Oil operators Shell and ExxonMobil have received demands for a combined $1.9bn from the Nigerian government following a review of oil contracts signed in the early 1990s.
The demands threaten to hurt Nigeria’s reputation for honouring oil contracts, compared with other oil producers such as Russia and Venezuela. Royal Dutch Shell told The Financial Times the company expects investor confidence in Nigeria to be shaken following the retro-active changes to fiscal terms.
In a seemingly contradictory move, the foreign operators have agreed loans to Nigeria’s state-owned oil company Nigerian National Petroleum Corporation (NNPC) amounting to $2bn from ExxonMobil, $1bn from Total
and $3.1bn from Shell to cover the government funding shortfall in funding commitments to joint ventures.
NNPC has failed to meet its share of development costs in the five joint-venture oil projects which make up the majority of Nigeria’s oil exports from the Niger Delta.
Military unrest has further damaged oil production: Shell confirmed the latest attack at Awoba in the Niger Delta, where production was disrupted in May after militants compromised a major oil pipeline.
In a statement issued by NNPC, Shell will cover a $1.3bn shortfall in NNPC’s share of the 2008 joint-venture budget and provide an extra $1.8bn loan to cover the outstanding payments from 2006 and 2007.
Minister of state for energy and petroleum, Odein Ajumogobia, said the oil and gas industry in Nigeria requires approximately $15bn funding, though only $4.5bn has been proposed in the government budget.
Mr Ajumogobia says the $11bn funding gap is likely to increase over time, adding that NNPC will raise funds on both the international and local capital markets to help fund the joint venture projects and avoid future shortfalls.
NNPC will use the loans as a short-term solution for unlocking Nigeria’s oil production potential to meet its OPEC obligation of 2.2 million barrels per day over the next two years.
The oil industry reforms are part of president Umaru Yar’Adua’s wider long-term policy of covering the government’s oil industry funding gap of development costs through private sector financing.