The history of Nigeria’s oil industry is a pivotal chapter in the nation’s development, influencing its politics, economy, and global standing.
Early 20th-Century Beginnings: Britain’s Colonial Quest for Nigerian Oil
The early 20th century witnessed Britain’s scramble for oil resources amidst colonial expansion, especially as oil became essential to the British Royal Navy. With minimal domestic oil production, Britain sought secure, empire-based oil supplies, primarily focusing on its African colonies, including Nigeria. Starting in 1903, two companies initiated exploration in Nigeria, but the efforts were limited. However, by 1905, John Simon Bergheim, a seasoned oil industry figure, turned his attention to Nigeria, establishing the Nigeria Bitumen Corporation in 1905. With the support of the British Admiralty, Colonial Office, and Governor of Southern Nigeria, Sir Walter Egerton, Bergheim’s company acquired the initial exploration concessions.
Key Challenges in Nigeria’s Initial Oil Exploration (1900-1920)
Backed by a government loan, Bergheim’s explorations began in 1906. This development drastically altered Southern Nigeria’s environment, particularly the Lekki Lagoon area, where oil operations resulted in deforestation, construction of infrastructure, and significant pollution. The Nigeria Bitumen Corporation faced significant operational challenges despite its initial successes in oil discovery. The outcome of oil exploration fell short of expectations and the company struggled with persistent water intrusion, hampering profitability. Seasonal flooding in the Lekki Lagoon area, a swampy landscape lacking infrastructure, compounded these difficulties.
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Financial troubles forced the company to seek additional government loans, but after John Simon Bergheim’s unexpected death in 1912, the Colonial Office declined further assistance. With no additional funding, Nigeria Bitumen ceased operations in 1913 and dissolved by 1914.
Meanwhile, the Nigerian Investment Company, which had begun exploratory work in 1906, conducted a series of boreholes that led to promising oil findings. This progress spurred the formation of the British Colonial Petroleum Corporation to advance oil exploration under British oversight. However, their efforts were ultimately unsuccessful, and operations ceased by 1913.
Legislation and Control: Early Oil Regulation in Colonial Nigeria
In 1907, the Southern Nigeria Mining Regulation (Oil) Ordinance was introduced to regulate oil exploration in Nigeria, making oil concessions a British monopoly. Modelled on Trinidadian law, the ordinance specified British-only directorship requirements and limited concession sizes, though the latter restriction was relaxed in the 1914 Mineral Oils Ordinance after Nigerian Bitumen’s findings rendered certain limitations obsolete.
The debate over mineral rights in Nigeria exposed early tensions between African and European members of the colonial administration. African members of the Legislative Council, led by C.S. Sapara Williams, objected to Section 5 of a new oil ordinance, which allowed the governor to negotiate mineral rights with Native Authorities without royalties. Williams proposed an amendment for fair royalties to Native Authorities, which was supported by the African council members but ultimately defeated by the majority vote of official members. This disregard prompted criticism from the Lagos Standard, warning that the ordinance would enrich European interests while disadvantaging native communities.
Growing Awareness of Oil Exploration Sparks Nationalist Opposition
After World War I, global oil demand surged, with Britain aiming to reduce its reliance on American oil. Consequently, two British companies – D’Arcy Exploration Corporation and Whitehall Petroleum Corporation showed interest in exploring Nigeria between 1918 and 1923, both of which soon withdrew due to the challenging environment and limited results.
Nationalist Criticism of Colonial Oil Ventures
A renewed push came in the 1930s, marking the third phase of Nigeria’s colonial oil exploration. In 1936, the Anglo-Iranian Oil Company and Anglo-Saxon Petroleum (later Shell) secured an exclusive exploration license across Nigeria and other African countries. Granted in 1937, this license sparked opposition from Nigerian nationalists like Nnamdi Azikiwe, who criticized it as an imperialistic seizure of native lands and resources, stirring resentment against colonial exploitation.
Nnamdi Azikiwe leveraged the power of his newspapers to rally local communities against the colonial administration and its corporate allies, particularly Shell and D’Arcy, in their controversial oil exploration ventures. Azikiwe highlighted grievances from communities in the Owerri, Okigwi, and Afikpo areas, emphasizing the secrecy and lack of transparency from Shell/D’Arcy, which conducted its activities without consulting local landowners. Under Nigeria’s Mineral Oils Ordinance, exploration companies were legally allowed to operate without local consent, needing only to compensate for any damage to crops or trees but enjoying full protection from interference.
By 1948, Azikiwe’s support intensified as his paper, The West African Pilot, gave voice to rising resistance in Ikeduru, where locals opposed the claim that mineral rights were under government control, refusing to permit exploration on their lands. The opposition spread, with incidents of conflict in regions like Orodo, where the colonial government deployed police to secure the exploration teams. The Pilot criticized the colonial government’s siding with foreign interests over Nigerian citizens, urging for greater accountability.
Azikiwe’s mobilization extended to legislative challenges as he called upon the governor to clarify the joint venture’s rights and activities. The colonial administration and Shell/D’Arcy dismissed local opposition as nationalist agitation, accusing Azikiwe of using these grievances for political leverage. Nonetheless, the resistance he spurred across Eastern Nigeria underscored early challenges to corporate exploitation and colonial authority, marking a critical phase in Nigeria’s journey toward self-determination and control over its natural resources.
