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NIGERIA OIL AND GAS

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A GUIDE TO DOING BUSINESS IN THE NIGERIAN OIL AND GAS SECTOR

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A GUIDE TO DOING BUSINESS IN THE NIGERIAN OIL AND GAS SECTOR

WHO IS THIS REPORT FOR?

THIS REPORT IS AIMED AT REASONABLY EXPERIENCED UK EXPORTERS THAT ARE NEW OR WISH TO EXPAND THEIR INTEREST IN THE NIGERIAN MARKET. It is written primarily to provide a basic guideline to small to medium sized companies (SMEs) that have had export success in other markets and who are considering approaching or expanding into the Nigerian market. It is not aimed at experienced operating companies or larger contractors, but may provide additional information for them.

HEALTH WARNING

NIGERIA IS NOT AN EASY MARKET. If you have NO export experience then Nigeria may not be the market for you. If you are an experienced exporter with a good product to offer and have the energy and time to invest in establishing a long-term potential there are numerous opportunities in both oil and gas, and the market will continue to develop over the next 25-40 years. Think now about joining the other UK Companies that already have long-term profitable relationships with Nigeria. For those who are prepared to put in the leg-work and be patient Nigeria could offer significant rewards.

DISCLAIMER

Whereas every effort has been made to ensure that the information given in this report is accurate, UK Trade & Investment and its sponsoring departments accept no responsibility for any errors, omissions or misleading statements in that information and no responsibility is accepted as to the standing of any firm, company or individual mentioned in the report.

EFFECTIVE DATE

The material contained in this document was assembled as of 1st January 2005. Unless otherwise stated, the report is based on information available at that time. The intention is to update the information and re-issue the report on a regular basis. UK Trade & Investment would appreciate any feedback or comment from companies regarding the report.

PRODUCED: MARCH 2005

MAGNITUDE OF OPPORTUNITIES IN OIL AND GAS

UPSTREAM

UPSTREAM
UPSTREAM
UPSTREAM
UPSTREAM
UPSTREAM

Exploration

New Field

Maintain Existing

Upgrade Existing

Development

Fields

Fields

Main

Seismic Seismic processing Databases Drilling Logging, coring & completion technology Related services (mudlogging etc.)

Repairs and parts Maintenance (corrosion prevention, solids and water management etc.) Health, Safety and Environmental (HSE) Training

JV potential EPC, turnkey and sub- contracts (process, consulting etc.) Efficiency improvement, product optimisation Environmental

Environmental Gas

Opportunities

Gathering

Land reclamation

Sustainable

development

Overall

Sector will be revitalized in 2005 as a result of the new licensing round.

Several new projects; mainly deepwater for both for oil and gas.

Plenty of work on existing fields as production is enhanced.

Potential for further growth and will be a niche area in the future.

Prognosis

Prognosis for

Long term

Strong international competition. Can be part of the supply chain. Niche opportunity for high spec engineering; especially in deepwater.

Good short term opportunities for SMEs especially if they already have a local presence.

Several new projects especially for those involved in gas gathering for LNG. Marginal field programme also important.

UK plc

opportunities for

players already in

market.

Need to be

established locally to maximise any future opportunities.

 

MAGNITUDE OF OPPORTUNITIES IN OIL AND GAS

DOWNSTREAM

Transport and

Transport and

DOWNSTREAM Transport and Refinery Decommissioning
DOWNSTREAM Transport and Refinery Decommissioning
Refinery
Refinery

Refinery

Decommissioning

Decommissioning

Distribution

Refinery

Maintenance

Upgrading

Main

EPC contracts for pipelines, export terminals and civil Corrosion prevention, pigging, instrumentation. LNG/GTl rapidly expanding market.

Repairs and parts Maintenance (corrosion prevention, solids and water management etc.) Health, Safety and Environmental (HSE) Training

JV potential EPC, turnkey and sub- contracts (process, consulting etc.) Efficiency improvement, product optimisation Environmental

Environmental

Opportunities

Land reclamation

Sustainable

development

Overall

Good medium and long term prospects for work.

Limited opportunities

Good prospects with several new private refineries planned.

The long term offers good opportunities. Little at present.

Prognosis

with existing

 

refineries.

Prognosis for

Good opportunities for companies to enter market, especially in gas transmission and distribution. Also to provide goods and services into the LNG supply chain.

Long term opportunities for SMEs and suppliers in a deregulated market.

Potential for new entrants to establish a presence in the market.

Little to encourage investment now with the exception of a few land/water remediation projects. Long term future.

UK plc

EXECUTIVE SUMMARY

Nigeria is now the world‟s sixth largest oil producer and occupies the number one position in Africa. Nigeria is an OPEC member, and is a supplier of crude oil to both Western Europe and more significantly to the United States. Oil production is important to the country, contributing nearly 50% of Nigeria‟s GDP and 95% of the country‟s foreign exchange earnings. Nigeria is also fast becoming a major gas exporter through the development of LNG facilities. Nigeria currently produces around 2.3 million bopd from 120 producing oilfields. Nigeria‟s proven reserves now stand at 34 billion barrels of oil, from its onshore, proximal, deep and ultra deep offshore areas. The Federal Government has plans to double production to 4.0 million bopd by 2010, and increase reserves to 40 billion barrels. Most of the increase in oil production will come from the new discoveries being made in deepwater offshore, and will require significant levels of new investment. The government estimates that around $30 billion will be required over the next 5 years to meet their targets. Nigeria is somewhat constrained by its OPEC quota, but has requested an increase of around 10% as a result of its recent deepwater discoveries.

Gas (including condensate) production has become increasingly important as the country develops the major reserves and associated gas transportation and utilisation systems. It has proven natural gas reserves of 160 trillion scf, and current production is of the order of 3.8 billion scfd. A large proportion (85%) of associated gas produced was flared, with the remainder used as either fuel gas or sold to industries. The government has insisted that the amount of gas flared should be eliminated by 2008, and the figure has dropped to around 45%, with penalty fines being imposed on those companies still flaring. One conspicuous use of the flared gas has to provide feedstock into the Bonny NLNG plant, which now has 6 trains in development and exports a total of 21.0 million tpa and utilises 40% of the previously flared gas. Future gas development schemes include the West African Gas Project, Brass LNG, GTL and other export/domestic utilisation schemes.

The downstream sector has been underperforming in comparison with the upstream sector. The state owns four refineries, but due to poor maintenance and other factors, these refineries are only producing at around 40% of their capacity (445,000 bopd), which results in Nigeria having to import around 30% of its refined requirements. Nigeria is continuing to deregulate the downstream market and 16 new refineries are planned, along with price subsidies being removed from both petrol and diesel. Gas transmission and distribution markets will also be opened up, with the introduction of a new Gas Act in 2005. This will allow a more free market approach, and opportunities for investment. Likewise NEPA the state electricity corporation is slated for privatisation, and there are several independent power plants under construction or being planned.

The Oil and Gas industry in Nigeria is nearly 50 years old, and is still dominated by the six major oil companies who made the original discoveries back in the 1960s, and these are: Shell, Mobil, Elf, Texaco, Agip and Chevron. To date, these companies still account for 95% of the oil and gas production. In the 1990s the government introduced a number of incentives to encourage new companies to enter the market and to date a further 40 foreign and indigenous companies are now active in the market, although their output is still low. In particular the government introduced PSCs for the deepwater, and transferred 25 marginal fields to indigenous operators. The upcoming 2005 licensing round and recent awards in the Sao Tome JDZ should further open up the market, and introduce new players.

Government involvement in the industry is through the state oil company: Nigerian National Petroleum Corporation (NNPC), which has around 60% share in the upstream sector through joint ventures with the oil companies and via its various subsidiaries including Port Harcourt Refining Company (PHRC), Nigerian Petroleum Development Company Limited (NPDC) and National Engineering and Technical Company Limited (NETCO). National Petroleum Investment Management Service (NAPIMS) is a subsidiary which is involved in optimising the Federal Government of Nigeria (FGN) investments in the upstream, and its main role is to oversee the contract and tender process in the oil sector, where the government is an investor. Department of Petroleum Resources (DPR) is the regulatory body, which is responsible for licensing, monitoring and regulation of the oil industry. There is no Ministry of Petroleum, and the de-facto function of Minister is held by the Special Adviser to the President Dr Edmund Dakuru.

All the oil and gas is to be found in the Niger Delta, although other parts of Nigeria have been explored. This is a prolific hydrocarbon province, and success ratios are high and finding costs low. There are several giant oil and gas fields (greater than 500 million bbls), and the advent of success in the deepwater means there is another 25-40 years of further growth. The first deepwater discovery (Bonga) was made in 1995, and there are several new fields (Agbami, Erha) in the development stage. These fields along with several upgrades of onshore fields, and gas gathering schemes means there are over 400 individual projects, with total project expenditure in excess of $12 billion over the next three years.

United Kingdom is Nigeria‟s number one trading partner, and has been supplying oil and gas products and services to Nigeria for over 50 years. The traditional method has been through an international supply chain, with the suppliers interacting with the major contractors and service companies. Agents and facilitators also have played a major role in accessing the market and winning contracts. Recently the Nigerian Government has pushed to improve „local content‟ from the existing low 10-15% share, by encouraging the oil majors to undertake more work in country and legislation to enforce this may appear in 2005. As a result UK Trade and Investment is encouraging UK companies to consider having a local presence in country, and establish a local subsidiary. Agents and middleman, which abound in great numbers are being phased out, and replaced by local joint venture partners.

