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Shell operations face increasing pressure in Nigeria

BuinessDayOnline: Shell operations face increasing pressure in Nigeria

13 April, 2008 12:00:00 OLUSOLA BELLO

Shell Petroleum Development Company (SPDC)’s long-term future in Nigeria is now in doubt as the company is facing pressure from the government amidst increasingly violent opposition in the Niger Delta.

Sources say the Federal Government has withheld up to $1bn as part of a production-sharing agreement while the two sides are locked in talks over how to pay for new investments in the oil industry. The decision to withhold funds is preventing contractors from getting paid, say sources.

President Umaru Yar’Adua’s government is believed to be taking a harder line on historic oil contracts, many of which are being renegotiated. Pressure on Shell comes as a steel firm controlled by the Mittal family attacked the Nigerian government last week, after its concessions were confiscated.

An official of Shell who spoke to Business Day said as far he knows the company is still negotiating with the government over the issue of funding the projects. “I hope all will soon be over so that both the company and the government can make progress,” the official said.

Royal Dutch Shell plc’s chief executive had said in March that the oil company has agreed with Nigeria’s government on a plan to tackle funding shortfalls at their joint ventures. “We’ve made considerable progress on the funding issue. We’ve agreed on the concept of how to take it forward but there is still more work to be done,” Jeroen van der Veer had said.

Shell, the largest foreign operator in Nigeria, in January said it was having problems with the government funding its share of the ventures, as it announced a write-down related to its Nigerian operations.

Van der Veer had visited Nigeria recently and held talks with government ministers, officials, officials of the Nigerian National Petroleum Corporation and President Yar’Adua himself.

A spate of civil unrest and militant attacks on facilities had disrupted supplies from Nigeria for nearly two years, hitting production at Shell and other western oil firms and helping to boost world prices.

The head of Shell’s oil and gas business, Malcolm Brinded, said there had been some improvement in security in the oil-producing Niger Delta region, but the situation remained “fragile”.

On a Shell-share basis, the company still has about 140,000 barrels per day of production shut in, he said.

The difficulties for Shell and other western oil producers, including Chevron and Agip, could push oil prices to new heights. Last week, US light crude reached an all-time record of $112.21.

Shell says that 95 per cent of profits from its joint venture go to the Nigerian government. But Nigeria believes that it has been shortchanged by the oil majors.

“The whole Shell position is looking vulnerable,” said a source in the Niger Delta. “I don’t want to make predictions, but we are not too optimistic. There’s a change in the environment. I am expecting this year to be very rough.”

Shell also claims that the government is failing to come up with cash to deal with gas flaring from oil facilities. Anger in local communities at the pollution caused by the gas flaring and the inability of local and national governments, as well as oil firms, to provide basic infrastructure in the Niger Delta has prompted protesting youths to regularly invade and occupy vital facilities. The latest invasion took place on Friday and disrupted production, which is running at well below capacity.

http://www.businessdayonline.com/energy/7903.html

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