Reuters reports that ExxonMobil will wind down oil production in Equatorial Guinea and leave the West African country after its licence expires in 2026, quoting two unnamed sources. The departure reflects a broader move by major oil producers to reduce crude production in West Africa and shift investments to lower-carbon natural gas development on the continent and more lucrative projects in the Americas.

Exxon has cut its output in the country to less than 15,000 barrels of oil per day (bpd) through its existing production unit Serpentina, one of the sources who craved anonymity said on Monday. This year, it evacuated staff from the offshore production platform Zafiro due to water entering the ageing vessel. Europe, which has been looking for alternative oil suppliers after sanctions were imposed on Russia this year, is the leading destination for Equatorial Guinea’s oil exports.

Exxon’s oil output in Equatorial Guinea, an OPEC member, peaked at more than 300,000 bpd eight years ago and has been declining since. Exxon has been trying to sell its Zafiro operation since 2020. The company last year pumped about 45,000 bpd out of the country’s total production of 93,000 bpd. Africa is struggling to meet OPEC quotas due to the lack of investments in crude production. Output from its top two producers, OPEC members Angola and Nigeria, sank by a third to 2.1 million bpd in October 2022 from 3.2 million bpd in 2019. Since 2013, output has declined by 41%.

 

The first surprise sparked by Exxon’s announcement is that most of Equatorial Guinea’s oil production is offshore and not subject to the challenges of dealing with communities and cleaning up the environment. Drill further and you will begin to understand why the American firm is running away. Equatorial Guinea has an oil reserve of about 1.1 billion barrels. Its fields are ageing, and production has been on the decline after reaching a peak of around 300,000 barrels per day.

The last major investment in the upstream oil and gas sector came in 2013. In 2018, the country’s minister of mines and hydrocarbons, Gabriel Obiang Lima, who is rumoured to be the President’s heir apparent, said oil and gas licences would not be renewed except current holders vowed to invest in jacking up the country’s petroleum industry. Some $2.4 billion was promised at the time, but only one gas monetisation project was expected to have materialised as of 2021.

For all of its historical production, the tiny maritime country has little to show. The country had, before 2021 when it recorded a GDP growth rate of about 1.4%, experienced eight consecutive years of recession. Between 2011 and 2020, Equatorial Guinea, geographically positioned to be a maritime and gas hub, saw its poverty rate soar from 43% to 67%. Access to electricity in rural areas dropped from 10% to around 2% within the same period. The country is famously tough to do business in. It delays in awarding licences and issuing production contracts, wearing out investors’ patience. In one instance, a firm, Trident Energy, sought to buy the Zafiro field from ExxonMobil. The field produced over 200,000 in its heydays. The government blocked the sale. Exxon only produced 45,000 barrels in total, from the 93,000 produced in all of 2021. In essence, while the company has escaped Nigeria and Angola to clean up its portfolio due to pressures over investing in fossils, it is escaping Equatorial Guinea because it needs to leave before profitability tanks beyond redemption.

In this mass exodus of foreign big-name players in coastal Africa’s oil economy, some local operators are trying to make a statement as replacements but are experiencing the lack of capacity to fill in such big shoes or simply the plethora of challenges that have made the capital flight possible. One of those challenges is the state of security in the Gulf of Guinea. In the few years preceding 2021, the International Maritime Bureau described that waterway as the most terrorised in the world, having a security situation worse than the Horn of Africa. Attacks on shipping and fishing vessels significantly increased the risk of economic activities in the area. However, by mid-2021, with increased international military presence by a consortium of western countries which includes Denmark, a bit of calm returned to the gulf, with Nigeria’s maritime security agency reporting a 77% drop in piracy.

The presence of international militaries in these waters is solely interest-based, given the instability and uncertainty of some better alternative routes e.g the Strait of Hormuz and the Persian Gulf. It is also connected with the need to protect physical assets like ExxonMobil and other oil companies doing business in that area. Given the present circumstances, western maritime interests may begin to drop as oil majors pull out. The responsibility will then fall on the Nigerian government to massively improve its capability to keep the peace in that body of water and this would require more muscle than its Deep Blue Project has been touted to achieve seeing that all it did was drive the pirates inland.

The other challenge is the changing face of energy politics. As the world moves more and more towards clean energy and energy sources that are close to advanced markets, Africa will see more exits from the oil majors, especially from regions considered trouble-prone and therefore costly. As has been the case in previous commodity cycles, Africa has seen little development for all the resources it has sold, and now that the world is in a moment of reckoning with its hydrocarbon-laced ways, the continent will scramble to find new resources to sell to the rest of the world again, and ultimately not derive the benefits that its other geopolitical counterparts have received.

As the majors divest of African assets, they are investing in, among other things, green energy back home. ExxonMobil, for example, plans to spend $15 billion in the next six years, on carbon capture technology, biofuels and biodiesel, as well as hydrogen in the U.S., Canada, the EU, Indonesia and Malaysia. One reported example is a $125 million investment in California-based Global Clean Energy which is developing biodiesel from Camelina, a non-food oil seed crop, just like jatropha, which grows in Nigeria and was at the heart of a Nigerian government biofuel policy. The crop was later found to be unsuitable and new alternatives have not materialised.

That setting does not exist in Equatorial Guinea, where the Obiang clan rules and plunders the economy at will. The ageing president built a new city, Malabo 2, for more than $830 million. He is working on a new capital city, Ciudad de la Paz. Unsurprisingly, the country’s financial institutions are tied primarily to building contractors, who are in turn owed arrears by the government. Governments in Britain, France and the USA, have at various times seized assets from the son and vice-president of the small country. Teodoro Nguema Obiang is famous for such things as his 76-metre yacht and his $233,000 crystal gloves.

For companies like Exxon not historically bound by an overarching sense of morality, it takes kleptocratic aspirations of the extraordinary kind to make an exit the preferred option. That said, the majors, with the support of weak governments, leave polluted environments behind and need to, at the minimum, be vested in cleaning them up after their bags have been packed.