Nigeria is a difficult business environment and historically has been beset with poor infrastructure, security problems and endemic corruption. Working conditions have improved over the past few years, especially since the return to democracy and the election of Obasanjo as President in 1997. However UK companies entering the market should be aware of all the limitations, and construct a robust business plan which addresses all the risks. The infrastructure has improved with the advent of mobile phones, domestic airways and private power suppliers. Security is still a problem, and the local communities‟ disenchantment with both the oil companies and the various governments means several areas are difficult to work in, like Warri and Benin City, (in the onshore delta area). The Government is keen to address the issue of corruption, and although obvious fraudulent practices are declining, the signs of low levels of corruption such as „grease‟ (equnje) money, or „dash‟ and the ubiquitous „419‟ scams are still in evidence.

UK Trade and Investment believes that Nigeria presents significant business opportunities in the oil and gas sector over the next 5-10 years, with the potential for another 40 years of growth. Nigeria is a difficult market, and is not for the inexperienced exporter, but with the right advice companies can succeed. The move to „local content‟ will invariably mean that the companies positioning themselves for the long term will need to base their operation in Nigeria and either accept a long learning curve or form an alliance with a local company, to establish a presence. The purpose of this document is to outline the current state of the oil and gas sector, highlight the opportunities and give suggestions as to where companies can access the advice to undertake business.

TABLE OF CONTENTS

EXECUTIVE SUMMARYC

1. THE OIL AND GAS SECTOR

1

1.1 COUNTRY OVERVIEW

1

History

1

Climate and Weather

1

Vegetation and Physical Features

1

People and Culture

2

Political Environment

2

Economy

2

1.2 THE STRUCTURE OF THE OIL AND GAS SECTOR

4

Overview

4

1.3 OIL SECTOR UPSTREAM AND DOWNSTREAM

8

Overview

8

1.4 GAS SECTOR UPSTREAM AND DOWNSTREAM

14

Overview

14

Natural Gas Utilisation

14

Natural Gas Development Schemes

16

Other Export Schemes

18

Domestic Gas Utilisation

18

New Gas Legislation

18

1.5 SERVICES (TRAINING, SECURITY, HEALTH, SAFETY AND ENVIRONMENT)

19

Overview

19

Sustainable Development

19

2. MARKET TRENDS AND AREA OF OPPORTUNITY

21

2.1

EXPLORATION

21

Current Trends

21

New Licensing Round - 2005

22

Nigeria Sao Tome and Principe

23

2.2

FIELD DEVELOPMENT

24

Overview

24

Marginal Fields

26

2.3

OPERATIONS AND MAINTENANCE

28

Overview

28

Opportunities

29

2.4

DOWNSTREAM

29

2.4

DOWNSTREAM

30

Overview

30

Gas Transmission and Distribution Projects

34

Compressed Natural Gas

34

Independent Power Plants

35

2.5

ENVIRONMENTAL SERVICES

36

Environmental legislation

36

Issues and Opportunities

37

Budgets

38

2.6

TRAINING IN THE OIL AND GAS SECTOR

39

Overview

39

British Council

39

Petroleum Technology Development Fund

39

3. DOING BUSINESS IN NIGERIA

3.1 CONSTRAINTS ON DOING BUSINESS IN NIGERIA

41

41

Overview

41

Day-to-Day Business Operations

42

Nigerianisation

42

Other Concerns Facing Investors

45

3.2 GENERAL LEGAL AND FINANCIAL FRAMEWORK

46

Legal framework

46

Finance

46

Debt

47

Banking

47

3.3 BRANCH REGISTRATION AND JOINT VENTURES

48

Overview

48

Branch registration

48

 

Forming a Nigerian Joint Venture

48

Working Under the Name of Another Foreign Company

49

Registration with the DPR, NAPIMS

49

3.4

AGENTS

50

Overview

50

3.5

TAX

51

Overview

51

Tax Authority

53

Pioneer Status

53

3.6

EXPORT CREDIT GUARANTEE DEPARTMENT

54

3.6

EXPORT CREDIT GUARANTEE DEPARTMENT

54

Nigeria

54

3.7

CORRUPTION

55

Overview

55

To Particularly Watch Out For

55

New UK Legislation

57

3.8

BUSINESS ETIQUETTE AND OTHER GENERAL INFORMATION

58

Hints for the Business Visitor

58

Foreign Personnel

58

Language

59

Dress

59

Meeting etiquette

60

Negotiations and Decision-making

60

Patchy Communications

60

4. APPROACHING POTENTIAL CLIENTS

4.1

4.2

4.3

4.4

INTRODUCTION THROUGH AGENTS/DISTRIBUTORS OIL COMPANIES AND MAJOR CONTRACTORS DIRECTLY LOCAL CONTENT - THROUGH JOINT VENTURES

Local Content

5. MARKETING ENTRY STRATEGY

5.1 A MARKET STRATEGY FOR SUPPLIERS

62

62

63

64

65

65

69

69

A

Permanent Presence in Nigeria

70

Contractor Registration

70

Nigerian Private Companies Are More Risky

70

5.2 A MARKET STRATEGY FOR SERVICE PROVIDERS

71

Establishing A Market Presence in Country

71

Priority Clients for Service Providers

72

Additional Demands

72

Local Companies

72

5.3 A MARKET STRATEGY FOR SUB-CONTRACTORS

73

Priority Targets

74

A

Permanent Market Presence

74

Local Content

74

5.4 A MARKET STRATEGY FOR CONTRACTORS

75

Identifying Opportunities in Nigeria

76

Initially Focus on Smaller Projects

76

Establish a Permanent Market Presence

76

6. WHO’S WHO IN THE OIL AND GAS INDUSTRY IN NIGERIA

77

6.1

MAJOR OPERATORS

77

Overview

77

Department of Petroleum Resources (DPR)

77

Nigerian National Petroleum Corporation

78

National Petroleum Management Services (NAPIMS)

80

Nigerian Petroleum Development Company Limited (NPDC)

80

Nigerian Gas Company Limited (NGC)

81

National Engineering and Technical Company Limited (NETCO)

81

Integrated Data Services Limited (IDSL)

82

Port Harcourt Refining Company

82

Shell

83

ExxonMobil

85

ChevronTexaco

86

AGIP

87

Total

88

NLNG

89

Other Companies

89

6.2

MAJOR SERVICE COMPANIES

91

6.3

LAWYERS AND CONSULTANTS

92

Lawyers

92

Consultants and Tax Advisors

92

7. OPPORTUNITIES

7.1 FORTHCOMING EVENTS

Calendar of Events

7.2 OPPORTUNITIES AND PROJECT LISTING

Detailed Project Sheets

8. ASSISTANCE

8.1 UK TRADE AND INVESTMENT

93

93

93

94

94

95

95

Overseas Market Introduction Service (OMIS)

95

Programme Arranging Services (PAS)

96

Off-the Shelf Information

96

8.2 TRADE ASSOCIATIONS

97

8.3 OTHER SOURCES OF INFORMATION

99

APPENDICES

APPENDIX 1:

Country Data Tendering Procedure Importing Through an Agent Establishing a Joint Venture Establishment of a Nigerian Subsidary by a Foreign Company UK Bribery and Corruption Law Nigerian Organizations Oil Company List Directory of Petan Members Other indigeneous Technical Oil Field Service Companies

100

APPENDIX 2:

101

APPENDIX

3:

105

APPENDIX 4:

107

APPENDIX 5:

109

APPENDIX 6:

113

APPENDIX 7:

115

APPENDIX 8:

117

APPENDIX 9:

118

APPENDIX 10:

120

APPENDIX 11: Major Service Companies

121

APPENDIX 12:

Key Industry Contacts in UK Selected Websites

122

APPENDIX 13:

124

APPENDIX 14: Glossary of Terms APPENDIX 15: Energy Conversion Table

125

126

LIST OF TABLES

 

Table 1:

Economic Forecast Sub Saharan Production and Reserves - 2002 Major Oil Fields in the Niger Delta PSC Arrangements Natural Gas Reserves (TCF) Gas Production and Utilisation by Company Seismic Programme - Agip Summary of Well Drilling and Major Rig Workover Programmes Drilling Activity End of 2004 List of Recently Allocated Marginal Fields Crude Oil Production - 2003 Comparison of Nigeria‟s Downstream Sector with the Rest of the World Approvals for Private Refineries Licensing Market Share in the Distribution Chain 2003 Gas Projects Infrastructure Constraints Approaching Clients Introduction Approaching Clients through Agents/Distributors Approaching Potential Clients through Oil Companies Approaching Clients through Local Content Service Provision Categories - Exploration Categorisation of Service Companies by Ownership Structure Local Content Evaluation Criteria List of Indigenous License Holders Exploration Market Share 2002 Example Project Listing

3

Table 2:

5

Table 3:

9

Table 4:

13

Table 5:

14

Table 6:

15

Table 7:

21

Table 8:

22

Table 9:

22

Table 10:

27

Table 11:

28

Table 12:

30

Table 13:

32

Table 14:

33

Table 15:

35

Table 16:

43

Table 17:

62

Table 18:

63

Table 19:

