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Nigeria: Negotiating
With The African Energy
Giant
By Jonathan Bearman
Managing Director
Clearwater Research
1
Introduction

Our Background

Offices in London, Abuja, Lausanne and Lagos

Advisor on bid evaluation to the Nigeria-Sao Tome
Joint Development Authority.

Advisor to Nigerian government on illicit bunkering
in the Niger Delta.

Consultant to NNPC on Risk in the Niger Delta
2
Why Is Nigeria important for the energy
industry ?

Biggest exporter of oil and gas in Africa


will probably remain so for the next three decades or more
Performs a pivotal role in the Atlantic market

influence in the market will grow as North Sea flows decline
The impact of Nigerian price volatility will therefore grow

Open access

Prolific rate of discovery
Has yet to reach a peak of maturity as a hydrocarbons province
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Hydrocarbon Potential

Recoverable reserves estimated at 33.7 billion barrels (Mar 2003)

Real potential for further reserve growth up to and possibly beyond the
government’s 2010 target of 40 billion barrels

Current crude production is approximately 2.25 mln b/d and Opec quota is
2.018 mln b/d

Proven and probable gas reserves approximately 178 trillion cubic feet

LNG plans would total 28 million tonnes of product a year

Nigeria has the potential to dominate the Atlantic market in oil and gas
supply

The decline in North Sea grades means that Forcados may become the most
important benchmark in the eastern Atlantic
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1.Onshore Expansion

Shell Petroleum Development Co

Western Delta – possible big expansion of Forcados
from just over 500,000 b/d to 900,000 b/d

Eastern Delta - Shell to raise Bonny Light
production to 790,000 b/d from 550,000 b/d
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SPDC Reserves
Oil
Mln barrels
Condensate
UR as at 1Jan 2002
P1
21, 275.5
P1+P2
25,592.90
P1
1,711.20
P1 & P2
2,374.50
Cumulative production
11,427.70
11,427.70
66.8
66.8
9,847.80
14,165.20
1,644.40
2,307.70
UR as at 1 Jan 2003
22,336.40
26,713.50
1,783.20
2,454.60
Cumulative production
11,682.20
11,682.20
73.7
73.7
Reserves
10,654.20
15,031.30
1,709.50
2,380.90
Reserves
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Nigerian Agip Oil Co

NAOC operates inland in Rivers State and in the
swamp area of Bayelsa State.
NAOC oil and gas reserves
Oil
P1
P2
Condensates
P1
P2
Gas
AG
P1
P2
NAG
P1
P2
(actual and forecast)
2001
2002
2003
2004
2005
2006
622
222
684
147
690
210
780
130
795
134
818
98
181
59
229
37
230
53
260
32
264
34
272
34
5,508
1,052
4,254
1,738
6,746
882
5,082
213
7,046
926
4,923
223
7,113
948
4,920
251
7,122
945
4,918
238
6,961
850
4,865
235
(mln stb)
(mln stb)
(billion SCF)
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Indigenous Producers



Recent years have seen the growth in production by a series of
indigenous producers
Most have occupied marginal and declining acreage but two
operations are significant –
 Moni Pulo and Conoil
and its affiliate
 Continental
Together, Conoil and Continental have plans that will raise
output to over 100,000 b/d by 2007, some from undeveloped
acreage in OPL 458
Added to these should be the joint venture between Pan Ocean
and NNPC in OML 98. Pan Ocean has plans to be a sizeable gas
producer
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Continental Production Activities
2002 Actual Production
Producibility
Forecast 2003 target
Gas Flaring By Continental
Year
2000
2001
2002
Average Daily
31.509
20.186
16.7
2003 Budget
E &P
Naira
USD
745,141 57,813
32,008
60,000
45,000
(b/d)
(M,scf/d)
Utilization
0.221
0.221
0.254
Average Flared
31.288
19.965
16.44
%
flared
99.3
98.9
98.5
(in 000 naira or USD
Other Activities
Total
Naira
USD
Naira
USD
42,035
3,261
787,176
61,074
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2. Shallow Water
SPDC moves to shallow offshore development



Exxon Mobil aims for liquids output of 1.1 bn bbls



e.g. EA field, now producing
HD field and other prospects
Gas injection to boost production
Yoho Development
Chevron Texaco

Aiming to achieve producibility of 500,000 b/d, mainly
through shallow water developments such as Tubu
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Mobil Producing Nigeria
producibility (000 b/d)
Base production
Infill
Development
Total
2001
558
78
0
636
2002
501
168
28
697
2003
441
216
183
840
2004
388
279
368
1,036
2005
341
299
481
1,121
2006
305
306
496
1,106
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3. Deepwater
Field
1. Bonga North-West
2. Bonga
3. Bonga South-West/Apparo
4. Agbami/Ekoli
5. Erha
6. Akpo
7. Abo
8. Bosi
9. Ukot/Usan
10. Bolia
11. Chota
12. Nnwa/Doro
Total:
Estimated Reserves
300 mln bbls
700 mln bbls
1 bn bbls
792 mln bbls
600 mln bbls
600 mln bbls
125 mln bbls
300 mln bbls
270 mln bbls
200 mln bbls
200 mln bbls
200 mln bbls
5.2 Bn bbls
Likelihood that other discoveries will be successfully explored and developed. E.g Ikija,
Oberan, Okodo.
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Statoil
Estimated Recoverable Oil Reserves in OPL 218
Prospect
Bilah
Sekhi
Nnwa
Sekhi Thrust
Ejo
Ake
Ayun
Ododo
Odo
Volume
(mmb)
194
101
50
174
71
113
261
198
53
13
Statoil
Estimated Recoverable Oil Reserves in OPL 217
Prospect
Igi
Iri
Imado
Efon
Keke
Afin
Omo
Adan
Afin East
Bata Esin
Volume
(mmb)
276
367
105
186
58
79
157
56
19
172
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Nigeria-Sao Tome Joint Development
Zone



First licensing round underway
60% Nigeria – 40% Sao Tome
Possible 4 billion bbls in place in northern JDZ
area.
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The Risks & Challenges

Negotiating Risks

The importance of the correct introduction and personal
relationship in developing a negotiating position

Understanding the politics of your approach. Does it fit with
the objectives of policy-makers and decision–makers ?

Will you be compromised by non-performing relationships ?

The importance of following process and compliance locally
(and internationally)

Requirements for local content
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The Risks & Challenges

Nigerian Risks

1. Ethnic Troubles in the Niger Delta:
Ijaw-Itsehiri clash in western Delta
 Restive communities such as Nembe, Eggi, Omoko


2. Extortion from Oil companies
Blockades
 Strikes


3. Illicit bunkering operations
Metre tampering
 Pipeline theft

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