So much of Nigeria’s oil is stolen by armed gangs in what observers call “industrial scale” theft that the world’s giant oil companies in the African country are resorting to selling off some of their wells. And that is proving to be a benefit to a growing number of emerging domestic energy producers.
Wale Tinubu, the chief executive of Oando PLC, one of Nigeria’s new breed of domestic oil giants, says Big Oil remains committed to Nigeria and that Western companies are merely shifting focus to newer offshore wells. There, thieves, kidnappers and armed rebels have less access and international players have more independence from joint ventures dominated by Nigeria’s state oil company.
Still, the flight of these major players has opened opportunities for Mr. Tinubu, whose firm has just finalized its purchase of all of U.S. giant ConocoPhillips Inc.’s Nigerian assets for $1.5-billion (U.S.), creating a new homegrown Nigerian oil production giant.
In an interview with The Globe and Mail, he said domestic companies can better face the daunting challenges at some of his country’s oilfields than foreign multinationals, who are seen by some Nigerians as interlopers who leave little behind but pollution for locals.
“We’re homegrown. We come from these communities, our staff come from these communities,” said Mr. Tinubu, who was in Toronto last week after attending the U.S.-Africa Business Forum in Washington, where U.S. President Barack Obama addressed business leaders. “We have a more engaged system of community relations and community development, as opposed to one that is done remotely from head office, like a lot of global corporations.”
Nigerian oil industry analysts have pointed to the shift toward offshore oil investment over the past year as major companies such as Royal Dutch Shell and Italy’s Eni have complained about hundreds of millions in losses due to oil theft onshore. Shell and Chevron Corp. have both put significant oil assets in the Niger Delta region up for sale in the past year. But they and most of the foreign giants operating in Nigeria have publicly stated that they remain committed to investing in the country.
When the sale to Oando was finalized last month, ConocoPhillips issued a statement saying that it appreciated “the long and productive relationship we have had with the government of Nigeria and our partners.”
The purchase of ConocoPhillips assets took 18 months to finance and close and Mr. Tinubu says it now means that about 10 per cent of Nigeria’s oil industry is in domestic hands. It transforms Oando into one of the leading local players, with more than 200 million barrels in “proven or probable” reserves and production of more than 44,000 barrels a day. Mr. Tinubu intends to boost those numbers, as he says the oilfields, like many in Nigeria, are operating under capacity.
Listing in Toronto, after a reverse takeover of a Calgary company called Exile Resources Inc., gave Oando new legitimacy in the eyes of banks and international investors, Mr. Tinubu said. The Toronto Stock Exchange was a natural fit as an exchange full of natural resource companies and investors comfortable with emerging markets, he added. Oando, the parent company, trades on Nigeria’s stock exchange.
Oando’s subsidiary, whose shares were trading on the TSX at around $1.75 last Friday, is anything but a household name on Bay Street. But Garret Ursu, a Calgary-based analyst with Cormark Securities Inc., listed it as a “buy” with a target price of $2.50 in a May report. Mr. Tinubu says Oando plans to offer more shares this year, and dilute its parent company’s holdings down to 75 per cent.
The price his company secured from ConocoPhillips, which he says works out to $5 (U.S.) per barrel of “proven and probable” reserves and well shy of the $12 going global rate, means his company and its investors stand to do well. He also says Oando enjoys a five-year tax holiday from Nigeria’s government for domestically owned oil producers, which means for some of his company’s production Oando will pay none of the steep taxes imposed on foreign oil giants.
But doing business in Nigeria is not easy. The country is grappling with various problems, including the violent Boko Haram rebels in the north, notorious recently for kidnapping 200 schoolgirls, and in years past faced widespread attacks from armed rebels in the oil-rich Niger Delta region.
Up to a fifth of the country’s oil output, as much as an estimated 400,000 barrels a day, is stolen from illegally tapped pipelines, in what locals call “bunkering” and what experts say is a massive scheme that involves complicit government officials and billions in laundered money. Money, too, tends to disappear in a country consistently labelled as one of the world’s most corrupt. Earlier this year, Nigeria’s central bank governor claimed that some $20-billion in oil revenues had simply vanished from government coffers, an act of whistle-blowing that cost him his job.
Mr. Tinubu, a Nigerian-born London-educated lawyer who founded Oando about 20 years ago, insists his country is cracking down on corruption: “One of the key things that has occurred in Nigeria is that there has been a transparency initiative that’s effectively weeded out corruption.… Now and again you will get certain instances of allegations, but they are few and far between.”
Nigeria recently signed an investment protection treaty with Canada, but has not been seen as an investment opportunity for Canadians. Mr. Tinubu says this is changing.
After 15 years of democracy, the economy has liberalized, the civil service is being reformed and power utilities privatized, he said. Revised figures released earlier this year almost doubled the country’s gross domestic product to $510-billion (U.S.), making it Africa’s largest economy. And it is growing at 6 per cent a year.
“There’s a big drive for foreign investment in Nigeria,” Mr. Tinubu said. “It’s the largest economy in Africa. Things are looking up.”