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Shell to help plug Nigeria shortfall


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Financial Times: Shell to help plug Nigeria shortfall

By Matthew Green in Lagos

Published: May 14 2008 03:46 | Last updated: May 14 2008 03:46

Royal Dutch Shell is close to agreeing a deal with Nigeria that would see the company provide loans to meet funding shortfalls that have cut production at one of its most important oil businesses.

The plan is designed to inject cash into Shell’s joint venture with the Nigerian government. The state’s failure to pay its share of costs has stalled main projects.

Attacks by militants have also contributed to a slump in Shell’s production in the oil rich swamps of the Niger Delta, which provided 18 per cent of Shell’s oil last year.

The government of Umaru Yar’Adua, the president, has made the funding gaps in ventures with oil companies a priority since it took power a year ago. Soaring oil prices, which hit a record $126.98 on Tuesday, have spurred talks by underlining the cost of lost output.

Ann Pickard, executive vice-president for Shell in Africa, said the company was “very close” to a deal. Odein Ajumogobia, Nigeria’s oil minister, agreed.

A senior executive underlined Shell’s concerns last year when he warned in a memo that Nigeria’s failure to pay its share posed a “big risk” to the existence of the venture, the Shell Petroleum Development Company.

Energy advisers to Mr Yar’Adua cautioned in an internal report in January that Nigeria’s oil production could fall by a third by 2015 if the financing gaps in joint ventures were not addressed.

The government hopes to deliver a long-term solution by restructuring its ventures with Shell, ExxonMobilChevron and others to allow them to raise capital on international markets, although industry experts said the scheme could take several years to implement.

Shell is offering a package of loans to the government as an interim solution to help plug its funding gap.

Mrs Pickard said Shell was near to a deal to extend loans to complete schemes stalled by the state’s failure to pay. Shell would recoup its money from revenues earned by the completed projects.

Mrs Pickard refused to say how much investment was planned this year but said it could grow significantly if the model was adopted for regular use. “The concept, if it works going forward, is it could get to be a very big number,” she said.

Shell is also close to a deal to convert about $2bn (€1.3bn, £1bn) owed by Nigeria into a “bridge loan” to be repaid with interest. “I’m optimistic that a bridge loan will be completed,” Mrs Pickard said. “It’s very important to address what’s owed to us and it’s very important to get some of these projects going again because they’re totally stalled at the moment.”

Funding gaps and militant violence have taken a heavy toll on SPDC, of which Shell owns 30 per cent and the state-owned Nigerian National Petroleum Corporation 55 per cent.


Nigerians question motives for inquiries – Apr-16

Copyright The Financial Times Limited 2008


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