Financial Times: Shell’s plan to cut Nigeria costs on hold

By Dino Mahtani in London
Published: February 15 2008 02:00 | Last updated: February 15 2008 02:00

Royal Dutch Shell yesterday suspended plans to cut the costs of running its Nigerian operations, a move prompted by the government’s desire to discuss ways to pay its share of investment in oil and gas joint ventures.

Shell last year announced plans to cuts jobs and streamline its three businesses in Nigeria to overcome the government’s funding shortfalls in Shell Petroleum Development Company, its joint venture with Nigeria’s state-owned oil company.

Shell has blamed the government for risking the survival of the company by not stumping up its yearly cash obligation.

A Shell official said the discussions in progress had shown “signs that the government was ready to make more funding available”. Executives at Shell and other multinationals operating in Nigeria say that the government falls short by $4bn (€2.7bn, £2bn) a year in its funding obligations towards all joint ventures.

Officials at the Nigerian National Petroleum Company, the state-owned group that holds a 55 per cent stake at SPDC, could not be reached, but were reported as having said they had not been given a chance to voice their own concerns over Shell’s restructuring plans and wanted more dialogue.

Shell employs about 12,000 staff and contract workers in Nigeria. It had not formally announced how many workers it would sack, but industry sources expected about 2,000 employees to lose their jobs if the company reorganised its operations.

Through its equity position and taxes, the Nigerian government takes about 90 per cent of the value of the oil barrel produced from the joint venture. Last month it announced it would use $4.97bn from its 2008 budget to invest in the joint ventures, and was seeking $3.8bn in financing from international and local banks. The dispute is likely to continue until financing is arranged, analysts say.

Shell has lost 189,000 barrels per day of its production because of militant attacks and has suffered billions of dollars in funding shortfalls over the past few years. At its peak, Shell pumped 1m barrels of oil per day and was Nigeria’s largest producer, a position it has lost to ExxonMobil.

Copyright The Financial Times Limited 2008

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