EIU) has cautioned that indigenous oil companies acquiring assets from divesting international counterparts may face challenges in matching their investing capabilities.
In its recent Country Report on Nigeria, the EIU noted concerns about the financial capacity of local firms compared to multinational corporations, historically pivotal in the Nigerian oil sector.
Citing a challenging business environment marked by corruption, insecurity, and infrastructure deficits, the EIU predicted a potential net withdrawal of foreign direct investment (FDI) in 2024, following the trend observed in the previous year.
The divestment trend among foreign oil companies, with plans to sell onshore assets and relocate offshore, further underscores the shifting dynamics in the Nigerian oil industry. Shell’s agreement to sell its Nigerian onshore subsidiary and similar intentions expressed by ExxonMobil, Equinor, and TotalEnergies reflect a broader trend.
While some view the divestment as an opportunity for indigenous companies to develop capacity within onshore and shallow water spaces, the EIU warns of challenges. Indigenous firms may struggle to match the investing power of outgoing multinationals, potentially affecting their ability to sustain operations and drive growth.
Despite the potential benefits of indigenization, including increased foreign exchange accumulation, the transition poses significant hurdles. The EIU projects a modest rise in Nigeria’s crude oil production by 2028, yet remains below pre-divestment levels, highlighting ongoing uncertainties within the sector.
As Nigeria navigates these transitions, balancing the interests of local and international stakeholders will be crucial for sustaining growth and stability in the oil industry.
