By Matthew Green in Lagos and Ed Crooks in London
Published: January 31 2008 02:00 | Last updated: January 31 2008 02:00
The future of one of Royal Dutch Shell’s most important businesses is at risk because the Nigerian government has not funded it properly, an internal company memo has warned.
The government’s failure to finance its majority share in the Shell Petroleum Development Company, which is responsible for Shell’s onshore business throughout Nigeria, posed a “big risk” to its existence, according to the memo from Basil Omiyi, Shell’s country chair.
Nigeria was Shell’s second most important country for oil production in 2006, the latest year for figures, behind the US.
The SPDC, 55 per cent owned by the state-owned Nigerian National Petroleum Corporation, was once a symbol of Shell’s pre-eminent position in Nigeria.
But according to Mr Omiyi’s memo, circulated in a November 14 e-mail and seen by the Financial Times, it now “faces a severe under funding problem”.
“Funds made available by the government are very significantly short of existing requirements, leading to levels of borrowing and overdues that put the existence of the joint venture at a big risk,” he wrote.
The memo also dashed hopes the company would keep pledges to quickly restore production lost through militant violence in the Niger Delta since 2006, saying output would remain below capacity this year.
Militant attacks have cost Shell about a third of its oil and gas production in Nigeria, adding to its problems when, like all large western oil groups, it is struggling to raise output. In the autumn, production was 216,000 barrels of oil equivalent a day onshore, plus 175,000 b/d from deep water. About 189,000 b/d was held up in the Delta.
Nigeria has accumulated large arrears in its payments due to bureaucratic inertia and also because politicians have diverted resources elsewhere.
Shell yesterday declined to comment on the memo, which was sent to staff to explain plans to cut costs at its three Nigerian exploration and production businesses. The memo warned job losses were inevitable and SPDC was likely to face a “much-reduced” budget for 2008.
Shell’s problems have fuelled concerns about its reserves, which it will reveal in filings to the US Securities and Exchange Commission, probably in March.
Opec inaction, Page 3 Shell’s grip loosens, Page 5 Commodities, Page 26
Copyright The Financial Times Limited 2008
*This website and sisters royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net, and shellwikipedia.com, are owned by John Donovan - more information here. There is also a Wikipedia segment, the Shell DPA Files, "Shell and the Spies", the Shell Leaks files, as well as books written and published by John Donovan - Kindle eBooks. Timeline of the Donovan Shell Feud. Toxic History of Royal Dutch Shell Group. Shell and the Donovans: The Full Media Record — 550+ Articles, 110 Books, 40 Years. *All created and supported by internet wizz, Nick Gill.
