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Shell’s budget doubles to $8.25bn as production falls

PUNCH (Nigeria)

By Clara Nwachukwu
Published: Monday, 13 Oct 2008

EXTERNAL factors have reportedly pushed Shell Petroleum Development Company’s budget for 2008 oil and gas operations in Nigeria to $8.25bn, more than 100 per cent above 2007’s $4.04bn.

The factors include difficulties in the operating environment, occasioned by the insecurity in the oil-rich Niger Delta, where its operations and assets are based.

SPDC is reputed as the largest private sector oil and gas company in Nigeria, and is in Joint Venture (30 per cent) with the Nigerian National Petroleum Corporation (55 per cent); Total (10 per cent), and Agip (five per cent).

However, a copy of the SPDC Budget 2007-2008, obtained by our correspondent on Sunday, showed that while the budget doubled, oil production under the current fiscal year reduced to almost half of the 2007 levels.

Industry sources estimate that SPDC will only be able to produce an average of 412,000 barrels per day in 2008.

Combined with production from Bonga offshore field, operated by Shell Nigeria Exploration and Production Company, with installed capacity of 225,000 bpd, total oil production from the Shell Companies in Nigeria falls far short of the over one million bpd achieved in 2005.

The combined average capacity from the Shell group is estimated at 637,000 bpd.

Militant attacks have drastically affected the group’s production and made it lose its position as the biggest producer to America’s ExxonMobil Corporation in Nigeria.

According to industry sources, “In 2007, the production of crude lost or deferred amounted to an average of 614,000bpd. In 2006, the volume deferred as a result of third parties and operations was 528,000 bpd.”

Notwithstanding that approximately 200,000bpd from the western operations had been brought back to production, the security conditions in the Niger Delta remain challenging.

For 2008, the total JV budget proposal was put at $5.3bn, but was reduced by the National Petroleum Investment Management Services, the NNPC arm in charge of oil and gas investments, to $2.94bn, in view of the security situation, which has continued to obstruct developments.

However, total JV base proposed in the SPDC budget was put at $2.25bn, lower than the 2007 estimates of $2.68bn.

The rise in budget has raised some eyebrows, especially in view of the production cuts and restructuring, which had resulted in the loss of jobs by over 2, 500 staff.

Although Shell has not been specific on the actual number of job losses, preferring to say, “We are matching our people (staff) with available assets.”

Further breakdown of the budget showed votes for salaries rising to $422.17m against $416.32m in 2007, which was expected to have reduced in view of the lay offs.

http://www.punchng.com/Articl.aspx?theartic=Art2008101312182967

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