NIGERIA: Rising costs and a surge in oil thefts in Nigeria, hit Royal Dutch Shell's profits but outgoing chief executive says it was still committed to Africa

Record ID: 236173

  • Title: NIGERIA: Rising costs and a surge in oil thefts in Nigeria, hit Royal Dutch Shell's profits but outgoing chief executive says it was still committed to Africa
  • Date: 12th August 2013
  • Summary: NIGER DELTA, NIGERIA (RECENT) (REUTERS) VARIOUS OF OIL INSTALLATION PIPES VARIOUS OF STOLEN OIL COLLECTING AREA JERRY CANS VARIOUS OF MAN FETCHING OIL FROM A VAT WITH A BUCKET LAGOS, NIGERIA (RECENT) (REUTERS) VARIOUS OF FINANCIAL ANALYST BISMARKE REWANE IN HIS OFFICE WITH STAFF (SOUNDBITE) (English) BISMARCK REWANE, ANALYST SAYING: "What is happening is that those assets that are not economically rewarding are being sold off in the portfolio to indigenous other prospects. Basically, this is in reaction to a couple of things, one, the PIB has not been passed and a lot of people are having second thoughts about investing new money until the resources become.... until the laws become very clear and definite." NIGER DELTA, NIGERIA (RECENT) (REUTERS) VARIOUS OF OIL INSTALLATIONS VARIOUS OF GAS PIPE INSTALLATION AREA / SIGN READING "HIGH PRESSURE GAS PIPELINE"
  • Embargoed: 27th August 2013 13:00
  • Keywords:
  • Location: Nigeria
  • Country: Nigeria
  • Topics: Business,Industry,Energy
  • Reuters ID: LVA8TKPY82Z4IINIFSWPQZ2L0TKX
  • Story Text: Rising costs and a surge in oil thefts in Nigeria, hit Royal Dutch Shell's profits but outgoing chief executive says it was still committed to Africa. Communities pushing for a clean up recommended by a UN report two years ago that said oil companies and the government were responsible for 50 years of oil pollution say they will fight any pull out before the work is done.
    A wave of planned sales of onshore Nigerian assets by oil majors has prompted speculation that they are finally leaving the Niger Delta because of oil theft, gangsterism and political uncertainty.
    In reality, though, foreign firms such as Royal Dutch Shell, Chevron, Eni and Total are here to stay, industry sources say.
    The majors are likely to sell only small blocks that are not worth their while, those assets worst affected by theft and sabotage or fields that risk expropriation in a government push to promote local ownership.
    Meanwhile, the large oil producing blocks, huge gas deposits, key pipelines and the export terminals that control the passage of onshore oil to international markets will most likely stay in their hands, enabling them to retain infrastructure for which they can charge rent to other users.
    Complaints by oil majors that Nigeria has done little to combat oil theft or end uncertainty over changes to the fiscal regime by passing the Petroleum Industry Bill (PIB) are genuine, but they won't drive the firms away from the country.

    "What is happening is that those assets that are not economically rewarding are being sold off in the portfolio to indigenous other prospects. Basically, this is in reaction to a couple of things, one, the PIB has not been passed and a lot of people are having second thoughts about investing new money until the resources become.... until the laws become very clear and definite," said financial analyst, Bismarke Rewane.
    Nigeria's oil production, which fluctuates between 2 to 2.5 million barrels per day (bpd), is unlikely to be hugely affected by any oil block sales in the short-term and could get an uplift in the future if smaller local companies work harder to exploit reserves or can better stem insecurity with local communities.
    Local tycoons negotiating to buy oil blocks off majors say it would be easier for Nigerian companies with a better understanding of local issues to manage often fraught community relations.
    But ending oil theft, officially estimated at 250,000 barrels per day, is a massive undertaking.
    It is often associated with criminal gangs who tap crude from pipelines for local refining, but most stolen crude leaves the country in large tankers, which could not happen without the complicity of top officials.
    Shell CEO Peter Voser nevertheless told Reuters the company was not seeking to leave Nigeria, "... the whole sabotage issue and therefore the stealing of product, but also the environmental devastation needs to be tackled and it can only be tackled by the Nigerian government leading it, by all the industry players in it, the communities in it and also international governments and that needs to be getting going so that it can actually develop for the society and the economy the natural resources. So we are committed to Nigeria but we need to sort out some of the issues together with others."
    Energy majors are increasingly moving towards gas production instead of oil. Nigeria holds the world's ninth largest gas reserves, most of which are untapped.
    The global shale oil and gas boom means there are more exploration opportunities, so it makes financial sense to keep only the most profitable businesses in Nigeria, like gas for LNG export, and expand deep offshore where there is no oil theft.
    Theft may not be the only reason for selling down.
    The PIB, although still in a political deadlock that has lasted five years, could change the terms for foreign companies in Nigeria and will promote local ownership of onshore blocks.
    Shell, Chevron, Eni and Total have been in failed negotiations with the Nigerian government for several years to renew expired licences on many onshore and shallow water blocks.

    "What Nigeria needs to do is to sit down, first of all pass the PIB as quickly as possible, make the fiscal terms more attractive and incentivise the multinational economies, multinational oil companies and the Nigerian investors so they can invest more money, the investment money will add to the GDP, the production dollars will actually lead to a multiplier effect and the reality is that, thiS will be a good time for Nigeria because time is running out and investors have other options," said Rewane.
    A landmark U.N. report on in 2011 slammed multinational oil companies, particularly Shell, and the government, for 50 years of oil pollution that has devastated the Niger Delta's fragile wetlands environment.
    It said the area needed the world's biggest ever oil clean-up, taking at least 25 years and costing an initial $1 billion. Shell and the government swiftly pledged to act on it.
    Two years on, residents say they've seen no evidence that it has begun.
    Lawyer Chima Williams says communities Ogoniland, one of Africa's earliest crude oil producing areas would fight any pull out by oil companies, if they do it before cleaning up.

    "... if they think they can run away by selling off those facilities instead of doing what they have been asked to do in the UNEP recommendations, then the next job goes to the community people to begin to go to court and seek for orders restraining the companies from selling of these facilities until the needful has been done," Williams said.
    Militancy in the Niger Delta over the last decade shut down nearly half of Nigeria's oil output, until an amnesty in 2009.
    Analysts say the risk of renewed unrest, and the growing risk of financial liabilities from various court cases might ultimately be what spurs action from the government and the oil majors to do the clean up.
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