Nigeria to Renegotiate Contracts

Nigeria to Renegotiate Contracts With Oil Companies
By Julie Ziegler
Jan. 22 (Bloomberg)

The Nigerian government informed oil companies it would like to renegotiate production contracts within the next three months, a move that will likely increase the nation's share of oil wealth.

``There's an indication of that made to the oil industry,'' Nigerian National Petroleum Corp. spokesman Levi Ajuonuma said in an interview today, adding that the renegotiation of some of the contracts is ``long overdue.''

About 95 percent of NNPC's projects are funded through joint ventures such as Shell Petroleum Development Co., in which NNPC has a 55 percent stake. Nigeria's 2006 budget called for about $4.2 billion for funding of these ventures. The country also wants more favorable terms to improve its deepwater production-sharing contracts, many of which were signed during the 1990s when oil prices were below $20 a barrel.

Nigerian President Umaru Yar'Adua said he wants to end government funding of joint ventures and instead leave oil companies to raise money on international capital markets. Oil companies, in turn, have also complained that the joint ventures don't work. Shell's Nigeria venture, in its latest annual report, said a shortfall in government funding impeded the company's ability to meet a target to stop the flaring of gas associated with oil production.

`Planned Review'

``We are aware of the Nigerian government's planned review of aspects of the 1993 production-sharing contract agreement which guide offshore concessions,'' Caroline Wittgen, a spokeswoman for Shell, said in an interview.

``We intend to make our position known to the government at the appropriate time, and do not wish to comment further or speculate ahead of anticipated discussions,'' Wittgen said.

Michael Barrett, a spokesman for Chevron Corp., said he hadn't heard of any official notification.

Shell, Chevron and other companies signed production- sharing contracts during the 1990s that allowed them to operate without a joint venture with the government and to pay royalties once the cost of developing the field was fully recovered.

H. Odein Ajumogobia, Nigeria's petroleum minister of state, said in September that a ``fundamental change of circumstances'' will influence the renewal terms of those contracts. Oil prices reached a record $100.09 on Jan. 3.

Oil companies also favored the deepwater oil blocks to move away from the restive Niger delta where militant groups and criminals damaged pipelines and created production outages. The Movement for the Emancipation of the Niger Delta, or MEND, has shut as much as a fifth of Nigeria's oil production since attacks in February 2006.