Nigerian independents want action on joint venture fields

Production target raised to 3 million b/d by 2001

Aug 1st, 1999
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Nigerians hope to draw a line beneath its troubled past and make real progress under the new democratically-elected government headed by President Olusegun Obasanjo. An economic program was announced in the 1999 budget, which included a number of steps designed to promote the inward investment needed to sustain economic growth and re-establish Nigeria's credibility within the world's financial community.

Privatization was high on the agenda, with measures to increase competition and create a more liberal market. Within the oil sector, for example, it is planned to deregulate the supply and pricing of petroleum products.

The changes have created a degree of optimism in the oil industry for the first time in years. Coming at about the same time, Shell recently announced its intention to invest $8.5 billion in Nigerian oil and gas, a move that is raising confidence and may encourage others to follow suit.

President Obasanjo has appointed Rilwanu Lukman as his special advisor on petroleum affairs. Lukman was once head of broadcasting in Nigeria, recently served as secretary to OPEC, and is well respected by the industry.

May re-run offering

But the move that illustrated a determination to force through reform came only two days after Obasanjo's inauguration ceremony on May 29. He suspended all contracts, licenses, awards, and approvals granted by the previous administration headed by General Abubakar.

The new president would have sent out all the wrong signals had he not acted on the licenses. It will be surprising if Kolade does not recommend the process be re-run.

NNPC confidence

One pressing problem that the Obasanjo government faces is the need to restore confidence in the Nigerian National Petroleum Corporation (NNPC). The NNPC holds an overall 57% stake in joint ventures with Agip, Chevron, Elf, Mobil, Shell and Texaco. These partnerships are responsible for 97% of the nation's oil production.

A new leader of the organization, Gaius Obaseki, has been appointed. He was previously in charge of crude oil marketing. Unfortunately, he inherits a restructuring program in disarray, as a result of power struggles that came to a head during the run-up to civilian rule. The problems have jeopardized the funding of the joint ventures and have held up new projects.

Wider issues

An IBC-organized conference in London in early June - The Nigeria Energy Summit - addressed the future of the Nigerian industry, but it was too early to throw much light on the details. The Nigerian government, through a representative, sought to attract support not only for the oil and gas industry but for much-needed projects in the social arena: water supply, health, education, agriculture, power, and others. Essentially, the message from the conference was one of making a new start, even if the ground rules were not yet defined.


Joint ventures produce around 97% of Nigeria's oil.
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Several speakers alluded to the challenges of conducting business in Nigeria. Despite the resolve being shown to tackle corruption and open up markets, the general feeling was that business cultural differences will still mean that patience, persistence, and caution in selecting prospective partners are premium attributes. Even in a more democratic environment, family, tribal and village relationships will remain a key factor in conducting business.

Production target

Oil output in Nigeria is currently running at around 1.9 million b/d, although in the past it has reached 2.3 million b/d. Revenues from the oil industry make up about 50% of Nigeria's gross domestic product and bring in roughly 95% of its foreign exchange earnings. In view of the importance to the economy, there are bold plans to expand the petroleum industry. The principal objective is to increase production to 3 million b/d by 2001, and to 4 million b/d by 2010. Also, a target has been set to increase the oil reserve from a current level of around 20 billion bbl to 30 billion bbl by 2001, and 40 billion by 2010.

Natural gas is set to become much more important with plans to increase utilization and to eliminate flaring by 2010. At present, 75% of Nigerian gas is flared and 12% re-injected. Reserves, proven and possible, are estimated at 100-120 tcf, giving Nigeria 10th place in the world league table.

Initiatives to exploit this gas include:

  • Development of a gas pipeline grid
  • Pipeline to export gas along the coast to Benin, Ghana and Togo
  • Investment in liquefied natural gas (LNG).

The state-owned Nigeria LNG corporation (NLNG) is building a 5.8 million tons/yr plant at Finima on Bonny Island, from where it will export to buyers in Italy, Turkey, Spain, France and Portugal. Completion of the two trains is expected in October of this year. A third similar train is already planned to boost production to 8.7 million tons/yr by 2003.

Independents

Not surprisingly, many major oil companies place Nigeria high on a list of priorities, and are hopeful that recent developments will provide the impetus the industry needs. Others hopeful hoping for better conditions are the small Nigerian independents, currently 38. They came into being from 1987 onwards, under legislation designed to increase Nigerian participation in the oil industry. These indendents account for 3% of the oil not produced by the NNPC joint ventures with the oil majors.

Their hopes for the future rest on two items:

  • Involvement in the deepwater blocks
  • Introduction of marginal field legislation.

The big joint ventures are sitting on assets believed to contain around 1 billion bbl of recoverable oil in over 180 separate accumulations. The independents are asking the government to force the joint ventures to relinquish these fields for development. As with many other issues in Nigeria at the moment, the industry players are waiting to see what action the new government will take - and when.

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