Despite the amnesty granted Niger Delta militants by the Federal Government, Nigeria’s oil production has fallen to its lowest level in two decades, the International Energy Agency (IEA) has said, explaining that the amnesty has had little positive impact so far on oil production.

In its latest monthly oil market report, the IEA estimated Nigeria‘s
crude production at 1.68 million b/d in July, down from 1.72 million
b/d in June which is way below the country’s hypothetical output
capacity of closer to three million barrel per day.

Oil company operations in the swamps and creeks of the Niger Delta have
been severely hampered in recent years by militants seeking to gain
local control of a greater share of the oil wealth.

Peter Voser, Shell’s new chief executive, was quoted by the
international press as saying that the company sees an uncertain future
in Nigeria. Voser was answering questions bothering on his company’s
operations after revealing that its profit fell 70 percent when
compared to last year’s performance.

The fear of an uncertain future for the company in Nigeria was based on
the recent attack on Shell’s exploration and production activities in
the Niger Delta. Shell’s production had been down when compared to last
year on account of dwindling production figures in the Niger Delta.

Shell production in Nigeria is reported to have dipped by 85 percent
from 1.05 million barrels per day in 2005 to 145,000 barrels per day
due to series of attacks on its platforms in its western operations
which covers Delta, Edo and Bayelsa states and eastern operations in
River State.

At its western operations, Shell is just producing barely 5,000 barrels
per day as against the over 477,000 barrels per day it used to produce.
In May, Nigeria’s output stood at 1.86 million barrels per day, while
production for June dropped to 1.8 million barrels per day.

Shell’s uncertain future may also be based on the Petroleum Industry
Bill (PIB) currently being considered at the National Assembly. Mutiu
Sunmonu, the managing director of SPDC Nigeria, warned in a
presentation recently that the fiscal regime in the bill was
unfavourable towards the attraction of investment.

The presentation had centred on costs, security requirements in Nigeria
, inefficiencies in contract and procurement processes, and limited
contractor capacity reducing competition.

Underlined by the proposed fiscal regime in the bill and prevailing
costs profile in the industry, Shell sees gas projects becoming
uneconomic because gas prices will not rise enough to attract the
required investments. Besides investment implications, the situation
may mean the inability of the Federal Government to increase power
generation in the country as currently proposed.

The inability of the company to participate in the I-JV option for oil
companies as contained in the bill may also mean an uncertain future
for Shell. The oil giant feels there should be fiscal provision for
I-JVs in the first two years of the new fiscal regime. This provision
is besides ensuring that the new companies are structured in a way that
would enable self-funding and the capability to raise enough debt for
the purposes of exploration and production.

Shell may also see uncertainties in the current 30 percent deep water
production in Nigeria. The company thinks the proposed fiscal regime in
the PIB that include multiple, increased royalties and taxes will
stifle new investment in deep water projects. According to the company,
some aspects of costs which it considered as legitimate are excluded
from cost recovery.

However, those in favour of the proposed regime would argue that the
government is short-changed in the present arrangement. But it is also
argued in favour of the oil companies that the risks in the 1990s were
huge, and it could only have been either a monumental loss or huge gain
for them as currently the case.

In June, President Umaru Yar’Adua announced he would give Niger Delta
rebels until early October to renounce violence and accept an amnesty.
On July 13, he dropped charges of treason and gun-running against Henry
Okah, a former militant leader, releasing him after more than a year in
jail.

The main militant group, the Movement for the Emancipation of the Niger
Delta (MEND) responded by calling a ceasefire until September 15,
saying it would

seek talks with the government.

Despite these promising moves, the IEA said MEND was still targeting
oil companies trying to restore damaged oil facilities and, by
mid-July, there were declarations of force majeure in place on several
Nigerian oil export streams, including Bonny, Forcados, Escravos and
Brass River .

So far, only a few militants have actively been negotiating an end to
their activities, the IEA said, while MEND argues that the amnesty
fails to address its major complaints over the distribution of Nigeria
‘s oil revenues and the government’s neglect of the impoverished Delta
region.

Analysts and oil companies also fear the amnesty is short-sighted, the
IEA added, saying that it “fails to tackle the larger issues at the
root of the militants’ criminal activity and broader civil unrest.”

Another cloud on the horizon for the Nigerian oil industry is the
controversial proposed oil law—the Petroleum Industry Bill—which the
IEA said was “causing consternation among some companies and regional
government leaders.”

Although it has been praised for its attempt to reform the
cash-strapped state oil company– Nigerian National Petroleum
Corporation–, “proposals in the bill to increase government’s stake on
offshore projects and to change the legal and fiscal regime could
threaten future developments worth billions of dollars”, the IEA said.

Source: Business Day Online

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