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Big oil lends to Nigeria

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Big oil lends to Nigeria

Published: May 28 2008 03:00 | Last updated: May 28 2008 03:00

Talk about trying to make full use of a big balance sheet. Royal Dutch Shell is one of a number of oil majors talking to the Nigerian National Petroleum Corporation, the state-run oil company, about terms for huge loans to kickstart exploration and production in the country. Between them, Shell, ExxonMobil and Total are contributing about $6bn.

Picking up the tab like this is not entirely new. After all, any production-sharing arrangement with a partner nation is a de facto loan. The major builds the infrastructure and the host repays it in oil, with a profit added on. Majors have made actual loans in the past, too. In 2001, for example, Shell set up a revolving credit facility to support Niger Delta contractors. But that was tiny – $30m – and split three ways with the World Bank and a local bank.

A plan for direct loans totalling $6bn marks a significant escalation. Why now? Nigeria is a relatively mature producer and its inability to honour its share of joint venture cash calls is not a new phenomenon.

The answer may lie in the majors’ sluggish global production growth and their increasing intolerance for avoidable delays. The oil companies may hope that a schedule of interest payments, however lenient, will at least focus minds at the oil ministry; since the elections last April, the new government has dragged its heels in awarding important services contracts. An outstanding loan could also give officials a stronger incentive to get tough on militant attacks and industrial disputes, which continue to cause shutdowns. An ongoing tax dispute – Shell and Exxon are accused of owing $2bn – may also be related. Investors might query the returns on this use of their capital and whether the NNPC had exhausted other sources of financing. It is up to the majors to convince them there was no alternative to get the taps flowing.

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