2009, a tough year for Shell in Nigeria

2009 is going to be a difficult year for the Anglo-Dutch firm Shell in Nigeria, where not so long ago the oil giant was pumping one million barrels per day, the group's top official has warned.

"We have a difficult year ahead of us," Shell vice president for Africa, Ann Pickard said in an internal company publication.

"With the drop in oil prices, our survival depends on controlling our costs," she added.

Pickard said the Shell Petroleum Development Company's (SPDC) budget for 2009 was just over one third of what it was three years ago.

"Unfortunately the organisation we had three years ago was designed for a 6.6-billion-dollar SPDC budget. (But) in 2009 the SPDC budget is about 2.4 billion dollars," she said.

Among the unknowns for the year are reforms that Nigerian authorities plan to introduce in the partnerships between international oil companies and the state-owned Nigerian National Petroleum Corporation (NNPC), she noted.

NNPC is still not in a position to finance its share of joint ventures with its international oil company partners, a state of affairs that means Shell had to grant a bridging loan to NNPC in early 2009 as an interim measure.

"We are trying to keep the industry sound and running, protect the assets, keep production flowing with this bridge loan ... to tide us over to the future," she said.

"But those are only interim measures to provide limited funding to get us through incorporation of a joint venture that should be able to fund itself.

"SPDC has been starved of funds for so long that we really have to solve the issue ... It is important that we begin our dialogue as soon as possible," she said of the bridge loans.

Pickard says she was also concerned about possible tax changes in the sector.

At an oil and gas conference in the federal capital Abuja in February, Pickard said her company "supports efforts to improve functioning, efficiency, transparency and financing of the oil and gas industry" but warned that "getting it right is absolutely essential."

"Getting it wrong will not be acceptable for Nigeria or for the IOCs," Pickard said, referring to the international oil companies.

Foreign oil companies are also worried about Nigeria's plan to transform the current joint ventures into integrated joint ventures (IJVs), autonomous outfits able to raise funds on capital markets.

They are concerned about who will be the majority owners in the IJVs and which party will have control over technical issues, the big fear being that NNPC might have technical control.

Shell does not give production figures for crude, but according to industry sources, Nigeria's onshore production has crashed, notably because of regular incidents of sabotage that make the company unable to respect its export obligations.

The latest blow was a fire in mid-April on a major oil crude oil pipeline that saw the closure of the line and several adjoining flow stations in the southern oil hub, Rivers State.

According to an industry source, production loss caused by fires in the volatile Niger Delta is estimated at 180,000 barrels of oil per day -- 130,000 for Shell, 30,000 for the French giant Total and another 20,000 barrels lost by various other operators.

A combination of violence and sabotage has caused a significant slump in Nigeria's crude output, to around 1.78 million barrels per day from 2.6 million in 2006.