Strategic Divestment in Nigeria's Onshore Oil Sector: Implications for Investors and Local Energy Transition

The Nigerian onshore oil sector has undergone a seismic shift in recent years, marked by the strategic divestment of assets by International Oil Companies (IOCs) and the subsequent rise of local operators. This transition, driven by a confluence of economic, regulatory, and operational challenges, has reshaped the investment landscape and accelerated the country's energy transition. For investors, the implications are both profound and complex, requiring a nuanced understanding of risks and opportunities in a sector that remains central to Nigeria's economy.

The Drivers of IOC Divestment

IOCs have increasingly exited Nigeria's onshore oil sector due to persistent challenges such as pipeline vandalism, crude oil theft, and high production costs. Between 2020 and 2025, over 10 onshore and shallow-water oil blocks-containing an estimated two billion barrels of oil equivalent-were divested, with transactions totaling billions of dollars. Notable examples include Shell's $2.4 billion sale of its onshore assets to Renaissance Energy Group and Mobil Producing Nigeria's $1.58 billion acquisition by Seplat Energy according to industry reports. These exits reflect a broader industry trend, as IOCs pivot toward offshore and deepwater projects perceived as less risky and more aligned with global decarbonization goals.

The Petroleum Industry Act (PIA) of 2021 has further catalyzed this shift by streamlining regulatory processes and enabling greater local ownership. The Nigerian National Petroleum Corporation (NNPC), now operating as a commercial entity, has also initiated plans to sell stakes in its assets, signaling a structural transformation in the sector. However, challenges such as environmental degradation, community tensions, and the need for robust infrastructure remain unresolved, posing long-term risks for both local and foreign investors.

Local Companies and the Energy Transition

The divestment of IOC assets has created a vacuum filled by indigenous firms, which now operate a significant share of Nigeria's Oil Mining Licenses (OMLs). Companies like Oando, Seplat, and Chappal Energies have expanded their portfolios through acquisitions, while the Dangote Refinery-Africa's largest refining hub-has reached 85% operational capacity, reducing reliance on imported petroleum products. These developments align with Nigeria's Energy Transition Plan (ETP), which aims for net-zero emissions by 2060 and a 30% renewable energy mix by 2030.

Local operators are increasingly adopting sustainability initiatives, including renewable energy projects and cleaner production technologies. For instance, hybrid renewable energy systems combining solar, wind, and battery storage are gaining traction, supported by government policies such as the Renewable Energy and Energy Efficiency Policy. The Nigeria LNG Train 7 expansion and Floating Liquefied Natural Gas (FLNG) projects further underscore the sector's pivot toward gas as a transitional fuel. However, the success of these initiatives hinges on the ability of local companies to address persistent issues like oil theft and pipeline sabotage, which cost the government an estimated $2 billion annually.

Investment Opportunities and Risks

The post-IOC landscape presents both opportunities and risks for investors. On the positive side, Nigeria's upstream sector remains a cornerstone of its economy, contributing approximately 6.5% to GDP and nearly 90% of export revenue. The country's untapped natural gas reserves, growing domestic fuel demand, and infrastructure projects such as the Nigeria-Morocco Gas Pipeline offer significant potential. Additionally, the PIA's reforms have attracted $5 billion in offshore drilling commitments from firms like Shell and TotalEnergies, signaling confidence in the sector's long-term viability.

Yet, risks persist. Security threats, including pipeline explosions and sabotage, continue to disrupt operations and undermine investor confidence. Regulatory uncertainties-such as ambiguities in contract enforcement and fiscal terms-add to the complexity. Currency volatility and capital repatriation issues further complicate financial planning for foreign investors. For example, the Nigerian Naira's depreciation against the dollar has increased operational costs for companies reliant on imported equipment and technology.

Strategic Considerations for Investors

For investors navigating this evolving landscape, due diligence and local partnerships are critical. Companies that can integrate robust risk mitigation strategies-such as community engagement programs and environmental compliance measures-are more likely to succeed. The African Development Bank's $650 million annual investment plan for Nigeria (2025–2030), focused on infrastructure and climate-resilient projects, highlights the importance of aligning with government priorities.

Moreover, the energy transition offers a dual opportunity: leveraging Nigeria's gas reserves as a bridge fuel while investing in renewable energy. The ETP's goal of creating 840,000 jobs by 2060 through sustainable energy initiatives underscores the sector's potential to drive economic growth and social development. However, achieving this vision requires sustained investment in infrastructure, technology, and capacity-building for local operators.

Conclusion

Nigeria's onshore oil sector is at a crossroads, with the divestment of IOC assets catalyzing a shift toward local ownership and sustainability. While the sector's strategic importance remains intact, investors must navigate a complex web of risks, from security threats to regulatory uncertainties. The energy transition, though ambitious, offers a pathway to diversify Nigeria's economy and reduce its carbon footprint. For those willing to engage with the challenges and opportunities, the Nigerian oil and gas sector presents a compelling, albeit high-stakes, investment proposition.