NIGERIA - Part 1 - The Prospects & Geology.

The Nigerian government has confirmed that the targets for the country's oil production capacity will be as follows: 3m b/d by 2002, from 2.4m b/d at present, and 4m b/d by 2010. But the actual output now is averaging less than 1.5m b/d, compared to over 1.9m b/d in June 1999 and 2.31m b/d in August 1997. Nigeria's OPEC quota for the period from April 1, 1999 to end-March 2000 is 1.885m b/d.

Addressing parliament on July 27 as he presented the government's new budget for 1999, President Olusegun Obasanjo said production capacity will reach 3m b/d over the assembly's four-year lifetime. The president - who was freely elected on Feb. 27, 1999 and came to civilian power on May 29 to replace a military regime - said Nigeria's proven oil reserves will be raised from 25 billion barrels to 30 bn barrels by 2002.

Nigeria, rich in natural resources, has been impoverished as a result of negative politics and military regimes since the 1960s. It has been forced occasionally to import fuels to offset shortages locally. Although recent oil price increases have allowed the government to raise the 1999 budget, there are serious problems in the local energy market and in the economy (see Downstream Trends).

Nigeria needs to spend over $3 bn to maintain its current production capacity and another $5.5 billion to expand it to 3 million b/d by 2002. The state- owned Nigerian National Petroleum Corp. (NNPC) must fund almost 60% of the investment required by its oil producing JVs. The rest is covered by the foreign partners. The new budget, based on an average crude oil price of $15/b instead of $9/b set in February, allocated $2 bn to fund the oil JVs. In ventures based on production sharing agreements (PSAs), the foreign companies must provide all the money.

NNPC has always had difficulty in funding obligations towards the oil JVs. The six main JVs, usually accounting for over 90% of Nigeria's oil output, involve Shell, Mobil, Chevron, Agip, Elf, and Texaco. They have warned that Nigeria production capacity would fall below 2m b/d if NNPC funding keeps being delayed and if the unrest in the oil-rich south continues. Due to the unrest, Shell's output in the past week fell to 250,000 b/d, from a capacity of 1m b/d, as the major was unable to reach many of its flow-line stations. Output by Elf, Agip and other foreign operators has been affected as well (see profiles of operators and the fields in Part 2).

NNPC directly markets its share of crude oil production. Like most other NOCs in OPEC, it prefers to sell crude oil to end-users rather than to traders. In early July 1999, NNPC introduced new regulations to cut out middlemen from

crude oil sales. It has limited oil contracts to bona fide companies (see exports & logistics in Part 3).

President Abasanjo is directly involved in the decision making process for the hydrocarbon sector. He has made Rilwanu Lukman his chief advisor for this sector, having removed the military officers from it. Lukman, one of Nigeria's former oil ministers, serves as OPEC secretary general until he resigns in September (see who's who in Part 4).