Nigeria: Shell has had enough
SHELL, the company most affected by the years of violence in the Niger delta and the other difficulties of working in Nigeria, has finally had enough. In December, it invited offers for a swathe of its onshore fields and last month underlined its new stance with a statement from Peter Voser, group chief executive, that "we no longer depend on [Nigeria] for our growth aspirations."
In – for Shell – surprisingly forthright comments about the country in which it has been the dominant producer for over 50 years, Voser cited "uncertainties about the future of the fiscal structure" and the government giving "priority to maintaining oil production over reducing gas flares", in addition to the "sabotage and attacks on installations" as reasons for its decision. Not depending on Nigeria for growth "gives us more flexibility in deciding when and how to develop oil and gas resources" in the country, he said.
Shell did not comment on the field sale, but it is understood that 10 onshore fields, worth $4bn-5bn, are on offer. China's state-owned Sinopec and Nigeria's Oando have been tipped as possible buyers. The petroleum minister, Rilwanu Lukman, had apparently not been told about the sale and responded that government approval would be needed. Shell's onshore fields are held by the Shell-NNPC joint venture, in which interests are Shell, 30%, state-owned Nigerian National Petroleum Corporation (NNPC), 55%, Total, 10%, and Eni, 5%.
Concern about the fiscal structure is a reference to the government's flagship Petroleum Industry Bill (PIB), which sets out to reform the cumbersome state involvement in the industry, but has threatened the companies' profitability (PE 9/09 p27). The PIB had passed through both houses of the country's parliament and had been near to being enacted, until it was amended towards the end of last year to include details of a new fiscal regime.
As amended, the PIB apparently allows the government to cancel and make extensive changes to the companies' contracts. There will be a new royalty, with the rate linked to the oil price and rising to 25% or more, to replace the existing royalty of 20% maximum against which there are discounts linked to water-depth with the royalty falling to zero when the depth exceeds 1,000 metres. The amended PIB also provides for a new hydrocarbons tax, set at 50%, to replace the present 85% petroleum-profits tax, but the new tax will be levied on production instead of profits so costs cannot be set against it. There will also be a special 30% corporate tax for petroleum operations.
Additionally, concern is growing about the operation of the incorporated joint-ventures called for by the PIB, which are due to replace the present joint-ventures between the onshore and shallow-water producers and NNPC. Although the companies initially welcomed the new structures – single corporate entities, free to raise finance commercially – they now fear that they would lose control over their operations because NNPC would hold majority shares. The PIB does not even appear to safeguard the companies' existing level of holdings (PE 5/08 p18).
Meanwhile, views are neutral on the new institutions called for by the PIB, because they could turn out to be little different from those they replace. NNPC is due to become a profit-driven national oil company, Napcon, and might later be partially privatised, but it will still be a large and powerful entity with great patronage. A new petroleum directorate will take over policy formation from the ministry; a new petroleum inspectorate will take over upstream regulatory aspects; there will be new regulatory authorities for petroleum products and natural gas; and a new petroleum-assets management agency.
Wide-ranging reform of the oil sector was an early priority for President Umaru Yar'Adua, when he came to office in May 2007. Last month, there was speculation that the PIB could falter after reports in the Nigerian press that Yar'Adua was seriously ill, but the BBC reported that he had telephoned to say he was recovering.
Nigeria's oil production recovered in November to – Lukman's figure – 1.7m barrels a day (b/d) plus 0.5m-0.6m b/d of condensate, and appears to have increased subsequently towards 2.0m b/d plus condensate. The government had offered an amnesty to rebels in October, coupled with an offer to transfer 10% out of the state's holdings in the producing ventures to the Niger delta states. The Mend rebel group responded with a cease-fire. However, trouble resumed last month, with four Shell contractors taken hostage and a Chevron pipeline sabotaged.