64

Table 20:

65

Table 21:

67

Table 22:

67

Table 23:

68

Table 24:

90

Table 25:

91

Table 26:

94

LIST OF FIGURES

Figure 1:

Map of Nigeria

1

Figure 2:

Tourist Guide to Nigeria

3

Figure 3:

Nigerian Crude Oil Production 1980-2003

5

Figure 4:

Nigeria‟s Oil and Gas Fields

8

Figure

5:

Reserves History

9

Figure 6:

Geographical Distribution of the „Big Six‟

10

Figure 7:

Deepwater Discoveries

11

Figure 8:

Six Major Operators Percentage Equity

11

Figure 9:

Split of the JV Barrel

12

Figure 10:

Historical and Projected Trend of Gas Flaring

15

Figure 11:

Drying Tapioca

16

Figure 12:

World LNG Plants

17

Figure 13:

Aerial View of NLNG Bonny Island

17

Figure 14:

Exploration Funds

21

Figure 15:

Sao Tome Licensing Round

23

Figure 16:

NLNG Train 4 and 5: Gas Gathering

25

Figure 17:

Bonga

25

Figure 18:

Bunkering

29

Figure 19:

Products Import Trend

31

Figure 20:

Crude Oil Production/Person

31

Figure 21:

Cost of 1 litre of Petrol

31

Figure 22:

Protestors

34

Figure 23:

Ethnic Unrest

44

Figure 24:

Onne Free Port

53

Figure 25:

Freedom of the Press

61

Figure 26:

Constraints

66

Figure 27:

A possible strategy in brief

69

Figure 28:

A possible strategy in brief

71

Figure 29:

A possible strategy in brief

73

Figure 30:

A possible strategy in brief

75

Figure 31:

NNPC Organogram as at January

79

Figure 32:

PHRC Organogram

83

Figure 33:

Shell Organogram

84

Figure 34:

ExxonMobil Organogram

85

Figure 35:

ChevronTexaco Organogram

86

Figure 36:

TOTAL Organogram

88

Figure 37:

NLNG Organogram

89

Figure 38:

A fun site worth looking at

99

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1. THE OIL AND GAS SECTOR

1.1 COUNTRY OVERVIEW

History

Nigeria is the „Heart of Africa‟ and is a country of great diversity. A former colony of the United Kingdom, the country won independence on 1 October 1960 and the Federal Republic of Nigeria came in to existence three years later, on 1 October 1963. The political entity known as Nigeria, is named after the river Niger (3rd largest in Africa) and was created in 1914.

Figure 1: Map of Nigeria

season). There is also an unsteady period of break

season).

There is also an unsteady period of break

Nigeria is situated almost at the centre of the curve on the map of the African continent. The country occupies a land mass totalling 923,800 sq. km. In comparison to the United Kingdom, Nigeria is four times larger and is equal in size to the countries of France and Germany put together. The average population density is about 96 persons per square kilometre.

Climate and Weather

Nigeria derives her climate from being situated 4 o and 14 o latitude north, which is south of the path of the north westerly winds and outside the southern equatorial doldrums. In the Niger Delta and most coastal area, it is an equatorial climate becoming tropical in the middle belt and arid to the north. The climate is dominated by two seasons November-April/May (Dry Season), and May/June-October (Wet/Rain in August and September during which the rain

may stop or reduce in intensity. The country enjoys abundant rainfall in the south and semi-arid climate in the north. Temperatures vary between 23 o - 31 o C in the south, with high humidity; 18 o - 40 o C in the north.

Vegetation and Physical Features

There are four district vegetation zones which trend roughly east-west and which reflect the rainfall distribution pattern in the country, which decreases as you go north. Mangrove swamps are found in the coastal strip, which is some 50 kms wide. In this belt is the swampy, water logged soil and brackish water, and is made up of a tangled mass of stems and aerial roots, which is typical of mangroves. Further inland the tidal influence reduces and water becomes less saline, giving way to fresh water swamps. This belt covers the area between Lagos to around Port Harcourt. Further inland is a belt of tropical or equatorial rainforest which is 150-250 kms wide.

Beyond the flood plains of the Niger and Benin rivers, the land rise to a steep escarpment with moderate rainfall, and which comprise the middle Savannah belt. In the northern extreme of the country in places like the Sokoto plains, high plains of Hausa and up to the Chad Basin, this vegetation zone covers about a quarter of the country, and is known as the Sudan Savanna. Here, the total annual rainfall and humidity is low and the dry season lasts between 6-8 months, and the vegetation is dominated by short grasses with the landscape left bare for the widely grazing livestock.

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People and Culture

At about 127 million people, Nigeria remains the most populous nation in African and it is widely held that one out of every four Africans is a Nigerian. In terms of population distribution, there is noticeable concentration of humans in three major axes; Oyo-Ondo axis in the south west around Lagos; Imo- Akwa Ibom axis in the south east and Kano-Katsine-Sokoto axis in the north west. Although major cities such as Ibadan, Lagos, Port Harcourt, Kano, Kaduna and scores of others are areas of heavy human and vehicular concentration, about 80% of the population still live in rural areas, engaging in subsistence agriculture for a living. Total labour force in Nigeria comprises more than 43 million people, although not all of these persons are gainfully employed. Nigeria is culturally diverse; with the Yoruba, Hausa and Ibo being Nigeria‟s three main ethnic groups but even in these, there are various subgroups totalling 250. These groups are also diverse in terms of religious beliefs, arts and crafts. In view of such complexity, it is surprising that the English Language is the lingua franca and language of official communications and commerce. Christianity and Islamic religions are the two most pronounces religious beliefs, with a significant proportion of the population still practising traditional religion.

Political Environment

Prior to the adoption of the American Presidential system of government in May 1979, Nigeria had operated the British Parliamentary system of government. The Presidential system has an Executive President, leading the Executive arm of government, the National Assembly where the Upper House (Senate) is headed by the Senate President and the Lower House by the Speaker. The Federal System is completed with a free judiciary. At the state level, this arrangement is replicated by the office of an Executive Governor but only one House Assembly doing legislative duties. Nigeria currently has a 36-state structure with the Federal capital being centrally located at Abuja. Olusegun Obasanjo, a former military ruler was elected as Nigeria‟s first civilian president for nearly 16 years. He took office in May 1999 and his party the People‟s Democratic Party (PDP) also won comfortable majorities in both houses in the National Assembly. Mr Obasanjo was re-elected in April 2003 elections, in which the PDP also extended its grip on power at both the federal and state levels of government. The next general elections are scheduled for 2007, but Obasanjo is precluded for standing because of the constitution.

Economy

Nigeria is the powerhouse of the west Africa region, and it has demonstrated its commitment to privatisation and reform. Nigeria‟s economy is based upon hydrocarbons production, which accounts for over 90% of foreign earnings and nearly 80% of government revenues. Real GDP grew at around 5% in 2003 which was impressive, as compared with previous years (Table 1). The International Monetary Fund (IMF) expressed hope for the future because the government seems to have adopted tighter fiscal policies and saved revenues from recent oil earnings a change from the widely expansionary fiscal policies of 2002 and early 2003. Forecast for economic growth continue to be robust between 5 and 10%. International reserves are up in 2004 and the Nigerian government is making progress in negotiations to reschedule Paris-club debt.

Gross domestic product per capita is still around $419 per annum, which places Nigeria amongst the poorest countries in the world, and once a food exporter, economic growth has failed to keep pace with population growth has meant that Nigeria is now a net food importer. Establishing a sound base for future economic growth the Obasanjo administration has begun to make changes ending subsidies on fuel and initiating a programme of privatisation.

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Table 1: Economic Forecast

 

2000

2001

2002

2003

2004f

2005f

Nominal GDP, US$mn

44,619

46,553

45,234

51,566

59,559

67,302

Real GDP growth, % change

4.0

4.6

1.6

5.0

8.0

5.0

GDP per capita, US$*

389

395

374

416

469

517

Population, mn

114.8

117.8

120.9

123.9

127.0

130.2

Fiscal balance, % of GDP

-6.18

-5.06

-5.44

-1.38

-1.08

-1.00

CPI, % change y-o-y

6.9

13.0

12.9

14.0

12.0

10.0

Lending rate, % change eop

21.3

23.4

24.8

19.6

19.0

17.0

Exchange rate (NGN/US$, eop)

109.55

112.95

126.40

136.50

145.00

148.00

Oil production („000 b/d)

2,104

2,199

2,013

2,185

2,300

2,200

Oil price (OPEC basket, US$/b)

27.60

23.12

24.36

28.09

35.00

31.00

Exports (fob, US$mn)

23,761

19,598

17,671

27,416

32,718

27,899

Imports (cif, US$mn)

10,553

11,482

13,342

16,885

18,574

19,502

Trade balance (fob-cif, US$mn)

13,208

8,116

4,329

10,531

14,145

8,397

Current account balance (US$mn)

4,694

1,256

-5,108

-1,558

2,199

-3,549

-% of GDP

-11.47

-3.15

-12.19

-3.02

-3.69

-5.27

Foreign reserves (ex gold, US$mn)

9,911

10,457

7,331

7,128

8,300

8,200

Import cover (months)

7.08

6.87

4.14

3.18

3.37

3.17

Sources: Various

Figure 2: Tourist Guide to Nigeria

In Nigeria hundreds of different people, languages, histories and religions all sit shoulder to shoulder in a hectic colourful and often volatile republic. It is a country struggling to contain the sum of its parts within a democratic framework. A chronic crime problem, religious intolerance, large-scale unemployment and overcrowding in poor living conditions regularly push the rule of law to the brink. Despite this, there is still an unfaltering optimism on Nigerians that their proud nation will indeed make it to the party!

