Nigeria toughens terms of offshore blocks

Nov 09, 2004 01:00 AM

Nigeria is to toughen terms on its offshore oil blocks, the country's Presidential Advisor on Petroleum and Energy Edmund Daukoru told.
"We definitely need to look at (future) production sharing agreements to see if they can be fine tuned," Daukoru said, noting that there is now a greater certainty of finding oil than when earlier agreements with oil companies were formed. "The deepwater was a highly speculative play. Now it's understood," he said.

Nigeria plans to offer around 15 deepwater blocks in early 2005 with the new tougher terms reflecting the lower risk companies face drilling near proven major finds. Bids will be awarded around March or April 2005. Blocks in north-eastern Nigeria's Chad Basin will also be offered.
The government is mulling an 80 % cap on the cost recovery ceiling, or amount of money investors can take out of oil revenue to pay off their capital expenditures.
"The principal need is to put in a cap," Daukoru said.

For the first-time, the offshore production sharing contracts will also include gas which had been flared. Nigeria aims to end the environmentally damaging flaring of gas associated with oil production by 2008 and is eyeing regional pipelines as well as expanding exports of LNG.
To lure investors into the previously untried and technically challenging deepwater reserves, Nigeria initially offered better terms, giving companies the chance to recoup 100 % of their investment before sharing revenues with the government.
"I wouldn't call the new terms tough. They are more realistic," Daukoru said.

The bulk of Nigeria's 2.4 mm bpd of oil output is produced onshore through majority-owned joint ventures with the state's Nigerian National Petroleum Corp. Sometimes the government yanked back its share of investments, however, curtailing projects.
Some government officials have balked at the mounting bill for delays and unexpected overruns that have plagued the rollout of Shell's $ 2.7 bn Bonga deepwater project in Nigeria originally slated to last year but now geared for mid-2005.

Speaking on the sidelines of an industry conference in London, Nigeria's top oil official acknowledged there had been cost overruns, but added that wasn't unusual in the industry. Daukoru added that the government wants to reduce spending and increase oil and gas revenues to $ 20 bn by 2007 from $ 14 bn this year and boost production to 4 mm bpd from 2.8 mm bpd, he said. He also reaffirmed his commitment to end gas flaring.
Besides Shell's giant Bonga field project, ExxonMobil is developing its 150,000 bpd Ehra field and ChevronTexaco is working on its 250,000 bpd Agbami field.

Source: Dow Jones
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