NIGERIA - China Eyes Gas E&P.

During President Obasanjo's visit to Beijing and after talks with Chinese President Hu Jintao, the two states on April 14 signed five economic agreements. One of them was to focus on gas E&P operations to be launched in Nigeria by Chinese companies.

China, running low on oil resources and the world's fastest growing energy importer, is making a great effort to seek overseas supply sources. The country's three state-owned giants - China National Petroleum Corp. (CNPC), China Petroleum & Chemical Corp. (Sinopec), and China National Offshore Oil Corp. (CNOOC) - have all entered Nigeria's oil sector. Sinopec has stakes in three oil blocks in Nigeria, with one of the them producing 4,000 b/d of crude oil. CNPC, the parent of PetroChina, has entered Nigeria's oil E&P sector. CNOOC is providing oilfield services in Nigeria. If realised, the planned growth in China's involvement in Nigeria could dent oil majors' dominance in the country's upstream petroleum sector.

The Chinese companies have agreed to invest in Nigeria's refining and IPP businesses. In return, they expect preferential treatment in the award of E&P blocks by the DPR.

South Korea, as potentially Japan, is also in Nigeria's sights for involvement in the country's oil and gas E&P as well as the downstream sector. Overtures with these two countries, as well as with India, Australia and Malaysia, have been made in the more recent months. India's state-owned ONGC Videsh Ltd. (VOL) in late July bid for four offshore oil and natural gas blocks in Nigeria.

Major signature bonuses have been asked for the deep-water blocks. Although the DPR sets the rules and issues the licences, NNPC does the negotiating with the bidders through its upstream arm, National Petroleum Investment Management Services (Napims).

Sao Tom and Principe, where mediation helped end a coup in July 2003, are jointly exploiting nine potentially lucrative offshore E&P blocks. The governments of Sao Tome and Principe (STP) and Nigeria had by then set up the Joint Development Zone (JDZ), overseen by the Joint Development Authority (JDA) which i based in Nigeria. Oil income from the JDZ will be shared 60% by Nigeria and 40% by STP. This is based on an agreement signed on Feb. 21, 2001.

On March 17, 2003, Environmental Remediation Holding Corp. (ERHC) announced the signing of a memorandum of understanding (MoU) with STP settling all outstanding disputes. ERHC thus increased its rights to participate in the JDZ from a 30% working interest in two blocks to a total of 125% working interest spread over six blocks. Additionally, ERHC was not required to pay signature bonuses on four of the blocks. In exchange, ERHC relinquished its rights to an overriding royalty interest, share of signature bonus and share of profit oil in the JDZ.

JDA now is negotiating PSAs with the winners of five oil blocks offered in its second licencing round. Recently JDA said it was hoping talks would be completed and PSAs would be signed within 90 days. The winning companies are also negotiating their joint operating agreements. The next round of talks was to be held in London in early August, to be followed by another in the US.

JDA announced the results of its second licencing round on May 31, 2005. The round covered blocks 2 to 6 in the maritime boundary between Nigeria and STP. The results showed that block 2, the most prospective, was awarded to an operating consortium of Devon Energy, Pioneer Natural Resources, and ERHC Energy Inc. But Devon in early July said it had withdrawn from talks on operating agreements on the block. JDA got 26 bids from 23 firms for the five blocks, which offered $433m in signature bonuses.

In the first round, only one out of the nine blocks on offer was awarded. The group which won it consisted of Chevron as the operator with 51%; ExxonMobil (40%), and a partnership of Energy Equity Resources of Norway and Dangote of Nigeria (9%). JDA on July 21 confirmed that it had received a signature bonus of $123m from the group. Receipts from the licencing round were to be shared 60:40 between Nigeria and STP.

ONGC Videsh Ltd. (OVL) in June got 15% in JDA's Block 2. OVL, overseas E&P arm of India's state-owned ONGC, has stakes in 15 oil and gas properties in 13 countries, including Australia, Egypt, Libya, Iran, Iraq, Myanmar, Russia and Vietnam.

Exploration History: It was in 1908 that a German company, Nigerian Bitumen Corp., began exploring for oil in Nigeria. It operated in the Araromi area, of the present Ondo State, 200 km east of Lagos. The company abandoned its dry, shallow wells there at the start of World War I in 1914.

In 1936, Shell D'Arcy was granted sole rights to explore all over Nigeria and prospecting began in 1937. Shell's activities were interrupted by World War II.

Less than two years after World War II ended, Shell in 1947 teamed up with British Petroleum to form a Shell-BP unit in Nigeria. The group discovered oil in 1956 at Oloibiri in the Niger Delta, and production began in 1958 at the rate of 5,100 b/d which was mostly exported.

The group realised later that pay zones lay below 1,500 metres. As Nigeria gained independence in 1960, a new government in Lagos limited the group's concession area and invited other companies to explore for oil (see background in Vol. 57, Gas Market Trends No. 5).