Best time to visit: December to March

Essential experiences: Viewing wildlife at Yankari Game Reserve in Jos, Club-hopping in Lagos, visiting the ancient mud city at Kano. Shopping for rare books at the Onitsha Winter‟s Market, exploring the Niger Delta.

Read: Anything by Nobel prize writer Wole Soyinka, internationally acclaimed writer Chinua Achebe or Ben Okri, a crowd pulling favourite on the western literary circuit.

Listen: To world renowned musician, the late Fela Kuti, whose electric fusion of traditional Yourba call-and- response chanting w/freestyle jazz (Afrobeat) was always in demand. Other favourites are king of juju music Sonny Ade, the granddaddy of afro-reggae, Sonny Okosun and soul singer, Sade.

of afro-reggae, Sonny Okosun and soul singer, Sade. Watch: A Deusa Regra (Black Goddess) by Nigerian

Watch: A Deusa Regra (Black Goddess) by Nigerian director Ola Balogun.

Eat: Equsi (a fiery hot yellow stew made from meat, red chilli, ground dried prawns and green leaves) or Pepper soup (a thick stew with meat, chilli, tomatoes, onions and palm-nut oil).

Drink: Palm wine (a favourite drink all over Nigeria, especially in the south where the palm trees grow).

In a Word: Sannu („hello‟ in Hausa).

Trademarks: Fantastic music, money scams, masochistic travellers, violence, corruption, oil rich economy, Niger Delta.

Surprises: Nigeria is home to over 20% of Africa‟s entire population, „juju‟, the native magic that was the original basis for Caribbean voodoo, is still an element in many tribal cultures.

Source: Lonely Planet West Africa

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1.2 THE STRUCTURE OF THE OIL AND GAS SECTOR

Nigeria‟s Oil and Gas industry is a high priority for the UK.

Nigeria is the 6 th largest oil producer in the world and a member of OPEC.

Nigeria‟s production is over 2.0 million bopd (currently 2.3 million bopd), and is expected to double to 4.0 million bopd by 2010.

Nigeria also has significant gas reserves (160 tcf) and is rapidly becoming a gas exporter.

A high level of investment will be required to develop new oil and gas fields, and increase the capacity of the country‟s refining and petrochemical sector.

Nigeria has long been open to international oil companies and contractors, but indigenous oil and gas service companies have been slow to develop, but there is a move to increase „local content‟.

Increasing reserves of oil and gas and the move towards deep offshore exploration and production will ensure the industry will have another 25-40 years of growth which will provide significant opportunities for UK companies.

Overview

The Nigerian Oil and Gas industry is just a little less than a century old with real exploration starting in 1908, when the drilling of a few shallow boreholes. After the First World War, the Shell Overseas Exploration Company and D‟Arcy Exploration (later BP) opened up the country. Although Shell initially had the whole of Nigeria as one huge concession, the search was to be narrowed to the Niger Delta where in 1956, the first successful well was spudded at Oloibiri in 1956. This success beckoned on other multinational companies, especially as the Shell-BP relinquished parts of its onshore licences in 1956, and was marked by the entry of Mobil, Gulf Oil, Elf Petroleum, Texaco and Agip. These companies began to dominate the industry and rapidly became known as the „ Big Six‟.

Today, Nigeria has risen very fast and steadily to host the world‟s 9 th largest reserves at about 34

in OPEC, in terms of daily

production which averages around 2.3 million bopd and has consistently produced between 1.5 and 2.0 million bopd over the past two decades (see Figure 3). Nigeria has the capacity to increase reserves to 40 billion barrels within the next few years, and a concomitant increase in production to 4 million bopd.

billion barrels. Nigeria is currently in the 6

th

position in the world and 4

th

„In the next 2 years, Britain will depend on the Niger Delta for 10% of its oil and gas needs, because its oil is drying up.‟

Richard Gozney, HM High Commissioner to Nigeria, 2004

Although Nigeria has for over 40 years been established as a leading producer of crude oil, The country has considerable gas reserves, which are put at around 160 tcf. Current gas production is around 3.8 billion scfd, which is mostly associated gas produced in the course of crude oil production.

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Figure 3: Nigerian Crude Oil Production 1980-2003

Figure 3: Nigerian Crude Oil Production 1980-2003 Source: NNPC

Source: NNPC

Until lately, virtually all of the gas had been flared, with the rest deployed mainly for reinjection to aid secondary oil recovery and a little for domestic gas utilisation. The current flaring rate is put at about 45%. In response to government‟s gas monetisation efforts, which had included gas flare penalties, incentives and tax credits to encourage gas-based projects, flaring is scheduled to be eliminated by 2008, but this target is unlikely to be achieved until a few years later. To this end, not only is gas reinjection being intensified, all the companies are involved in gas-based projects tied to utilising the gas being produced in their operational areas.

In addition to opening up of the exploration arena in the deep and ultra deep sections of the offshore, Nigeria has undertaken exploration elsewhere onshore both in inland basins such as Chad/Benue but without much success. The marginal fields programme, has provided additional interest for both local and foreign companies. Added to this is the far lower cost of finding oil in Nigeria compared to other petroleum areas. Table 2 lists a comparison of oil and gas production through Sub-Saharan Africa, and Nigeria can easily be seen to be as the dominant player.

Table 2: Sub Saharan Production and Reserves - 2002

 

Production

Reserve

Country

Oil

Gas

Oil

Gas

BOPD

MCFD

Bbls

Tcf

Angola

875,000

1,8000,000

12.5

9.5

Cameroon

100,000

200,000

0.4

3.9

Congo

230,000

850,000

1.5

-

Dem. Rep. of Congo

23,000

83,000

-

-

Equatorial Guinea

221,000

335,000

2

-

Gabon

243,000

260,000

2.5

-

Ghana

3,000

-

0.01

0.27

Ivory Coast

15,000

160,000

0.14

-

Nigeria

2,100,000

3,800,000

34

160

TOTAL

4,685,000

7,488,000

53.05

174.67

 

Source: OPEC

In addition to the „Big Six‟ oil companies who control around 95% of the oil and gas sectors, several new international players enter the market in the 1990s when a new form of licensing (PSCs) was introduced. These new companies are finding it difficult to establish themselves as are the several dozen small indigenous oil companies who are now active in the market. The state is omni present throughout the industry, mainly through NNPC and its subsidiaries and is such an influential party.

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The present civilian government of President Obasanjo first elected on 29/5/99 has been re-elected for

a second term. The ministry of Petroleum Affairs is with the Presidency. The Group Managing

Director of the Nigerian National Petroleum Company is Engineer Funso Kupolokun. The NNPC is currently undergoing reforms moving away from a regulated and total ownership by government to commercialisation and deregulation. Recently new Group Executive Directors and Managing Directors for its subsidiary companies were appointed and the number of Directorates was cut to 4 from 6, eliminating the directorates of development, engineering and technology as well as Commercial and Investment. More changes are on going.

In 1971, Nigeria joined OPEC and in line with OPEC resolutions, the state owned and controlled Nigeria National Oil Company was established. This latter became the Nigerian National Petroleum Company (NNPC) in 1977. The Federal Government of Nigeria (FGN), through the NNPC, became the dominant player in the downstream industry by acquiring equity shares in all the international oil marketing companies in the country. It currently holds around 60% stake in the upstream sector through joint venture agreements between NNPC and all major international players in the onshore operations.

The NNPC has been an effective instrument for the Nigerian Government. It manages government equity shares in the joint venture companies and has entered into Production Sharing Contract (PSC) with the major oil companies to develop the offshore. This is in addition to direct exploration and production, management of four refineries, a complex petrochemical plant, crude oil and petroleum products marketing, construction and maintenance of 21 depots and network of pipelines across the country and distribution of natural gas. NNPC is in the process of commercialising its subsidiary companies and activities.

National Petroleum Investment Management Service (NAPIMS) is an incorporated division of NNPC and its mission is to optimise the benefits accruing to the Government from its investments in the upstream sector of the petroleum industry. NAPIMS major role is to protect the national‟s strategic interests in the upstream sector of the industry, and in performing this task, it earns a margin on investments made in the sector. This is achieved through cost reduction strategies to maximise Petroleum Profit Tax (PPT) and also enhance margin; promote local content input by developing in- country technology capability and use of local supplies and material; encourage gas utilisation and commercialisation; promote maximum co-operation in communities of oil and gas producing areas as well as ensure the environmental protection standards are maintained. Importantly NAPIMS major role is to oversee the contract and tender process in the oil sector.

