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.

OPEC Quotas May Bring In-Fighting in September

May 22, 2007
By John Troland, Tom Waterman

Houston, TX - At the September 2007 OPEC meeting there may be trouble brewing if expectations that Angola, the newest member of OPEC, is assigned a quota. With Angolan crude output on the rise from recent estimates of about 1.5 mbpd to more than 2.0 mbpd in the not too distant future, there will probably be requests from other OPEC producers of sweet crude such as Algeria, Libya and most importantly Nigeria, to increase their quota allotments. Currently Nigeria's quota is 2.044 mbpd with full production potential nearly 1.0 mbpd above that level, assuming militant actions in the Niger Delta were to cease.

Nigeria has for some time been a price hawk although at current levels, seem less concerned about its quota allotment than in past years. The government also appears less concerned about the lost production. We suspect that the central government, at the moment, is not overly concerned with the militant actions as it does keep prices at artificial levels. Market bulls are quick to point to lost production in Nigeria as a major factor, when other hype fails. They can point to Nigerian output of about 1.0 mbpd lost to ongoing strife in the country. But as we stated in an earlier article, the additional 1.0 mbpd would put Nigeria way over its quota.

As history has proven, OPEC members have little problem with each other when prices are high and moving higher, but when prices begin to fall, the cheating expands as member countries try to maintain a similar revenue flow. We suggest that this scenario is closer to happening than some analysts predict. Both Angola and Nigeria will continue to seek higher and higher quotas going forward. This puts the onus on major OPEC producers such as Saudi Arabia, Iran and others who continue to enjoy much larger quotas. Will the Saudis, in particular, be willing to cut back its quota enough to support high prices? An even bigger question is will other OPEC members show restraint in curbing production to quota levels?

The problems arise as Algeria, Angola, Libya and Nigeria do not have quotas proportionate to output. As we suggested earlier, OPEC history will repeat itself at some point in the not too distant future if the above mentioned countries are successful in getting higher quotas.

Our position is they will revert to cheating, which logic dictates they are probably engaged in right now. This will eventually lead to the same problem we had last summer as the crude oil market was flooded. With the possible exception of Saudi Arabia and perhaps Kuwait, the rest of OPEC countries are cheating now if they have the capacity to overproduce. We are approaching the saturation level where crude oil is ample and if the situation persists, the fight will be on for the last buyer of crude oil.

While tanker charters and other market barometers often measure crude shipments, they do not measure the amount of crude oil available. Countries will store excess production and hope to sell it at elevated levels somewhere down the road. OPEC never does well in a down market. This is why there is nothing but silence from the cartel recently. They do not wish to upset the apple cart. Just as the majors in the U.S. are really not to blame for the current market prices, they are enjoying the profit margins, and are really not interested in seeing a change from the status quo. Every oil company executive knows that speculation is driving this market, but they won't say it publicly, even as many face hearings in Washington on the subject of gasoline prices. Right now, the volatility favors the oil companies, so don't expect any complaining.

Ever wonder why we have not run out of gasoline? There are no lines at retail outlets anywhere in the country at the present time. Neither do we hear about signs posted saying "We're Out of Gas!" The hype just keeps things moving up.