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Financial Times: Nigeria warns on oil contracts

By Matthew Green in Lagos
Published: January 22 2008 02:00 | Last updated: January 22 2008 02:00

Nigeria has warned energy companies it wants to complete its planned renegotiation of contracts covering offshore oilfields in the next three months, saying record prices mean western groups are having “a ball”.

It is the first time Nigeria has come up with a timeframe for renegotiating the complex agreements, which the government signalled it would review late last year in an effort to secure a greater share of profits from offshore production. The urgency will put the oil majors under greater pressure.

The Nigerian move reinforces a global trend of oil-exporting countries demanding better terms to reflect surging prices. Oil executives say the government’s decision to follow the example of countries such as Russia, Algeria and Venezuela could deter investment in Nigeria, where militant violence has shut in a fifth of output since 2006.

But Emmanuel Egbogah, special adviser on oil to President Umaru Yar’Adua, said it was only fair that the government wanted to renegotiate contracts signed when prices were a fifth of the record levels of $100 a barrel touched last month. “We don’t intend to sit around, we’re settling to business, and therefore we’re going to deliver on this as quickly as possible,” Mr Egbogah told the FT. “It is really a ball for the oil companies . . . There’s a lot of room for everyone to share, and the Nigerian government is not the exception.”

The review forms part of wide-ranging reforms for the energy sector in Nigeria, Africa’s biggest crude exporter, launched by Mr Yar’Adua after he came to power last May. Nigerian officials say they are hoping to hold preliminary discussions with oil companies in the next few weeks to begin renegotiating deals known as production sharing contracts signed in 1993 and 2000.

The PSCs cover giant offshore fields being developed by companies such as Royal Dutch Shell, Chevron, ExxonMobil and Total. “There’s a wide margin of areas that we could look for adjustment,” Mr Egbogah said. “With the price of oil as it is today, I think everyone will end up a winner.”

Mr Egbogah said he aimed to conclude renegotiations within three months, though some analysts say the complex process may take longer. “We’re going to negotiate in a very friendly mood, only for the best interests of one another,” he said. Shell said it was aware of the planned review but did not want to comment ahead of discussions.

ExxonMobil and Total both said they had not yet been invited for talks. Chevron declined to comment. Industry insiders say companies accept that they will have to cede a degree of the profits from offshore fields, which operate under more favourable terms than the joint-venture arrangements covering production in the Niger Delta.

But they will be reluctant to make big concessions given the high costs of operating in Nigeria. Nigerian officials revealed last month that Gazprom, the Russian state-owned energy giant, had offered to build a gas gathering system to generate electricity.

Mr Egbogah said Gazprom was considering a project worth a “significant number” of billions of dollars.

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