The Department of Petroleum Resources (DPR) the successor to the Petroleum Inspectorate, is the watchdog of the Nigerian oil industry. It has wide regulatory powers and its responsibilities include but are not limited to the following:

Award of Oil Prospecting Licences (OPL) Administering conversion of OPL to Oil Mining Leases (OML) Approval of field development plan Setting production allowable for all wells Monitoring of industry work programmes Administration of fiscal incentives Monitoring of liftings and exports of oil at terminals

All companies must register with the DPR in order to do business in the sector. If a foreign company

is in a joint venture with a local company only one company needs to be registered. Registration is

done on a calendar year basis and the cost is the same whether registration is done on 1 January or

30 December. There are 2 categories of registration depending on the services on offer by the company.

In the terms of downstream actively Nigeria has four refineries with a capacity of 445,000 bopd, but

due to poor maintenance and other operational problems is only able to operate at around 45%. As a consequence, Nigeria has to import around 60% of her refined products. The cost of petrol and diesel has historically been subsidised but the Federal Government of Nigeria (FGN) is gradually reducing the subsidies, but not without a certain degree of protest.

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The National Electric Power Authority (NEPA) is the current state monopoly of power generation and operates all generating stations and the national distribution. The sector is due to be deregulated and NEPA is presently billed for privatisation. Under the plan, NEPA‟s transmission network will remain a single entity the Nigeria Transmission Company but the generation sector will be split into six independent companies. Eleven companies will be created from NEPA‟s current distribution operations. No timetable on the creation of the new companies has been announced, but the Government has already encouraged development of Independent Power Production (IPP) with active involvement of oil and gas companies.

Nigeria has approximately 5,900 megawatts (MW) of installed electric generating capacity three hydroelectric plants and five thermal power stations. However, the power sector as a whole was generating only 1,600 MW at the start of the Obasanjo administration in 1999 because of the chronic problems affecting the power industry such as mismanagement, lack of infrastructure maintenance, vandalism and power theft. Nigeria faces a serious energy crisis due to declining electricity generation from domestic power plants. Power outages are frequent and the power sector operates well below its estimated capacity.

Currently, only 10% of rural households and approximately 40% of Nigeria‟s total population have access to modern forms of electricity including electricity. NEPA has announced plans to boost this electricity share to 85% by 2010. NEPA‟s plan calls for an additional 15,000 kilometres (9,000 miles) of transmission lines, 16 new power plants, and new distribution and marketing facilities. According to NEPA‟s own information, 13.9% of NEPA‟s installed capacity is more than 20 years old, 57.1% of installed capacity is more than 15 years old, and 79.6% of installed capacity is over 10 years old. Despite endemic blackouts, customers are billed for services rendered, partially explaining Nigeria‟s widespread vandalism and power theft and NEPA‟s problems with payment collection.

Nigeria is plagued by ethnic violence, labour unions and rumours of corruption within its petroleum industry. In its recent past, the country has had several bloody clashes in its oil rich Niger Delta, where oil seems to have caused more problems than it has solved. Can the current government bring about a lasting change and use its massive resources to profit the people of the country.

J. Nickle, Senior Staff Writer, Petroleum Africa

2010 ASPIRATIONS NIGERIAN GOVERNMENT To maximise Nigeria‟s share of OPEC quota To increase oil reserves
2010 ASPIRATIONS
NIGERIAN GOVERNMENT
To maximise Nigeria‟s share of OPEC quota
To increase oil reserves to 40 billion bbl
To increase oil production to 4 billion bopd
To capture equal revenue from gas
To increase „local content‟ to 70%
To ensure sustainable development
To promote best HSE practices
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1.3 OIL SECTOR UPSTREAM AND DOWNSTREAM

Nigeria is the largest oil producer in Africa, has the largest reserve base in Africa and holds 3% of the world‟s current oil reserves.

Nigeria has been a member of OPEC since 1967.

Aspirations to boost oil production to 4 million bopd by 2010.

Ambitions for longer term growth up until 2050.

Nigeria aims to invest $30 billion in the oil and gas sector over the next 5 years.

Nigeria has substantial refining capacity but due to operational problems refines less than 50% of its capacity.

Nigeria imports a considerable amount of refined products.

The downstream sector is gradually being deregulated and there are plans to build 16 new refineries.

Overview

Estimates of Nigeria‟s proven oil reserves are 34 billion barrels and the majority of these reserves are found in relatively simple geological structures along the country‟s coastal Niger River Delta. Recently newer reserves have been discovered in the deeper waters offshore Nigeria, and these present the bulk of future opportunities. Table 3 list some of the major oilfields in the Niger Delta.

Figure 4: Nigeria’s Oil and Gas Fields

Figure 4 : Nigeria’s Oil and Gas Fi elds Source: DPR

Source: DPR

Nigeria is known for producing high quality sweet crude, with gravities ranging from 21 o American Petroleum Institute (API) to 45 o API. Nigeria‟s main export crude blends are Bonny Light (37 o API) and Forcados (31 o API). Approximately 65% of Nigerian crude oil production is light (35 o API or higher) and sweet (low sulphur content).

Nigerian crude oil production averaged 2.1 million bopd in 2003 but is currently around 2.3 million bopd. This was higher than their official OPEC quota which in August 2004 was 2.14 million bopd. One of the big issues facing Nigeria is whether OPEC will raise its quota for Nigeria in lines with the country‟s aspirations for enhanced production.

Six oil companies Shell, Chevron, Mobil, Texaco, Agip, and Elf dominate the oil industry in Nigeria. Together, they hold some 95% of the oil reserves and operational assets. Another 40 other companies has minor interests, some of which were recently acquired. PanOcean is typical of these smaller companies. Figure 5 illustrates the major companies individual reserve history, which have been steadily rising. The six large operators have quite different geographic spreads. Shell‟s operations extend over the whole Niger Delta, while the other majors are concentrated in specific parts, either onshore or offshore. (Figure 6). Production from joint ventures (JV‟s) accounts for nearly all (about 95%) of Nigeria‟s crude oil production, with those operated by Shell, producing nearly 50% of Nigeria‟s crude oil. In the future Production Sharing Contracts (PSCs) will become increasingly important as the deepwater areas opens up.

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Figure 5: Reserves History

Reserves (Billions bbl)

20

 
     
   
   

0

1999

2000

2001

Year

2002

2003

2004

Source: NNPC

Table 3: Major Oil Fields in the Niger Delta

   

Associated Gas

 

Field

Oil Reserve

Reserve

Operator

(Million barrels)

(Billion cubic

feet)

 

Agbami

800

500

Chevron

Apoi North-Funiwa

500

750

Texaco

Amenam-Kpono

500

350

Elf

Bonga

875

175

Shell

Bomu

875

1,500

Shell

Cawthorne Channel

750

900

Shell

Delta

300

220

Chevron

Edop

733

350

Mobil

Ebegoro

160

350

Agip

Forcados-Yokri

1,235

1,100

Shell

Imo River

875

600

Shell

Jones Creek

900

350

Shell

Meren

1,100

1,300

Chevron

Nembe Creek

950

1,500

Shell

Obagi

670

811

Elf

Okan

800

1,000

Chevron

Ubit

945

600

Mobil

Source: DPR/NNPC

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Figure 6: Geographical Distribution of the ‘Big Six’

Mobil Deg N 6.5 non-producing producing WARR 5.5 PHC 4.5 3.5 4 5 6 7
Mobil
Deg N
6.5
non-producing
producing
WARR
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E
Chevron
Deg N
6.5
non-producing
producing
WARRI
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E
Elf
Deg N
6.5
non-producing
producing
WARRI
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E
SPDC Deg N 6.5 non-producing producing WARRI 5.5 PHC 4.5 3.5 4 5 6 7
SPDC
Deg N
6.5
non-producing
producing
WARRI
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E
Agip
Deg N
6.5
non-producing
producing
WARRI
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E
Texaco
Deg N
6.5
non-producing
producing
WARRI
5.5
PHC
4.5
3.5
4
5
6
7
8
9
Deg E

Source: NNPC

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With the advent of state-of the-art exploration techniques, the average exploration success rate has moved from an average of 11% to currently over 60%. This is among the best in the world. To date, 5,284 wells have been drilled in Nigeria, predominately in the Niger Delta. Of these some 603 are discovery wells. The average production costs per barrel are $3.5 and $5.0 onshore and offshore respectively, which is amongst the lowest in the world. Current emphasis is on the deepwater where success ratios are high, finding cost per barrel are low and each well is capable of producing 20,000 bopd making production costs low. Figure 7 illustrates the areas with some of the new deepwater discoveries.

Figure 7: Deepwater Discoveries

Figure 7: Deepwater Discoveries Source: JDA

Source: JDA

A major problem facing Nigeria‟s upstream oil sector has been insufficient government funding of its JV commitments. The Government has two major funding arrangements for oil production in the country Joint Venture (JV) and Production Sharing Contract (PSC). There are also a few service contracts arrangements. Under the JV arrangements, the Government and its partners contribute to projects according to their equity holding on a cash call basis on a regular basis as the project progresses. Figure 9 illustrates the percentage interests of the 6 major oil companies.

For instance, NNPC and its JV partners proposed an operating budget of $6.5 billion for 2004, subject to approval by the National Assembly. NNPC was to spend $3.7 billion during 2004 and the partners were to provide $2.8 billion, in the ratios mentioned here. However, the legislature finally approved an NNPC budget of only $3.2 billion, leaving a shortfall, of $500 million, which meant several projects had to be withdrawn or postponed.

