Oil: Foreigners delay their investments

Financial Times

22 November 2011

Oil: Foreigners delay their investments

By Christopher Thompson

The vast glass and steel headquarters of the state-owned Nigerian National Petroleum Corporation in Abuja reflects the importance of an institution central to the fate of the nation.

Oil provides more than 90 per cent of export earnings and the country has the world’s seventh-largest reserves.

The Niger delta, the principal oil-producing region, is now quiet, after a 2009 amnesty helped end a decade of low-level insurgency and militant activity.

Goodluck Jonathan is the first president to have come from the delta and has pledged to tackle long-standing grievances relating to resource control, revenue allocation and environmental damage.

But despite the confident, modern lines of the NNPC’s building, the corporation, a byword for waste and corruption, has underperformed for a generation.

In 2008 the cabinet approved a radical blueprint for reform. It is a sign of the complexity of the issues, and the influence of powerful vested interests, that it remains unclear when – or in what form – change will be adopted.

The case for renewal is overwhelming.

Most of Nigeria’s oil is produced onshore or in shallow water, from joint ventures with international oil companies, with NNPC having a majority stake. For many years, government has baulked at financing the industry needs.

There are also transparency issues. The minister of petroleum resources, Deziani Allison-Madueke, a former Shell executive, faced a poisonous campaign against her reappointment in June and now rarely talks even with the international media. The NNPC also presents an impenetrable image.

Levi Ajuonuma, the corporation’s head of communications, says Nigeria has a target to increase capacity from current levels of 3m barrels of oil a day (b/d) to 4m b/d by the end of the decade. “[To do that] we need an enabling environment, to get investment and open up to other parts of the world like Germany, China and India,” he says.

Mutiu Sunmonu, country chairman for Shell Nigeria, agrees that up to $40bn of investment is waiting for projects in deep water alone – such as expanding production at its huge Bonga field.

The same is true for other ultra deepwater investments including developing Total’s potential 1m b/d Akpo field and Chevron’s Agbami field.

The enabling environment requires clarity on the proposed Petroleum Industry Bill.