Shell/D’Arcy Diplomatic Resolutions to Local Agitations
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In the latter half of 1949, the colonial government and Shell/D’Arcy shifted tactics in response to mounting local opposition to oil exploration in Nigeria. In August, the government issued a public statement clarifying Shell/D’Arcy’s rights and obligations, reassuring landowners that the joint venture would not acquire land outright and would compensate for any damages. This statement emphasized the economic potential of oil discovery for Nigeria’s future. In a similar gesture, Shell/D’Arcy informed Onitsha residents in October of their specific plans for exploratory work, aiming to build transparency and assuage local fears. These measures successfully eased nationalist tensions, with nationalist leaders even reducing their vocal opposition as they recognized the economic benefits oil could bring to a future independent Nigeria.
Governor Sir John Macpherson seized this opportunity to pursue favourable terms for Nigeria’s oil industry. During negotiations with Shell/D’Arcy, he advocated for the creation of a local oil company, profit-sharing with the Nigerian government, and opportunities for Nigerian public investment. However, Shell/D’Arcy resisted, fearing these terms would set a global precedent. The Executive Council ultimately sided with Shell/D’Arcy in November 1949, deciding to adhere to existing regulations, prioritizing uninterrupted oil exploration as crucial to Nigeria’s national interest.
Nigerianisation of the Oil Sector and Early Developments
This shift marked a turning point, placing oil exploration firmly within Nigeria’s strategic priorities. By 1951, Shell/D’Arcy formally incorporated a local branch—the Shell/D’Arcy Petroleum Development Company of Nigeria and gradually implemented Nigerianisation, (a colonial policy aimed at preparing the workforce for eventual independence). However, the pace was slow, and by 1954, only a handful of Nigerians held senior positions, highlighting the challenges of integrating Nigerian personnel into the upper ranks of European companies. This gradual but uneven Nigerianisation remained a persistent point of contention as Nigeria edged closer to self-governance in the 1950s.
The Discovery of Oil and Nigeria’s Economic Transformation
In the early 1950s, Shell/D’Arcy scaled back its oil exploration license area in Southern Nigeria. This strategic reduction followed extensive exploration efforts that allowed the company to abandon areas deemed unpromising for oil. Between 1951 and 1957, Shell/D’Arcy applied for numerous oil prospecting licenses across diverse regions, such as Orlu, Owerri, and Onitsha, which allowed it to intensify exploration, conduct thorough geological surveys, and begin test drilling. Although early drillings proved unfruitful such as the Ihuo well near Owerri, Shell/D’Arcy struck oil of commercial quality at Oloibiri in 1956, and later at Afam and Bomu.
The discovery of oil at Oloibiri marked the beginning of Nigeria’s oil production, with Shell/D’Arcy soon developing infrastructure to transport crude to a terminal in Port Harcourt. In March 1958, the first shipment of Nigerian oil reached Rotterdam, symbolizing the dawn of Nigeria’s oil export industry. This shipment, representing an investment of £27 million, was a landmark moment that catalyzed rapid expansion and attracted new players to Nigeria’s oil sector.
Expanding Nigeria’s Oil Industry Post-Independence
As Shell/D’Arcy paved the way, the government began issuing licenses to competitors. In 1955, Mobil Exploration Company, received the first non-Shell/D’Arcy license, initiating an era of foreign interest in Nigerian oil. This momentum increased after the Suez Crisis of 1956, which heightened the geopolitical importance of Nigeria’s location and its oil resources. By the early 1960s, Gulf Oil, Tennessee Gas Transmission, ENI, and SAFRAP were also granted exploration rights, turning Nigeria’s emerging oil industry into an international focal point and setting the stage for oil to become a pillar of Nigeria’s economy.
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Aftermath of the Discovery of Oil and Economic Impacts
At the dawn of Nigeria’s independence in 1960, a significant transition was taking shape as many Nigerians shifted from subsistence farming toward private enterprise. The discovery of oil in 1957, coupled with its booming profitability, quickly transformed the economy into one heavily reliant on this single resource. This period, particularly the 1970s “Golden Decade,” saw a meteoric rise in oil production and government revenue, positioning Nigeria as the wealthiest African nation. By joining OPEC in 1971, Nigeria capitalized further on global oil demand, reaching record revenues in the mid-1970s.
However, this prosperity proved ephemeral. The economic phenomenon known as the “resource curse” began to unfold in the 1980s when global oil prices plummeted. This dependence on a mono-economy, where oil had replaced diverse agricultural exports, led to severe economic hardships. President Murtala Mohammed’s ambitious modernization programs, funded by loans and high projections of oil revenue, became unsustainable. By the time oil prices dropped, Nigeria faced rampant inflation, debt defaults, and severe food insecurity. The situation was exacerbated by a decision to implement a Structural Adjustment Program (SAP) rather than accept an IMF loan, a choice that proved disastrous for many Nigerians. By 1989, Nigeria’s economy had declined so sharply that the World Bank classified it as a low-income nation.
Although the economy saw a slight rebound in the 1990s, it has never regained the prosperity of the 1970s. Today, three-quarters of Nigerians live below the poverty line, with oil revenue still constituting the overwhelming majority of government income. Job creation within the oil sector has been minimal, wealth inequality is worse, and inflation hinders local and international investment outside fossil fuels, leaving the nation grappling with the long-term effects of its dependency on oil.
For more insights into Nigeria’s rich history, including key historical events that shaped the nation, visit our Nigeria Historical Events page.