Figure 8: Six Major Operators Percentage Equity

Interest

Interest 100% 80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil
100% 80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip
100%
80%
60%
40%
20%
0%
Shell
Mobil
Chevron
Elf
Agip

Texaco

80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf
NNPC Shell Mobil Chevron Elf Agip Phillips Texaco
NNPC
Shell
Mobil
Chevron
Elf
Agip
Phillips
Texaco
80% 60% 40% 20% 0% Shell Mobil Chevron Elf Agip Texaco NNPC Shell Mobil Chevron Elf

Source: DPR

However the tax/royalty regime has become a victim of its own success, which has led to more discoveries and the inability of NNPC to fund its share of the operations. Also rising production costs especially in the Niger Delta, and low oil prices meant the major oil companies were seeing their margins being squeezed. As a consequence in order to „modernize‟ the system, and guarantee a return of investment for the oil companies, a revised set of terms for the joint venture was agreed in the 1990s, called Memorandum of Understanding (MOU). This essentially allowed oil companies to have a guaranteed profit margin on every barrel, even at very low oil prices and in exchange to sacrifice its margins to the government at higher oil prices (in effect a windfall tax). Figure 9 illustrates the profit split of the JV barrel, at a price of $10, 15 and 20 per barrel.

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Figure 9: Split of the JV Barrel

 

Oil Price: $10 /bbl

 

Oil Price: $15 /bbl

Oil Price: $20 /bbl

$0.8 8.8% $5.12 $4.0 51.2% 40%
$0.8
8.8%
$5.12
$4.0
51.2%
40%
$1.16 7.73 $4.0 $9.84 26.67% 65.6%
$1.16
7.73
$4.0
$9.84
26.67%
65.6%
$1.2222 6.1 $4.0 $14.78 20% 73.9%
$1.2222
6.1
$4.0
$14.78
20%
73.9%
Govt Take (Equity + Taxes) Partners Take Margin

Govt Take (Equity + Taxes)

Govt Take (Equity + Taxes) Partners Take Margin

Partners Take Margin

Govt Take (Equity + Taxes) Partners Take Margin

Based on New 2000 Memorandum of Understanding Source: NNPC

The other major change was the introduction of Petroleum Sharing Contracts (PSCs) in the 1990s. These were specifically introduced to deal with exploration in deepwater, where production costs for a typical field could easily exceed $5 billion. The Government was in no position to fund its upfront costs in these developments, so adopted PSCs, which are the norm in many countries where the government has limited resources e.g. Angola. Essentially with PSCs, all the exploration and production costs are funded upfront by the oil companies and the government has no financial commitment or risk. In the event of a discovery and the field is developed then the ensuing production is split between the operator and Government, in a pre-agreed ratio. Any profits deriding from the oil production is split accordingly. The over-riding aim of all these contract revisions has been to guarantee margin for the oil companies at low oil prices, withdraw the necessity for NNPC to fund exploration and field development, and to improve fiscal terms where the risk are higher such as in the deepwater. Some of the more salient fiscal terms available to the industry for oil are listed below:

o

There is a minimum guaranteed notional margin of $2.50 per barrel, after Tax and Royalty on the company's equity crude.

o

The minimum guaranteed notional margin increases to $2.70 per barrel if the actual capital costs exceed $2.00.

o

The notional fiscal cost is now $4.00 per barrel instead of $3.50 per barrel.

o

Tax inversion rate of 35% rewards for prudent producers whose operating cost is less than $1.70 per barrel.

o

No penalty for small companies producing below an average of 175,000 bbls per day, for operating cost not greater than $3.00 per barrel.

o

No penalty for companies producing above 175,000 bbls per day, for operating cost not greater than $2.30 per barrel.

o

Capital cost of ullage fees limited to 50% of total sum paid to third parties in respect of crude oil transportation, processing and terminalling is excluded from operating cost in determining high cost producers.

o

All levies and other impositions to Government, or state and/or local governments or their agencies including, without limitation, Central Bank of Nigeria commissions, other than Royalty and PPT, are treated as allowable costs.

o

Investment tax allowance of 50% for PSC arrangements.

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PSC Arrangements

Operator

Block

Addax

90,225,118,98

AGIP

244,116

AMNI

310,409

Chevron

250

Conoco

220

Elf

222

Esso

209,214

Nigus

496

Noreast

840,902

Opic

208

Orandi

322

Oranto

320

Panaclatic

204

Petrobras

324

Phillips

318

Queen

135

Seagull

230

SNEPCO

219,250

Solgas

226

Statoil

217,218

Summit

205,206

Sunlink

496

Texaco

213

Ultramar

227

Union Square

201

Yinka Folawiyo

309

Table 4: PSC Arrangements

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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SS SSE
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CCT
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1.4 GAS SECTOR UPSTREAM AND DOWNSTREAM

Nigeria is the 7 th largest holder of natural gas reserves in the world.

Government is planning new gas legislation in 2005 to aid future investments.

Domestic gas utilisation is low, with little developed infrastructure.

There has been very little exploration solely for non-associated free gas.

Nigeria has been afflicted by high levels of gas flaring, which are due to be eliminated by

2008.

Nigeria has become a gas exporter through the development of NLNG at Bonny.

Tremendous opportunities exist for UK companies in both gas exploration and utilisation.

Overview

In energy terms, the quantity of natural gas in Nigeria is said to be greater than the quantity of crude oil. It is estimated that the country's reserve-production ratio for gas is greater than 100 years compared to that of crude oil of less than 30 years. Nigeria's gas reserves are estimated at 160 TCF which puts them in the top 10 in the world.

Table 5: Natural Gas Reserves (TCF)

 

Associated Gas

Non Associated

TOTAL

(TCF)

Gas (TCF)

Ultimate Recovery

114

72

192

Produced

24

2

26

Remaining Reserves

90

70

160

Source: NNPC

There had been no conscious effort by any of the oil companies (both majors and independents) to only explore for and produce natural gas in Nigeria. Rather, as the gas-oil ratio is high in most reservoirs, gas fields are discovered during oil exploration and usually are not developed. Because of this, Nigerian gas resources remain largely unexplored and unexploited; and as a consequence, the downstream segment of the gas industry is also underdeveloped and is characterised by a low level of utilisation. These disincentives for gas development are all being addressed by a new National Gas Policy currently under consideration by the Nigerian legislature. New legislation governing the operations of the Nigerian natural gas industry should be ready by the fourth quarter of 2005.

Natural Gas Utilisation

Historically around 95% of Nigeria‟s natural gas was flared, but measures were introduced in the 1990‟s to combat flaring and the rate has steadily declined to around 45% (see Figure 10). This was primarily due to lack of a market and the gas produced as a by product to the production of oil. The government has introduced a policy to reduce gas flaring by the end of 2008 and there are currently penalties in place for those companies not adhering to this policy.

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
TTH
T
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G
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CCT
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Figure 10: Historical and Projected Trend of Gas Flaring

100 80 Projected 60 40 20 0 Year 19 95 19 96 19 97 19
100
80
Projected
60
40
20
0
Year
19 95
19 96
19 97
19 98
19 99
20 00
20 01
20 02
20 03
20 04
20 05
20 06
% Gas Flared

Source: NNPC

The history of the Nigerian natural gas industry is one of contradictions. The country is deficient in power production, which is a prerequisite for the implementation of a national industrialisation programme. The agricultural sector is hindered by a lack of fertilisers for the realisation of national agricultural aspirations. These two deficient sectors are dependent on natural gas for the realisation of their potentials. However, until very recently, the national petroleum industry flared most of its associated gas production, due mostly to a lack of demand for the gas. Table 6 shows gas utilisation and flaring data for 2003, for the major oil companies.

Table 6: Gas Production and Utilisation by Company

 

Jan Sept 2003 (billion standard cubic feet)

 

Company

Gas

Gas

Gas

% Gas

Produced

Utilised

Flared

Flared

SHELL

492.59

276.50

231.46

46.99

MOBIL

265.24

162.02

90.45

34.10

CHEVRON

152.52

55.18

97.34

63.82

AGIP

297.55

257.29

138.73

46.62

ELF

94.43

62.50

28.25

29.91

TEXACO

12.39

0.11

12.28

99.14

PANOCEAN

15.21

0.73

14.48

95.24

ADDAX

28.28

1.51

23.75

83.97

AGIP ENERGY

5.84

0.05

5.79

99.11

TOTAL

1,364.04

715.89

642.52

47.10

Source: NNPC

The problems of natural gas utilisation in Nigeria are multi-faceted. There have been many barriers to the speedy implementation of gas utilisation projects and include: Financing is a problem with only the oil companies currently available to provide private finance. Investment requirement are considerable, and the state enterprises have limited funds and the government funding is targeted towards large scale infrastructure development. Gas pricing has always been an issue with domestic gas prices often below the costs of supply. The main consumers mainly NEPA have a long history of poor payment, resulting in an effective subsidy of around $50-90 million per year. Price setting appears to be discretionary and not transparent. A number of fiscal reforms are required to attract downstream investment. At present the most favourable terms appear to be for existing upstream investors, and these act as a barrier to most non-oil investors. Institutionally there appears to be a lack of

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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coordination between the main groups, and a need for a clear policy. The existing policy are clearly written primarily for oil, and not gas. Hence, insufficient legislative or regulatory provision for activities in the downstream sector such as transmission, distribution and supply of gas. Existing contractual arrangements are opaque and potentially discriminatory and not a sufficiently robust platform from which to develop the downstream sector. Third party access to the transmission and distribution network is discriminatory, i.e. No standard terms or conditions for third party access. The government is addressing the issue by formulating a new gas policy which should be unveiled in 2005.

