NIGERIA - Part 2 - The Oil & Gas Fields And Foreign Operators.

Nigeria has over 260 oil and gas fields, with less than 100 producing and the rest being marginal. The current oil and condensate output is averaging 2.19m b/d. Nigeria's OPEC quota from June 1 is 2.092m b/d, excluding condensate. Nigeria's production capacity for oil and condensate is 2.6m b/d. OPEC's next ministerial meeting on Sept. 24 should decide on production quotas for the fourth quarter, with Nigeria having demanded a higher quota since 2002, when its output averaged 2.118m b/d. About 65% of Nigerian crude oil production is light (35*API or higher) and sweet (low sulphur content).

The state-owned Nigerian National Petroleum Corp. (NNPC) has to fund about 57% of the E&P expansions costs of the six main JVs, which produce the bulk of the country's oil output. For 2003, it has proposed a JV cash call budget of $4.6 bn. It has said this was consistent with the government's objective of achieving 40 bn barrels of proven oil reserves and 4m b/d of production capacity by 2010.

Political and ethnic strife in the Niger Delta - including violence, kidnapping, sabotage and the seizure of oil facilities - often disrupts Nigerian oil production. In March/April 2003, Shell, ChevronTexaco and Total suspended a total of 817,000 b/d of output because of the violence.

            OIL PRODUCTION & CAPACITY OF MAIN JOINT VENTURES

                            Aug '03 2003             Target

Shell Nigeria            Fields            Output    Capacity    Cap 2010
Shell 30%; NNPC 55%      Bonny Lt & Med;
Total 10%; Agip 5%       Forcados, Total:    800        1,100     1,600
Mobil Producing          Qua Iboe            450          450       700
ExxonMobil 40%;NNPC 60%  Oso condensate       95          100       100
ChevronNigeria
ChvrnTex 40%; NNPC 60%   Escravos            325          440       700
Total

Total40%; NNPC 60%       Several fields      150          150       400
Agip
Agip20%;NNPC60%
Phillips 20%             Brass River         150          150       300
Texaco
Txco20%;NNPC60%
Chevron 20%              Pennington           70           70       150
Total For The six JVs                      2,040        2,460     3,950

PSCs & Locals                                150          150       100
Total Nigeria                              2,190        2,610     4,050

The foreign companies have the capability to find additional oil reserves in their JV areas on the scale demanded by the government. They and other majors are also exploring for oil in deep-water areas, under production sharing contracts (PSCs), and all are eager to find big reserves because drilling operations are very expensive (see Gas Market Trends No. 5). It is anticipated that, if the right conditions prevail, most of Nigeria's oil production by 2010 would come from deep offshore fields.

However, technical capability is not enough. Apart from huge investments foreign companies are ready to make for deep-water fields under PSCs, they still need to spend big capital to maintain the operating fields which are JVs with NNPC. Investment in existing fields depends on NNPC paying its share of the funding on time. Most E&P projects launched by the six main JVs have been delayed because of NNPC's failure to meet cash-calls.

In May 2002 NNPC announced that it will operate as a commercial entity and assume responsibilty for cash call payments to the JV partners. Until then, cash call funds were deducted directly from federal revenues and paid to the oil majors for their operational budgets without the hassles of parliamentary appropriation. The Supreme Court had ruled on April 5, 2002 that all federally collected revenues must go into a common pool to be allocated by parliament and shared by federal, state and local governments. Thus in June 2002 NNPC began paying the cash calls and arrears (see background in Vol. 57, No. 6).

When President Obasanjo took office in 1999, 71% of gas output was being flared. This amount now is 51%. Speaking on the occasion of the commissioning of a new gas transmission project in south-western Nigeria in January 2003, the president said the official date to end gas flaring was brought from 2008 to 2004. Shell and the other JV partners protested, saying it was impossible for them to meet the new deadline.

Production costs up to loading at terminals in Nigeria are low by non-OPEC standards, though high by Middle East standards. Under normal circumstances, oil production costs average $4/b. Under normal conditions, costs for oil produced in Shell's larger onshore fields are around $2/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. In deep-water areas now being explored, production costs could be about $8-10/b. But for companies to keep producing oil, they have to explore and make discoveries as the size of most fields is small.

In June 2003 the federal government instructed the oil companies to increase production to make up for output losses during the violent months. But in early May a fire at ExxonMobil's Oso condensate production platform offshore Akwa Ibom caused operations to be suspended. Production and exports were resumed in

The following are profiles of the six main joint ventures in Nigeria. Profiles of the other operators are in Gas Market Trends of this week.