by Dennis U. Atuanya

29-12-09 Nigeria currently holds the world's tenth largest reserves of crude oil and is the fifth highest supplier to the United States. She also boasts the world's seventh largest natural gas deposits.
The country is currently a battleground of sorts in a contest that has pitched International Oil Companies, IOCs, against a Chinese National Oil Company, NOC, for a significant proportion of Nigeria's 36 bn-barrel crude oil reserves.

A Petroleum Industry Bill, currently before the country's legislature is the first major restructuring of the country's (hitherto notoriously inefficient and corruption-laden) oil and gas sector in decades. The bill, among other items, provides for an increased take by the Federal Government from companies' production proceeds, a situation that the IOCs have decried as economically asphyxiating.
The timing for the bill could not have been more inauspicious for the IOCs and for four reasons: First, most of the IOC-held oil mining licences are currently up for renewal. Secondly, over the past ten years, major IOCs have seen increasing difficulty to profitable discovery and production of crude oil. Third, the recent economic recession has even more significantly reduced their earnings, with recovery rather precarious.

Finally, CNOOC (CEO), a Chinese NOC (one of two or three currently flaunting intimidating financial arsenal) has dramatically raised the stakes by offering as much as $ 50 bn for a significant portion of Nigeria's reserves (including some of those licences due for renewal); an offer that has left many of the operating IOCs griping.
While the Federal Government of Nigeria is unlikely to grant CNOOC all its requests, that company's offer has strengthened Nigeria's hand in her negotiations with IOCs, trumping the cavalier attitude of many. ExxonMobil is reportedly paying as much as $ 600 mm for a 20-year renewal of licences for three oil blocks (currently producing 580,000 bpd) which the company has operated for about four decades.Chevron and Royal Dutch Shell (the latter had sought restraining orders from the courts on the Nigerian government with regard to some of the company's assets pending the determination of a substantive suit) are reportedly still negotiating with the government.

Uncertainties about the precise content, as well as passage prospects of the Petroleum Industry Bill, have also led some IOCs to moot the sale of some of their oil assets. However, the Nigerian government, perhaps in an oblique warning to such other IOCs, has declared that Royal Dutch Shell has no right to sell jointly held assets without her prior consent.
These essentially typify the worldwide challenges that the major IOCs currently face. With about 70 % of global crude oil reserves only about three decades ago, they have seen that value slashed by a full order of magnitude. Global petroleum exploration and production is moving into the more (financially, geologically and technologically) challenging regimes and countries with the largest reserves are increasingly domiciling (or nationalizing) them while exacting steep returns from producing companies.

In the recently concluded oil licensing round in Iraq for example, companies bid for service (rather than production sharing) contracts or outright concessions. The result is that the Iraqi government, while retaining control of the oilfields, will pay producing companies between $ 1.15 and $ 1.40 per barrel of crude oil produced above current levels of production; these comparatively low values are attributed to the keen competition among the forty odd companies that bid for the licences.
Three of the largest US IOCs were essentially absent in the bid round, reportedly for financial and strategic reasons: ExxonMobil, due to low payment rates offered by Iraq, Chevron due to perceived risks and ConocoPhillips due to recent cost-cutting measures. In contrast, National Oil Companies such as CNPC (China), Petronas (Malaysia), Sonangol (Angola), Gazprom (Russia) and Norway's state-controlled Statoil were very successful. The oilfields were one of the last largely untapped, cheaply and easily exploitable reserves.

Nigeria's bid to increase her proved reserves to well above 40 bn barrels by the year 2010 suffered serious setbacks chiefly from militant insurgency in the Niger Delta region, the country's dominant petroleum-producing province; but a presidential amnesty and rehabilitation program for the militants is creating a gradual return to normalcy. It is estimated that Nigeria has earned more than $ 450 bn in proceeds from crude oil, but she still lacks adequate infrastructure in such areas as power, water supply, healthcare, education among others; in addition more than five inhabitants out of ten live on less than a dollar a day.
The opacity in the country's oil and gas sector has not only short-changed the nation (particularly the citizens of the oil-producing regions), but has bred a festering rash of wealthy, cultic goons malevolently bearing over it. With crude oil accounting for more than 90 % of the country's foreign exchange earnings, a swift and thorough restructuring of the oil and gas sector would be necessary for any meaningful national development.