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23 May 2008 09:41
A string of deals with foreign firms to plug financing gaps in Nigeria’s oil industry will help unlock significant shut-in potential in the world’s eighth biggest exporter, the state oil company said on Thursday.
Nigeria has signed deals worth $3-billion with Exxon Mobil and Total over the past week and is finalising a similar agreement with Royal Dutch Shell to try to end chronic funding shortfalls.
The Nigerian National Petroleum Company (NNPC) said the funding would allow it to press ahead with delayed projects and would help ensure Nigeria meets or exceeds its Opec quota—currently 2,2-million bpd—over the next one to two years.
“We are virtually getting rid of the funding problems ... With this new arrangement the level of investment is enormous,” NNPC spokesperson Levi Ajuonuma told Reuters.
“The markets very soon will be reacting to all of this because they know that Nigeria will be able to meet or exceed its quota,” he said
Fears about long-term supply constraints have driven world oil prices to record highs, giving the Nigerian government and its oil partners added incentive to unlock unrealised potential.
Prices hit a record high for a third straight day on Thursday, topping $135 a barrel.
Africa’s largest oil producer saw its two million bpd output almost halved for several days last month by a strike at Exxon and by militant attacks on pipelines in the Niger Delta, where most of its crude is pumped, adding to global supply fears.
But some analysts say the long-standing funding shortfalls are as much to blame for Nigeria’s depressed oil output as the continued unrest in the delta’s labyrinthine creeks.
Under the so-called “carry agreements” struck so far with ExxonMobil and Total, the foreign oil partners loan money to NNPC to fund its portion of joint venture projects this year.
The state firm will pay the loans back in cash, with an interest rate fixed at eight percent, and not with crude oil as had been the case in the past.
NNPC’s Ajuonuma said an agreement had been reached in principle with Shell and that lawyers would finalise the deal in the next few days.
Shell has said it is making progress but has declined to give an exact time frame.
“We hope to finish those negotiations very soon,” Shell’s chief executive Jeroen van der Veer told Reuters television in an interview in southern France.
While the agreements may provide a solution to some of the sector’s immediate funding problems, much deeper reforms are needed in the longer term if Nigeria is to reach its full potential, analysts say.
“This isn’t a solution to the structural underfunding of joint ventures.
“There is reasonably common consent that to take this off the government’s books, to take the financing out of politics, and to allow the entities to go to markets themselves ... would be a much better way of doing it.”
President Umaru Yar’Adua has been keen to bridge the funding gap in the oil industry through private sector financing since he took power almost a year ago.
His administration has ambitious plans to turn NNPC into a global player able to tap international capital markets, financing deals which bankers hope could be among the biggest seen in Africa and which they are vying to arrange. - Reuters
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