Figure 11: Drying Tapioca

Figure 11: Drying Tapioca Gas flaring is one of the most controversial subjects in Nigeria. Virtually

Gas flaring is one of the most controversial subjects in Nigeria. Virtually every person who lives in the Delta has some exposure to gas flaring because of the number of wells which produce associated gas. Some communities live so close to flares that they live in constant 24 hour daylight. The amount of gas flaring is considerable and Nigeria has always been consistently rated the country with the highest percent of gas flaring.

Natural Gas Development Schemes

Nigeria still flares about 45% of the natural gas it produces and re-injects 12% to enhance oil recovery with the remainder being available for utilisation. The new industry strategy is to collect the associated gas and utilise it, in both domestic and more importantly export schemes. The most ambitious of these are the Liquefied Natural Gas (LNG) schemes which not only contribute to eliminate gas flaring, but generate considerable export dollars. Nigeria has become the only sub-Saharan African country to produce and export LNG.

Nigeria‟s most ambitious natural gas project to date, is the $3.8 billion LNG facility on Bonny Island, the first phase of which was completed in September 1999. The facility processes 397 bcf of feedstock annually which equates to 1.09 million scfd per day. The consortium behind the project Nigeria Liquefied Natural Gas (NLNG) is comprised of NNPC (49%), Shell (25.6%), Total (15%) and Agip (10.4%), but is managed by Shell. Initially, the facility was supplied from dedicated natural gas fields, but within a few years it is anticipated that half of the input gas will consist of associated (currently flared) natural gas, including gas from Akri/Oguta, Otumara, Utapate fields and offshore blocks as well. When the planned enlargement of the plant is completed, NLNG envisions Shell supplying 56% of feed gas, with Agip 25% and Total 19% the remainder.

The NLNG or Bonny Island LNG facility currently has three trains in operations. The fourth and fifth trains are under construction and expected to start up by mid-2005. The total cost of the fourth and fifth trains is $2.1 billion and plans have been approved for a sixth train, which is expected to add another 194.8 bcf to the plants capacity, bringing the total to 1.1 tcf per year. NLNG officials hope to have the sixth train operational by 2007. In terms of output, NLNG will become the third largest plant after Malaysia and Indonesia and there are further plans to build a seventh and eighth train (see Figure 12).

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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T
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Figure 12: World LNG Plants Indonesia Train H Algeria Train I Malaysia Indonesia MLNG III
Figure 12: World LNG Plants
Indonesia
Train H
Algeria
Train I
Malaysia
Indonesia
MLNG III
Australia
Qatar
Trains 4 and 5 (or Gorgon)
Brunei
Oman
NIGERIA
3 x 2.95 + 2 x 4.2 Mtpa
Algeria
Trains 3, 4 and 5
Abu Dhabi
Qatar
3rd train
Trinidad
2nd train
Current Capacity
Alaska
Libya
Debottlen./Revamping
Algeria
Under Construction
Yemen
Projected
Venezuela
Russia
0
5
1 0
1 5
2 0
2 5
0
5
15
20
25
30
Mtpa
Source: Cedigaz

In addition to the liquification plant, NLNG also operates a fleet of LNG vessels through Bonny LNG as the shipping company is known. It already has 15 vessels and an additional eight vessels are needed to meet the shipping requirements for the fourth and fifth trains. Since the development of the NLNG plant, customers located in Italy, France, Turkey, Spain and Portugal have signed long-term purchase agreements with NLNG. Shell have just agreed to provide gas from the unfinished trains 4 and 5 to BG Group plc (formerly British Gas) on a 22 year contract with the gas destined for BG‟s Lake Charles Terminal in the US.

Construction on the plant site commenced in February 1996 and by August 1999, one of the two trains (Train 2) was ready. The plant was built on 2.72 sq km of primarily reclaimed land in Finima, Bonny Island (see Figure 13). Once completed the Nigeria LNG Plant will have an overall capacity of 21 million tpa of LNG and 3.4 million tpa of LPG.

Figure 13: Aerial View of NLNG Bonny Island

Figure 13: Aerial View of NLNG – Bonny Island Source: NLNG

Source: NLNG

Feedgas which is estimated at 2.8 million scfd is supplied to the plant from the onshore concession areas of the eastern part of the Niger Delta. The NNPC/Shell/Agip/Total joint venture is currently supplying gas from the Soku field, which in future will be supplemented by mainly associated gas from other fields. Gas is supplied to NLNG at three points: Soku, Obite and Obiafu. The Gas Transmission System (GTS) consists of pipeline of 20 to 36 inches in diameter and length of approximately 201km.

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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Other Export Schemes

Plans for additional LNG facilities are being developed. ConocoPhilips, ChevronTexaco and Agip signed an agreement with the NNPC for the establishment of the Brass River LNG plant. The $3 billion facility, which is expected to be operational in 2009, will be a two-train operation with a capacity of 974 bcf per year. A new LNG plant is scheduled to be built in Ondo/Oqun state by a consortium composing ChevronTexaco, BG and NNPC. The new LNG plant in Ololcola, straddling Ogun and Ondo state and is scheduled for commissioning in 2008, and will cost $6 billion. The plant is scheduled to provide an output of 30 million tpa of LNG.

The Escravos gas project, in which the NNPC holds a 60% share and ChevronTexaco a 40% share, is another project that will expand Nigeria‟s natural gas industry. The gas is currently used domestically, but plans are that gas from the project will be exported to Benin, Togo and Ghana through the West African Gas Pipeline (WAGP). The main Escravos plant is expected to process 400 million scfd of natural gas from ChevronTexaco‟s northern offshore fields. Gas processed at the Escravos plant will not only serve as feedstock for the WAGP but also the $1.3 billion, Escravos gas-to-liquids (GTL) facility, scheduled to come online in 2008. The Escravos GTL facility will utilise technologies developed by ChevronTexaco to consume about 176.5 million scfd of gas. Other companies are also considering establishing GTL plants in Nigeria.

Nigeria and Algeria continue to discuss the possibility of constructing a “Trans-Saharan Gas Pipeline”. The 4,000 km pipeline would carry gas from oil fields in Nigeria‟s Delta region via Niger to Algeria‟s Beni Saf export terminal on the Mediterranean. It is estimated that construction of the $7 billion project would take six years. It is currently in the feasibility stage.

Domestic Gas Utilisation

Domestic consumption is currently running at around 600 million scfd, of which 80% is used by NEPA, the state power utility. There were high hopes that NEPA would be able to use around 1400 million scfd by the year 2010, but this is unlikely at present. The fertiliser industry, only consumes around 50 million scfd, and as most of the cement is imported, cement industry consumption is similarly low at around 50 million scfd. Industry again is not a great consumer with Lagos based industries only consuming around 80 million scfd. At present, the state gas company Nigeria Gas Company (NGC) owns the majority of the transmission capacity, operating more than 1100 km of pipelines.

Several distribution schemes are planned to help promote domestic consumption of natural gas. The proposed $580 million Ajaokuta-Abuja-Kaduna pipeline will supply gas to central and northern Nigeria, while the proposed Aba-Enugu-Gboko pipeline will deliver natural gas to portions of eastern Nigeria. The Lagos State government and Gaslink Nigeria Limited (Gaslink), a local private gas distribution company, are developing a pilot program to deliver natural gas to nine residential neighbourhoods in the state. Gaslink, another private company supplies natural gas to nearly 30 industrial customers in Lagos‟ Ikeja industrial district and plans to expand operations to include 150 industrial customers, 250,000 residential/commercial customers and 25 independent power plants.

New Gas Legislation

New gas legislation is due in the latter half of 2005, and this should help attract new investors to explore and develop the gas reserves, especially the non associated or „free‟ gas, which is separate from oil production. At present the following incentives are available to the oil companies interested in exploring for gas.

o

All Capital costs of upstream gas investments up to the custody transfer points.

o

The upstream producer is exempted from payment of royalty and PPT.

o

The LNG projects receive a 10 years tax holiday.

o

The LNG project is also exempted from withholding tax on interest and dividends.

o

There is an additional investment allowance of, 20% for upstream projects, 35% for NGL extraction and gas-to-liquid facilities and 15% for downstream projects.

o

Downstream investments receive accelerated capital allowances of 90%.

o

Downstream gas projects which received a 3 year tax holiday.

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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CCT
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1.5 SERVICES (TRAINING, SECURITY, HEALTH, SAFETY AND ENVIRONMENT)

Nigeria is an emerging market for HSSE services

The country has introduced a number of new legislations to cover the oil and gas sector, most noticeably in the environmental arena.

The major oil companies undertake all their operations to international standards.

Health and Safety is not as advanced with the indigenous companies.

Environmental issues are mainly concerned with oil pollution in the onshore, low lying swampy Niger Delta area.

Training is a major development area in the oil and gas sector, with one of the main aims to combat high unemployment and improve „Nigerianisation‟.

Overview

Within the local Nigerian companies there are only basic Health, Safety and Environment Management systems, awareness of health and safety and patchy preventative measures. Mostly HSE policies are on paper and there is little awareness of actual health and safety. Health and safety risks are not systematically identified and health and safety figures are rarely monitored. Even at the most basic level of road safety and safe equipment handling there is little awareness. In comparison, within the foreign oil companies health and safety is a priority and much time and effort is spent on implementation to international standards. Joint venture HSE is a priority.

