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Nigeria Eyes Pipeline To Replace FPSOs –Regulator

The Wall Street Journal: Nigeria Eyes Pipeline To Replace FPSOs –Regulator

“West Africa has a rich history of under reportage of lifted volumes by oil companies”

DOW JONES NEWSWIRES

August 3, 2004 7:15 p.m.

Posted 4 August 04

(Updates to add comments from Washington attorney.)

ABUJA — Nigeria plans to phase out floating production, storage and offloading vessels used by majors operating in its deepwater region and replace them with a pipeline network on which tariffs would be charged, a senior official at the country’s oil watchdog said late Tuesday.

Billy Agha, a director at the Department of Petroleum Resources, told Dow Jones Newswires there was no timescale for the plan, though his department intended to consult a Houston-based company about the project. He was speaking on the sidelines of an energy industry conference in the Nigerian capital.

The pipeline network would be owned by an independent company, he said, adding oil companies that operate in the deepwater region would be required to tie into the network and pay a tariff.

“It will also help the government to effectively monitor crude oil production from deepwater oil blocks,” Agha added.

Peter Lovie, a Houston shipping executive who has worked in the FPSO business, said he was shocked Nigeria would consider phasing out the vessels, because the Nigerian national oil company is a partner in several leading projects that use FPSOs. Nigeria may be raising the issue as leverage for negotiations with oil companies, which are certain to react negatively to a prohibition on FPSOs, Lovie said.

“If you want to do this, there’s going to be one hell of a debate,” said Lovie, vice president of business development for American Shuttle Tankers, a division of Teekay Shipping Corp., an oil tanker company. “It makes no practical sense.”

Anthony Carroll, a managing director with Manchester Trade Ltd., a Washington attorney who has advised the World Bank on Nigeria, said Agha’s comments reflect concern over the historical underreporting of oil revenues by Western oil companies in West Africa. Compared with an FPSO, a pipeline system would likely enable Nigeria to more closely monitor the outgoing production from giant offshore fields operated by the western oil giants.

“West Africa has a rich history of under reportage of lifted volumes by oil companies large and small,” Carroll said. “Unfortunately, practicality is not always the first determinant in Nigerian policymaking.”

The Nigerian government has set a target of raising its crude oil production to 4 million barrels a day by 2010, from it current level of about 2.4 million b/d. Most of the planned increase is expected to come from deepwater projects, where multinational oil companies operate.

Offshore fields include Agbami, being developed by ChevronTexaco Corp. (CVX) and Shell Petroleum Development Company of Nigeria’s Bonga field. Others are Amenam/Kpono, owned by Elf Petroleum Nigeria, a unit of Total (TOT); Abo, owned by Nigerian Agip Oil Co., a unit of Eni (E); and Erha, owned by ExxonMobil Corp. (XOM).

Agip and Elf have already deployed FPSO vessels to their deepwater fields, while others are in the process doing so.

Tuesday, a ChevronTexaco official said an award contract to build an FPSO vessel is expected to be signed during the fourth quarter of 2004.

Agha said the switch to a pipeline network would begin with a geographical clustering of FPSO vessels, which would then be connected through the pipeline.

“Through this process, some of the FPSOs will be phased out,” he said.

Pipeline networks located onshore in Nigeria are objects of vandalism. Deep offshore oil facilities are considered relatively safer given their remote locations.

The Department of Petroleum Resources is the regulator for Nigeria’s oil and gas industry.

-By Vincent Nwanma, Dow Jones Newswires; +234-1-585-0849; [email protected]

(John M. Biers in Houston contributed to this article.)

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