Ogho Okiti & Olusola Bello
Shell, Nigeria’s largest oil producer, faces an uncertain future in the country, according to Peter Voser, its new chief executive.
The allusion to an uncertain future for the company in Nigeria is based on the recent attacks 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.
Voser was quoted in the international press while answering questions bothering on his company’s operations after revealing that its profit fell 70 percent, compared to last year.
Shell’s production in Nigeria is reported to have dipped by 85 percent from 1.05 million barrels per day in 2005 to just 145,000 barrels per day due to series of attacks on its platforms both in its western operations which cover Delta, Edo and Bayelsa states and eastern operations in River State.
At its western operations, Shell is producing barely 5,000 barrels per day as against the over 477,000 barrels per day production.
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 in the National Assembly. Mutiu Sunmonu, managing director of Shell Petroleum Development Company (SPDC) Nigeria, warned in the presentation 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 may 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 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 such that it enables self funding and the capability to raise enough debt for 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 will 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 is currently the case.