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Bloomberg: Shell, Exxon May Pay More for Nigeria Oil: Minister (Update1)

By Julie Ziegler and Jim Efstathiou Jr.

Sept. 24 (Bloomberg) — Royal Dutch Shell Plc., Exxon Mobil Corp. and other foreign oil companies operating in Nigeria may soon have to give the government a greater share of revenue from deepwater oil production, Nigeria’s petroleum minister said.

The companies signed production sharing contracts during the 1990s that allowed them to operate without a joint venture with the government and to pay royalties once the cost of developing the field was fully recovered.

“We’d like to take this opportunity to look at the agreements and try to align our aspirations with the commercial objectives” of the international oil companies, H. Odein Ajumogobia, Nigeria’s petroleum minister of state, said during a conference in New York today.

The government wants to amend the agreements, signed when oil was below $20 a barrel. Oil rose to a record $83.90 a barrel on Sept. 20. Nigeria is Africa’s biggest oil producer and the fifth-biggest exporter of oil to the U.S.

“There’s a fundamental change of circumstances that will influence the renewal terms,” Ajumogobia said.

Ajumogobia also said issues unrelated to oil supply are driving prices higher. “There are factors outside production that are affecting the market,” he said.

OPEC Increase

The Organization of Petroleum Exporting Countries decision to increase oil production by 500,000 barrels a day effective Nov. 1 won’t need to be reviewed until December, Ajumogobia said. “It’s perhaps too close to the last decision we made to change that,” he said.

Companies favored the deepwater oil blocks to move away from the restive Niger delta where militant groups and criminals damaged pipelines and created production outages. The Movement for the Emancipation of the Niger Delta, or MEND, has shut in about a fifth of Nigeria’s oil production since attacks in February 2006.

The move by the government may cast doubt on the U.S.’s plan to obtain more oil from Nigeria. Major companies such as Shell, Exxon and Chevron Corp. didn’t participate in the last two licensing auctions as the government sought more demanding terms. State-owned oil companies from China, Korea and India moved in to claim some of Nigeria’s oil licenses.

Nigerian National Petroleum Co., the state-owned oil company, may move away from its joint-venture projects on shore as well, Ajumogobia said.

Joint Ventures

About 95 percent of the company’s projects are funded through joint ventures. The company’s own efforts as a production company have fallen short, Ajumogobia said. NNPC’s production unit has only managed to produce around 70,000 barrels a day in its thirty years of existence, compared with a company such as Addax Petroleum Corp., which ramped up production to more than 100,000 barrels a day in about a decade.

The administration of Nigerian president Umaru Yar’Adua last month proposed to overhaul the nation’s oil industry and to create a state oil community that could compete with international firms.

Former World Bank President James Wolfensohn said the proposed commercialization of Nigeria’s oil industry “seems to me to be headed in exactly the right direction.”

To contact the reporter on this story: Julie Ziegler in New York at .; Jim Efstathiou Jr. in New York at .

Last Updated: September 24, 2007 14:25 EDT

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