KEY POINTS
- Nigeria’s decision to block Shell’s $2.4 billion asset sale raises investor concerns.
- The upstream regulator has not provided reasons for blocking the deal.
- The move contrasts with the government’s efforts to attract foreign investment.
Nigeria’s decision to block Shell’s $2.4 billion sale of its onshore oil assets has sent ripples through the industry, dampening hopes of attracting foreign investment critical to reviving the country’s economy, according to analysts.
According to Reuters, President Bola Tinubu has been working to woo foreign investors to help stabilize Nigeria’s fiscal crisis.
However, this week’s unexpected move by Nigeria’s upstream oil regulator to halt Shell’s deal with the Renaissance consortium, which is led by local firms, has raised doubts about the nation’s ability to maintain investor confidence.
Long-awaited Exxon Mobil deal raises questions
While Nigeria approved Exxon Mobil’s sale of its onshore assets to Seplat Energy, that deal also faced significant delays, taking more than two and a half years to finalize.
The regulator provided no clear reason for blocking Shell’s sale, which adds to the uncertainty investors are facing in the oil sector.
Clementine Wallop, director for sub-Saharan Africa at Horizon Engage, a political risk consultancy, highlighted the disconnect between Nigeria’s efforts to attract investment and the hurdles created by regulatory delays.
“On one hand, you have a government that says it’s open for business and wants to improve the ease of doing business.
On the other hand, you have these prolonged delays that send mixed signals to potential investors,” she said.
The move is particularly surprising given Shell’s long-standing ties with Nigeria, where it has been one of the largest foreign investors in the oil industry for over half a century.
Oil remains Nigeria’s top foreign exchange earner and a crucial part of its economy, making such setbacks all the more concerning.
Declining foreign investment poses a challenge
Nigeria’s economy has struggled to recover from the global oil demand slump caused by the pandemic. Foreign investment has been steadily decreasing, with inflows dropping to $3.9 billion last year, down from $5.3 billion in 2022. This is a significant decline from five years, when investors pumped $24 billion into the country.
The oil assets Shell is attempting to sell are underperforming or not in production, meaning they would benefit from much-needed investment. The government is eager to boost production, as Nigeria’s output currently lags at 1.35 million barrels per day, far below its 2 million barrels per day target.
The regulator’s unexpected decision risks sending the wrong message to investors, many of whom are already hesitant to commit to Nigeria due to challenges such as power shortages, corruption, and a weak regulatory environment.
Investors remain cautious but optimistic
Despite the regulatory roadblocks, some investors remain optimistic about Nigeria’s oil sector. Kola Karim, CEO of Shoreline Energy International, sees opportunities to improve production quickly if the right assets are turned around. “The Seplat deal shows there’s still potential, but streamlining regulatory approval is essential to speed up the process and attract more investment,” he said.
Energy lawyer Ayodele Oni agrees that faster regulatory approval is needed to improve Nigeria’s oil and gas industry. “Nigeria needs to act more swiftly in granting regulatory approvals if it wants to draw in the necessary investments,” Oni said.
Recent executive orders, including one that increased the amount oil companies can spend without going through a tender process, have been cited as steps in the right direction. However, the blocked Shell deal serves as a reminder that more work is needed to align the government’s policies with investor expectations.
The hope is that future decisions will reflect the government’s stated goal of boosting oil production and reviving the struggling economy. Without more consistent and timely actions, Nigeria risks losing out on vital investment opportunities that could transform its oil sector and help stabilize its economic future.
