The Niger Delta's political violence, coupled with unresolved issues of joint venture funding and sector reform, are just some of the problems that confront international oil companies (IOCs) that are trying to develop upstream projects. But such is the potential of Nigerian exploration and production (E&P) that key industry players remain committed to the long term. Indeed, during a period of global retrenchment, several of the world's most prominent major companies are bringing new fields on-stream – despite delays that have dogged several much-anticipated projects; rising engineering, equipment and other costs; and unresolved issues about the funding of Nigeria's biggest producers, the joint ventures between Nigerian National Petroleum Corporation (NNPC) and major partners Chevron, Eni, ExxonMobil, Royal Dutch Shell and Total.
Total is typical of the major players that are committed to maintaining their global upstream investment programmes, despite the economic downturn. According to chief executive Christophe de Margerie, cutting investments "would not be only a mistake but also a serious error".
Total's Nigerian companies have a raft of projects in permits, including OML58, which includes the Obagi oil and Ibewa gas fields, and Obite gas operation to supply Nigeria liquefied natural gas (NLNG) – one internationally financed project that is an undoubted success. On OML102, drilling is planned in 2009/10 prior to developing the Etisong discovery, and operations on the Ofon field are scheduled for 2010. Total is operator (with 24%) of OML130, which contains the Akpo gas and condensate field, now expected to start up in April and to reach an estimated 175,000 barrels a day (b/d) by end-2009 and plateau at 225,000 b/d. China National Offshore Oil Corporation has 45% of this permit, highlighting the continued interest of Asian companies.
Most other major partners have similarly extensive project rosters, carrying NNPC and other local partners with financing where necessary. And while the difficulties of operating in Nigeria have deterred plenty of entrants, a few well-connected and sharply focused independent IOCs are reporting substantial work rosters.
With output rising, a multi-permit Nigerian portfolio is one attraction for the companies rumoured to be looking into acquiring Toronto-listed, Swiss-based Addax Petroleum. Meanwhile, in a tough market, AIM-listed Afren (until recently chaired by petroleum minister Rilwanu Lukman) continues to attract serious investor interest.
Lukman's challenge
Mr Lukman's move back into the ministry of petroleum in president Umaru Yar'Adua's January reshuffle brings Nigeria's best-known oil man to the fore of government, where he is promising to carry through the restructuring of NNPC and other key energy industry structures. Radical changes were proposed last year by the Oil and Gas Reforms Implementation Committee (OGIC) he chaired, but these recommendations have yet to be implemented. Local analysts say Mr Lukman's decision to sack NNPC group managing director (GMD) Alhaji Abubakar Lawal Yar'Adua (no relation to the president) and other insiders early in his new mandate "showed the minister taking on powerful interests and sending out a signal that change is coming". Mr Yar'Adua was replaced as GMD by Mohammed Sanusi Barkindo, who is seen as a Lukman ally expected to deliver the reforms.
Mr Lukman believes only a total overhaul of NNPC can enable it to join the league of well-managed oil giants. Still to come is the much-anticipated Petroleum Industry Bill, 2009, which President Yar'Adua has sent to the National Assembly. This will legislate on NNPC's unbundling into smaller, nimbler entities. No one doubts that the creation of 18 subsidiaries will be difficult to achieve, and will not be popular since it challenges vested interests and might lead to job losses. Mr Lukman faces opposition from groups such as the Petroleum and Natural Gas Senior Staff Association of Nigeria (Pengassan), a white-collar union. In the House of Representatives, house committee on rules and business chairman Ita Enang is calling for "national interests" (not necessarily the same as business interests) to prevail.
President Yar'Adua is promising to tackle the Delta crisis. "Showing the disaffected populations of the south-east (and other Nigerians) that a new national oil industry can emerge to serve their interests will help to build confidence," one Lagos analyst says. Pointing to a more proactive stance in the Delta, the Joint Task Force (JTF) claims to have destroyed more than 300 illegal refineries and to have arrested 120 participants in crude oil theft in 2008, in Bayelsa and Delta states. But police actions alone cannot reverse Nigeria's decades of deteriorating governance, and critics allege that even elements of the JTF and their 'big men' backers are still profiting from illegal 'bunkering' and other activities. In such an environment, the president will need all his experience and some very strong political backing to see his reforms through.
Proposed gas pipelines along the existing product pipeline network (right of way)
