Royal Dutch Shell Plc  .com Rotating Header Image Nigeria: Restructuring – Yar’Adua Meets Shell CEO, Dutch PM

This Day (Lagos)
29 January 2008
Stanley Nkwazema And Patrick Ugeh

It emerged yesterday that Anglo Dutch oil and gas giant, Shell, may have secured “critical” concessions from President Umaru Musa Yar’Adua over key Federal Government policies which the firm considers to be unfavourable to its operations in Nigeria.

This development is believed to have informed the decision of Shell to put on hold the planned re-organisation of its Nigerian operations which had threatened the jobs of about 1000 workers – in addition to a drastic reduction in its operations in the Niger Delta.
THISDAY was informed last night that Yar’Adua met with Shell’s CEO, Jeroen van der Veer, and the Dutch Prime Minister, Jan Peter Balkenende, last Friday in Davos, Switzerland, during the World Economic Forum to discuss the burning issues.

The major items on the agenda of the meeting, according to Resource Investor, an online newsletter, were: the controversial gas flare deadline, restiveness in the Niger Delta, increasing cost of production, and the new investment policy of the government which may put an end to the cash calls era in joint-venture operations.

Yesterday, the Minister of State for Energy (Petroleum), Mr. Odein Ajumogobia, told journalists in Abuja that it was difficult to put a definite date to the discontinuance of gas flaring.

This is thought to be a concession secured by Shell after last Friday’s meeting with the president.

Under the subsisting gas flaring policy, which took effect from January 1, 2008, oil companies are required to pay a fine of $3.5 for every 1000 standard cubic feet of gas flared. This is in addition to shutting down any oil field where associated gas is flared after December 31, 2008. The December 31, 2007 flare-out date had been controversially extended by the government.

Nigeria is known for flaring the highest volume of gas after Russia. The penalty was N10 for 1,000 standard cubic feet of gas flared.

Although the minister announced that government would institute more stringent penalties for non-compliance with the deadline for stopping the flaring of gas, he remarked that the terminal date of December 2008 was not “firm”.

The soft-pedalling on gas flaring may be borne out of government’s intent to curtail further economic damage and restiveness in the oil-producing region, given the possible consequences of major job cuts by Shell.

It is believed that Yar’Adua and Balkenende also discussed “the growing unease Shell and others were feeling about the unwillingness of the Nigerian government to deal effectively with the Niger Delta uprising, which has resulted in the shutdown of more than 450,000 bpd of crude oil”, the newsletter reported.

It said that the “latter not only threatens the future of Nigeria as main producer in the region, but also costs the oil and gas operators billions of dollars”, adding that in a move to regain the overhand in the conflict, “oil and gas companies have asked the Yar’Adua-led government to set up effective ways of countering the uprising and bring back on-stream the vast amount of oil production”.

International operators, reported the newsletter, “are currently facing lower production capacity, increased costs and outright violence in the country. As a result, Shell has already stated that it will consider divesting part of its operations and cut costs and jobs in the country. The latter would mean that Nigeria would be faced by a part pull-out of its main international oil and gas operator in the worst-case scenario. Even a more subtle approach by Shell, such as cutting the overall workers volume, will have a negative impact in the already economically weak Niger Delta region”.

Resource Investor suggested that “it seems the bilateral relation is heading for a break-up. Nigeria even has increased the pressure even more by stating that it would press Shell to invest more in the country’s downstream. The latter has been presented as a request, but is seen by some analysts as a new ultimatum.

“How far companies such as Shell are willing or able to commit themselves to this new environment is unclear. No rational investor will increase his investment in a project while risks have gone up exponentially. At the same time, Shell cannot pull out totally without losing a huge part of its international production capabilities and reserves.”

Already, officials of Shell have said they are suspending the restructuring exercise in Nigeria, disclosing that the status quo would remain until an agreement was reached with the government on the issue.

Before the new developments, the Shell Petroleum Development Company Nigeria (SPDC) had concluded plans to reduce its 3500 work force in Nigeria by 1000 so as to enable it achieve its aim of streamlining its operations in Nigeria .

The 1000 workers who were expected to go excluded its casual workers running into over 5000 and all over the country.

On the issue of gas flaring, Ajumogobia said yesterday that the government would impose more stringent penalties that seek “to compensate us for the waste of our resource, but that is not enough. As for the new deadline, I won’t put a time-frame on gas flare-out because I am not in charge. The deadline of end of this year is not firm. When a firm deadline is agreed upon, it will be communicated to you.”
Ajumogobia announced that government was looking for $3,8 billion to meet its shortfall in the development of the oil sector where the country hopes to increase its oil production to 4mbpd and reserves to 40bn barrels by 2012.

According to him, the country needs funds for the development of the upstream sector. He said the money would be raised from local and international capital markets, expressing the hope that the target would be surpassed.

“We hope to exceed $30bn because the more you invest, the more you get so long as oil and gas remain the bulwark of the Nigerian economy,” he said. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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