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Shell Says Nigerian Changes May Deter Investment (Update1)

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Shell Says Nigerian Changes May Deter Investment (Update1) 

By Julie Ziegler

May 27 (Bloomberg) — Royal Dutch Shell Plc‘s Nigeria venture said a government plan to retroactively recoup revenue from oil and gas companies may deter investments in the nation.

Nigerian President Umaru Yar’Adua on May 20 ordered his government to recoup $1.9 billion from Shell and Exxon Mobil Corp. in revenue and taxes from two deepwater projects. Under production contracts, the companies were excluded from sharing revenue until the full cost of investment was recovered.

“We would like to reinforce that following recent statements relating to retroactive changes to fiscal terms, we are very concerned about the future potential implications for investor confidence in Nigeria,” Shell’s Nigeria venture said in a statement to Bloomberg. It hasn’t been officially informed of the president’s plan, the company said.

Governments are seeking more money from oil companies as crude prices have surged to a record and exploration for resources has heated up. Shell ceded a stake in the $22 billion Sakhalin-2 offshore oil and gas project in Russia to Gazprom last year after Russian regulators threatened to shut it down for environmental violations.

Must Cope

Shell Chief Executive Officer Jeroen van der Veer said in January that the company must cope with state-run companies demanding better terms when negotiating energy deals.

Crude oil for July delivery rose as much as $1.46 a barrel, or 1.1 percent, to $133.65 a barrel on the New York Mercantile Exchange today from the May 23 close. Prices have more than doubled over the past year.

Nigeria announced a plan last year to get better terms on deepwater production contracts, many of which were signed during the 1990s when oil prices were below $20 a barrel. Unlike onshore agreements, oil companies didn’t have to create joint venture firms with the government.

“We operate our business in full compliance with the laws and regulations of the country,” Shell said in a statement. Part of the dispute centers around the Bonga project, which Shell estimated in 2005 had a recovery cost of $3.6 billion.

`Pay Up’

Levi Ajuonuma, a spokesman for state-owned Nigerian National Petroleum Corp., said that Shell has already recovered its investment costs on its Bonga deepwater field, which began producing in 2005. The field is forecast to export 180,000 barrels a day in June.

“Retroactive or no retroactive, a debt is a debt,” Ajuonuma said in a telephone interview from Abuja yesterday. “They should just pay up and shut up.”

Shell agreed to loan NNPC $3.1 billion to cover a financing shortfall for their joint venture projects and pay outstanding balances from 2006 and 2007, he also said yesterday. Shell confirmed an agreement was reached, adding that more “detailed agreements” must occur before the loans can be executed.

NNPC has suffered more than Shell from shuttered production in the Niger Delta amid militant attacks on the nation’s oil infrastructure, according Antony Goldman, a UK-based independent analyst specializing in Nigeria. “The more production falls in the joint venture, the more it hits government revenue.”

Output of about 500,000 barrels a day have been hurt since Feb. 2006 militant attacks, leading Shell to drop to Nigeria’s No. 2 oil producer behind Exxon. Shell has been able to offset some of its losses through its deepwater agreements, he said.

Not a Shock

NNPC, which owns a 51 percent stake in Shell’s onshore venture, is only required to share revenue with the other partners for the first $30 a barrel, meaning the state-owned company would today receive more than $100 for every barrel produced by the joint venture, Goldman said.

Had the two sides “managed to sort something out in private in months of talk, it wouldn’t have come to this,” Goldman said. “It’s an indication of how many problems their talks have had. The fact that there’s a quarrel between the international oil companies and the government isn’t going to come as a shock to anyone.”

To contact the reporter on this story: Julie Ziegler in Lagos at[email protected]

Last Updated: May 27, 2008 05:31 EDT

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