Security ranks as the main risk for many international oil companies. There is a history of disruptions caused by local communities which has led to several periods of disruption to oil production, and loss of revenues. Most oil companies are upgrading their security provisions and there are regular opportunities to participate in this arena.

Nigeria‟s main environmental challenges result from oil spills, gas flaring and deforestation. Oil extraction in the Niger Delta region especially, has caused severe environmental degradation, owing

to the legacy of oil spills, lax environmental regulations, and government complicity during previous

military regimes that governed the country. Although the situation is improving with more stringent

environmental regulations for the oil industry, other areas of concern are marine pollution which is still

a serious problem, and air pollution from gas flaring, exhaust emission from the explosion in car ownership, and electricity generators is likewise very noticeable.

In Nigeria there is a workforce of around 43 million, high unemployment and a rapidly growing young

population (50% of the population are under 20 years old). Training and sustainable development is a major priority for the oil and gas companies. Increasingly there are demands for foreign companies to take on a certain percentage of Nigerians and train them. As a consequence there are short to medium term opportunities in training and medium-long term opportunities in consulting and training of Nigerian operators and contractors. All the oil companies are involved in sustainable development and some examples are given below.

Sustainable Development

Shell, as part of its youth empowerment programme, operates a Youth Training Scheme to establish and sustain skill acquisition, to enable young people to achieve gainful employment. A major plank of the youth empowerment programme is the Shell Intensive Training Programme (SITP). The scheme was designed to develop the skills of young Nigerian graduates and technicians through a rigorous re- training programme, and thus prepare them for employment in the oil industry. The SITP has continued to assist Shell to „grow its own timber‟. Since inception in 1998, over 1,000 trainees have graduated from the scheme and about 600 of them have been employed by Shell. Other companies

in the industry also pick staff from this pool of well-trained people.

TTH T HHE EE OOI IIL LL AAN O A NND DD GGA G AAS
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CCT
TTO
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RR

Shell also commenced a six month long pilot behavioural change projects for university students as part of the World Summit on Sustainable Development (WSSD) Heritage Projects on HIV/AIDS. The aim is to develop 250 peer counsellors from among the River State University of Science and Technology students, who will hopefully act as role models and ambassadors for a positive behavioural change among the students. If the pilot proves successful, the project will be replicated across the Niger Delta.

Shell are also in the forefront of the development of micro and small scale enterprises which are crucial for the achievement of broader community development objectives, particularly in the area of poverty alleviation. The Micro-Credit and Business Development unit aims at reviving the traditional economy of the Shell JV operating areas by promoting self-help enterprise development, removing credit-related constraints to the start-up and expansion of micro-enterprises and the building of local capacity to operate and manage micro-credit schemes. A prominent feature of the micro-credit and business development initiative is the participation of the beneficiaries in the planning, implementation and in equity participation and project ownership by communities and community groups. The Shell JV is the highest private investor in social development, investing more than US $ 50 million annually in community development projects.

Mobil‟s current focus on economic empowerment has helped to facilitate greater economic independence of the people, especially in the operational communities. This has been achieved through implementation of various skill training programmes and the current disbursement of micro credit loans valued at about N12 million to over 200 beneficiaries (mainly women and youths). In addition the Rice Project being sponsored by the Mobil JV has the capacity to hire over 500 people and train about 1600 in modern farming.

Chevron place emphasis on conducting its operations in an environmentally sensitive manner and over the past few years, both the Nigerian Conservation Foundation and the Federal Environmental Protection Agency (FEPA), among other organisation concerned with the environment, have recognised these efforts. Chevron integrates environmental standards throughout its worldwide operations. The company‟s policy of „Protecting People and the Environment‟ – emphasizes safe operations, compliance, pollution prevention and community programme. In recent times Chevron has been engaged in the significant upgrade of its production facilities, including the installation of improved equipment to reduce discharges and reduce the risk of oil spills. This project will be completed soon at the cost of about $400 million.

Total attaches great emphasis on „local content‟ in it procurement and contracts process. In the current development of the Amenam/Kpono project for example, about 50% of the project surface was executed locally in Warri, Delta State. These include the two drilling decks, jackets and the bridge. The construction works provided about 500,000 man hours of engineering and technical work for Nigerian engineers, technicians, welders, fitters, electricians and other skilled labour. This was in addition to the positive multiplier effects on the local economy through the creation of secondary employment and economic empowerment. Scheduled follow-up constructions of additional facilities will generate a further 350,000 man hours of work for Nigerians.

EITI

The Extractive Industry Transparency Initiative (EITI) was launched by Tony Blair in June 2003 through DFID and is better known as „Publish What you Pay‟. EITI was launched principally to promote transparency, accountability and efficiency in the management of the revenue realised from a country‟s natural endowments. This objective will be achieved by publishing a number of key government financial indicators including revenues received from oil and gas, as well as other solid minerals extracted from the soil. EITI, if practised according to the terms of the initiative will promote good governance at all levels. See www.dfid.gov.uk.

Nigeria was the first country to embrace the EITI initiative, and has appointed officials to manage the process and has participated in all the forums and events.

MMA M AAR RRK KKE EET TT TTR T RRE EEN NND DDS SS AAN
MMA
M
AAR
RRK
KKE
EET
TT TTR
T
RRE
EEN
NND
DDS
SS AAN
A
NND
DD AAR
A
RRE
EEA
AA OOF
O
FF OOP
O
PPP
PPO
OOR
RRT
TTU
UUN
NNI IIT TTY YY

2. MARKET TRENDS AND AREA OF OPPORTUNITY

2.1

EXPLORATION

Exploration success ratios in Nigeria are very high, by international standards.

Finding costs are low.

Deepwater success ratios are excellent.

Funding has recently moved away from exploration into operation/maintenance and field development, In response to the high oil price.

New incentives are required to stimulate onshore exploration, especially in frontier areas.

Current Trends

Exploration success has improved over the past decade from around 10% - 50% to over 60%. This is mainly due to the advent of improved exploration techniques, such as 3D seismic. However, overall the amount of money spent on exploration has declined recently because of security problems inherent in entering new areas, especially in the onshore delta and the need for oil companies to increasingly target „low risk‟ prospects. This decline in expenditure is shown clearly in Figure 14, which shows that now only 1.91% of the JV budget is being spent on exploration.

Figure 14: Exploration Funds

Expenditure - 2004

1.91% 5.10% 92.99%
1.91% 5.10%
92.99%

ExplorationExpenditure - 2004 1.91% 5.10% 92.99% Appraisal Development

AppraisalExpenditure - 2004 1.91% 5.10% 92.99% Exploration Development

DevelopmentExpenditure - 2004 1.91% 5.10% 92.99% Exploration Appraisal

Source: NNPC

The current level of exploration actively is low, and this is especially true to the front end work such as seismic. Table 7 illustrates the forward programme for Agip over the next 5 years, which by international standards is relatively small.

Table 7: Seismic Programme - Agip

Description

Unit

2003

2004

2005

2006

2007

2008

Total

Seismic

Sq. Km

750

250

200

50

0

-

1250

Acquisition

Seismic

Sq. Km

1887

540

770

770

400

-

9584

Processing

Seismic

Sq. Km

640

-

-

-

420

500

1560

Reprocessing

Source: NNPC/Agip

The same is true for Chevron‟s well drilling programme which is outlined in Table 8 overleaf.

MMA M AAR RRK KKE EET TT TTR T RRE EEN NND DDS SS AAN
MMA
M
AAR
RRK
KKE
EET
TT TTR
T
RRE
EEN
NND
DDS
SS AAN
A
NND
DD AAR
A
RRE
EEA
AA OOF
O
FF OOP
O
PPP
PPO
OOR
RRT
TTU
UUN
NNI IIT TTY YY

Current drilling activity is relatively modest, with only 5 exploration wells being drilled in the Niger Delta out of a total of 25 wells, of which none are on land.

 

Table 8: Summary of Well Drilling and Major Rig Workover Programmes

 

Year

Explor. Wells

Appraisal

 

Dev.

 

Compl.

Workovers

2002

3

 

- 33

 

-

 

4

2003

2

 

- 21

 

0

 

6

2004

0

 

- 30

 

0

 

2

2005

2

 

- 46

 

0

 

2

2006

3

 

- 51

 

0

 

0

2007

3

 

- 41

 

0

 

4

2008

3

 

- 28

 

3

 

0

 

Source: NNPC/Chevron

 

Table 9: Drilling Activity End of 2004

 

Company

Rig

Well

Class

 

OML/

Location

Terrain

Spud

Depth

OPL

Date

Addax

TC Head

ADS-9H

Dev

 

123

East

Offshore

05/08/04

7,666 ft

Addax

TC Head

ADS-7ST

Dev

 

123

East

Offshore

30/08/04

9,661 ft

Elf

Baltic 1

Egina-2

App

 

102

East

Offshore

16/08/04

3,464 ft

Elf

Baltic 1

Ampk 1-24

Dev

 

99

East

Offshore

07/08/04

1,117 m

Elf

Baltic

Ampk 1-25

Dev

 

99

East

Offshore