Foreign Partners' Role In Deep-Water Oil.

The big foreign firms - mainly those involved in the six JVs mentioned in the table above, have the capability to find additional oil reserves in their areas on the scale demanded by the government. They are exploring for oil in deep-water areas, under PSCs, and all are eager to find big reserves because drilling operations there are very expensive. It is anticipated that, if the right conditions prevail, most of Nigeria's oil production in the next decade would come from deep-water fields.

Developing Nigeria's deep-water oil blocks will cost $10-12 bn through 2010. High crude oil prices have shored up the cost of exploration for and development of the offshore fields. Offshore development costs keep rising as companies are expanding projects in the Gulf of Guinea, moving away from already tapped onshore or shallow water oilfields in the Niger Delta. The government is marketing a big number of oil blocks, including those in deep waters, and offering preferential treatment to those willing to invest in Nigeria's oil refining and power generation sectors (see Downstream Trends of this week). Abuja had set a target of keeping the cost of production from deep-water fields within the range of $6.50-$10/b.

Deep-water blocks in operation include the Erha field, operated by ExxonMobil and Shell's Bonga, on stream since 2006, and Agbami operated by Chevron which be on stream in 2008 (see Gas Market Trends). Limitations imposed by the country's OPEC production quota had impeded the development of deep-water fields. To overcome this, Nigeria would request for an increased quota from OPEC.

Under the rules governing offshore oil development, companies bear the exploration and development costs, which they can recoup from the sale of crude oil. Costs for onshore oilfields are split between oil companies and the state according to JV agreements.

Production costs up to loading at terminals are low by non-OPEC standards, though high by Middle East standards. Under normal conditions, but not in deep-water fields, oil production costs average $4/b. Normally costs for oil produced in Shell's larger onshore fields are around $2.20/b. But on an annual basis, the average can go up to $3/b because of violence, sabotage, labour strikes and theft. Costs for offshore oil exceed $4/b, while ExxonMobil says the cost of its offshore production is less than that. In some fields the cost is over $5/b. But for companies to keep producing oil, they have to explore and make discoveries as the size of most fields is small.

The following are profiles of the six main joint ventures in Nigeria: