As Oil Giants Retreat Globally, Smaller Players Rush In...

BP, TotalEnergies, Chevron and others are shifting to cleaner projects

    WSJ BY NICHOLAS BARIYO IN KAMPALA, UGANDA, JUAN FORERO, IN BOGOTÁ, COLOMBIA, AND JON EMONT IN SINGAPORE, MAY 18, 2023 

Under pressure from shareholders and activists, major energy companies are retreating from higher-polluting and riskier projects around the world. A bunch of smaller companies are rushing in to fill the void.

In Nigeria, smaller companies now hold nearly half of the country’s oil and gas oil leases acquired from major companies that have retreated in recent years. In Latin America, an independent firm has pushed into oil exploration in areas eschewed by Occidental Petroleum and BP. In Asia, Chevron is pulling out of a controversial gas project in Myanmar, and a little-known Canadian firm has agreed to snap up its stake.

The moves illustrate how smaller and more nimble firms are taking advantage of higher energy prices and the openings left by global companies that are now pivoting toward cleaner energy, or focusing on their most profitable projects. The trend also shows that despite major oil companies’ efforts to reduce their carbon footprints, their exodus from fossil-fuel projects has little effect on emissions overall.

In Nigeria, gas flaring—an emissions-heavy process that burns the natural gas associated with oil extraction—has increased by 10% over the past decade. PHOTO: GEORGE OSODI/BLOOMBERG NEWS

“What we are seeing is that the larger companies are reducing their share in aging assets with little upside production that have relatively large emissions,” said Audun Martinsen, head of energy-service research at Rystad Energy, an energy-sector research firm. “Their space has been filled by smaller exploration and production companies.”

Such companies usually have lower costs and are better placed to run such operations, he said, since they can quickly recoup returns on investments before a downturn cycle. Watchdog groups and human-rights advocates warn that smaller or private companies can at times pose a greater risk to climate and human rights in some corners of the world, because they aren’t subject to the same public scrutiny and pressure as more globally known, publicly traded players.

Overall, the portion of offshore investments held by major companies is slated to shrink from 45% in 2019 to 37% by 2025, according to Rystad. Investments in brand-new fossil oil projects around the world—many of them by smaller, lesser-known or private oil-and-gas companies—are projected to break the $100 billion mark this year, the first breach for two years in a row since 2012, according to Rystad.

In Africa, the stakes held by major oil companies in fossil-fuel projects are set to shrink to 50% in 2025, from 65% in 2019, according to Rystad data. Meanwhile, the value of new oil deals in Africa reached some $21 billion last year, more than four times the $5.5 billion worth of deals registered in 2020.

Most of the world’s biggest energy companies have invested heavily in low-carbon strategies in recent years, while dialing back on fossil-fuel exploration and production except in their most profitable regions. Chevron, Shell and Exxon, for example, have left Nigeria, Ghana and elsewhere amid promises to reduce emissions as well as mounting security challenges related to oil thefts and lawsuits over pollution.

Independent and smaller companies now account for 32% of total oil and gas output in Africa, compared with an average of 25% over the past decade, according to the South Africa-based African Energy Chamber, an industry group, as firms including Nigeria-based Seplat Energy and Canada’s ReconAfrica have moved in, buying up oil and gas assets or undertaking exploration.

In Latin America, major companies are developing a handful of big oil and gas fields. But increasingly, it is smaller, little-known firms that are getting the fossil fuels out of the ground. Independent companies such as Gran Tierra in Colombia, CGX Energy in Guyana, and Vista in Argentina are moving in, taking risks and investing, sometimes in regions that have hardly been explored.

In recent years, GeoPark, a Bogotá-based independent company that is listed on the New York Stock Exchange, has centered its operations on Colombia. Larger companies such as BP had left, while Houston-based Occidental Petroleum sold most local assets after making a large U.S. acquisition.

In a series of wells drilled in 2016 and 2017, GeoPark found a 400-million-barrel field in Colombia’s central plains—the so-called llanos.

“There’s a giant oil field in the middle of the llanos basin that everybody missed. We hit it,” CEO Andrés Ocampo said. “Not only did they miss it. But they were not even looking for it.”

Toronto-listed New Stratus Energy has left Ecuador but is now eyeing entry into Mexico, Peru and Colombia. It is among several small companies in Latin America with executives and geologists who worked for years at Venezuela’s state-owned Petróleos de Venezuela, known as PDVSA, but left once the industry in that country collapsed.

Workers with PTT Exploration & Production at a petroleum field in Thailand. PHOTO: DARIO PIGNATELLI/BLOOMBERG NEWS

“There’s a lot of opportunity for companies like us that are well-capitalized and have experienced management teams to go into places, and be nimble, where larger companies can’t,” said Wade Felesky, New Stratus Energy’s president.

Some smaller firms also have a high tolerance for controversial projects. Off Guyana’s coast in June 2000, Surinamese navy gunboats expelled Canada’s CGX Energy from a drilling project in waters that Suriname then claimed as its own. But the company stayed committed to Guyana. It discovered oil there last year.

A CGX spokesman said the company’s operations in Guyana include a joint venture with Canada’s Frontera Energy to drill offshore in the country’s eastern Corentyne region. The companies are completing a second exploration well there, the spokesman said, adding that CGX is also developing a deep-water port in the country.

Last year, France’s TotalEnergies stopped operating a major Myanmar gas field, saying revenue payments to the state became controversial after a military coup in Myanmar in 2021. Operations were taken over by Thailand’s PTT Exploration & Production, which cited the gas fields’ importance to Myanmar and Thai energy consumers.

Chevron, the other major Western player in the project, last year agreed to sell its stake in the project to Et Martem Holdings, the wholly owned subsidiary of MTI Energy, a Canadian company.

Advocacy group Justice for Myanmar condemned the sale, saying the project supports that country’s military dictatorship, which has been accused of killing protesters and other crimes. MTI Energy didn’t respond to requests for comment.

Environmental advocates warn that smaller and more opaque companies can cause the same environmental damage that major companies, such as Shell, have been accused of in recent years.

Canada’s ReconAfrica exploring for oil in northern Namibia. PHOTO: NICOLE MACHEROUX-DENAULT/DPA/ZUMA PRESS

In Nigeria, gas flaring—an emissions-heavy process that burns the natural gas associated with oil extraction—has increased by 10% over the past decade. Meanwhile, smaller companies, including Aiteo Eastern E&P, have been increasing their share of operations in the country, according to data from Capterio, a U.K.-based firm that tracks gas flaring and local environmental groups. Aiteo didn’t respond to multiple calls and written requests for comment.

In Angola, the disposal of solid and liquid waste on the coast has gone up since Somoil, Angola’s large, private energy company, took over licenses of TotalEnergies last year, according to EcoJango, an environmental consulting firm based in Angola. An average of 10,000 tons of waste are dumped along Angola’s beaches every day, versus around 6,000 tons three years ago, according to the state-run National Institute of Biodiversity and Conservation. Somoil didn’t respond to multiple questions about its environmental record.

In Africa’s Okavango Delta, a U.N.-recognized World Heritage site of channels and lagoons, local groups accuse Canada’s ReconAfrica of polluting domestic water sources and intimidating local residents opposed to its continuing search for oil.

A spokesman for ReconAfrica denied the accusations and said the company is applying rigorous safety and environmental protection standards in its operations. He added that ReconAfrica is committed to “responsible and ethical resource development.”

Anusha Narayanan, climate campaign director at Greenpeace USA, said new fossil-fuel projects will hamper the transition to cleaner energy.

“Some contracts signed over the last year by producers and importers are locking them into decades of pollution,” she said.