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Nigeria Confronts Shell, Exxon

The Wall Street Journal

Nigeria Confronts Shell, Exxon

By OBAFEMI OREDEIN
May 21, 2008; Page B5

IBADAN, Nigeria — The Nigerian government is demanding $1.91 billion from Royal Dutch ShellPLC and Exxon Mobil Corp. as it reviews contracts governing growing offshore energy production, a spokesman for the country’s president said Tuesday.

The office of President Umaru Yar’Adua said he had ordered the state oil company NNPC to take “immediate steps” to recover the money from the two oil majors. A presidential adviser, Olusegun Adeniyi, said the funds were due to the government under production-sharing contracts governing two big offshore oil fields, Bonga and Erha.

Mr. Adeniyi said Nigeria is seeking $850 million from Shell, which operates Bonga, and $646 million from the Exxon-operated Erha. NNPC and the government are also seeking to recover $414 million they say are owed from sales of natural gas from Bonga.

“This matter is the subject of ongoing discussions between NNPC, SNEPCO [Shell Nigeria Exploration and Production Co, which operates Bonga] and other partners” in the offshore block, a Shell spokesman said.

Exxon Mobil said its affiliates “fully comply with all laws and regulations and have paid taxes and royalties to Nigeria accordingly.” It said it was in ongoing discussions with a number of Nigerian government agencies on issues such as taxes but would not comment on the talks.

The claim comes at a critical time for Shell in Nigeria, Africa’s biggest crude exporter. Militant attacks on its operations in the Niger Delta have forced it to shut down a big chunk of its onshore production. The company has also complained that the Nigerian government is failing to meet its funding obligations for the joint venture it runs with Shell, known as the Shell Petroleum Development Company or SPDC.

Shell isn’t the only company to suffer from such funding shortfalls. French oil major Total SA reached an agreement with NNPC on Tuesday to resolve its own funding crisis in Nigeria, concluding a deal on “financial assistance” that would cover three joint-venture projects in the west African country.

The outlook for big Western oil companies operating in Nigeria became even more uncertain last year when Mr. Yar’Adua said he wanted to renegotiate contracts governing offshore fields to better reflect soaring oil prices.

Bonga and Erha are covered by production-sharing contracts, which allow oil companies to recoup more of their costs before having to share substantial profits with the government. But the steep rise in crude prices has encouraged many oil-producing countries to rewrite such contracts so they get a bigger share of income from big oil and gas projects.

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