By Dino Mahtani in London
Published: November 15 2007 02:00 | Last updated: November 15 2007 02:00
Royal Dutch Shell is to reorganise its Nigerian units to save costs after oil production cuts due to militant attacks and shortfalls in government funding.
Basil Omiyi, Shell’s managing director in Nigeria, said: “We are operating in an extremely difficult environment where levels of production have been severely curtailed by the security situation for some time, where there is significant upward pressure on costs and where funding issues are having an impact on our operations.”
The company has said it will increase efficiency by unifying the production, development, and projects divisions of its three separate business units operating in Africa’s top oil producer.
The reorganisation comes a year after Shell saw a large production drop in Nigeria, where it books a significant portion of its reserves, after militant attacks on a main export terminal.
Nigeria accounts for 12 per cent of Shell’s total global oil and gas production.
The company has also been affected by government funding shortfalls for its joint-venture projects and could face a squeeze on profits if the government goes ahead with proposals to increase its tax take on lucrative offshore contracts.
Jason Kenney, oil and gas analyst at ING, said that the tax proposal would hit all oil companies in Nigeria but especially Shell, which could face increases worth billions of dollars over the next two decades.
A Shell representative said restructuring would lead to job cuts. He added the restructuring was part of an overall objective of adding $500m a year to pre-tax profits from cost savings around the world.
The company has historically been Nigeria’s largest producer, but has faced problems there. Last April, Mr Omiyi said Shell would restore the 500,000 barrels per day of production lost due to militant attacks in Nigeria within five or six months, but so far this has not been achieved.
He said the company had drawn up a strategy of increasing the number of service contracts to local communities in the oil producing delta region, as a way of tackling militant action.
But some company insiders are sceptical over whether this strategy will pay off, or whether it will serve to empower militant factions further. In 2004, an internal report commissioned by Shell warned that the company could be forced out of the delta by 2008.
Copyright The Financial Times Limited 2007
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