The Shell-Led Group.

The biggest oil producing JV, the Shell-led group has about 85 oil and gas fields in 48 blocks. NNPC recovers the idle fields held by Shell and the other foreign firms, and offers them to indigenous companies (indies). Shell Petroleum Development Co. (SPDC) is producing 825,000 b/d, but has a capacity of 1.02m b/d, with 195,000 b/d shut in because of unrest in the Niger Delta.

A Shell spokeswoman on July 27 announced an important oil find, saying the Agatha onshore well "tested up to 5,000 b/d of oil'. She said the discovery had the potential to increase production in this mature exploration area.

SPDC has borne the brunt of attacks by militants on oil installations in Nigeria during the past three years which have cost it and the Nigerian government billions of dollars in oil revenues. Most of SPDC's shut-in capacity now is in the west of the delta. It has faced many problems in the delta, including the abduction of staffers by local militants. At one time earlier this year, more than 500,000 b/d of SPDC's capacity was shut in. A Shell spokesman on July 10 said repairs had been done at SPDC's Nembe Creek trunkline in the east of the delta, and output had resumed. Shell began repairs after a leak was found in May, forcing it to cut output by 77,000 b/d. The Nembe trunkline is one of SPDC's major crude oil evacuation facilities in the delta and serves the 400,000 b/d Bonny Light crude oil export terminal. In a separate incident on July 7 two workers were kidnapped while repairing a leak on the Soku-Buguma crude oil trunkline in the south of the delta. One taken hostage was employed by SPDC; the other worked for Oil and Gas Nigeria, a pipeline repair contractor.

SPDC on June 10 said it had begun a number of cost cuts to its operations in Nigeria, including job cuts, to combat rising costs and falling oil income caused by production outages. A Shell spokesman said the changes followed an internal announcement in May in which the company told its roughly 4,500 Nigerian employees it would implement a "series of measures" to cut cost and boost productivity.

This is an austerity programme for three years. SPDC said: "The measures will demand significant step change in performance at personal and organisational levels as well as focus on how to reduce costs". Several hundred job cuts were planned.

SPDC on June 4 said it had restored 150,000 b/d of lost output from its Bomu pipeline complex feeding the Bonny terminal which had been shut-in since May 29 when it was attacked. This is just one example of many incidents faced by SPDC and other firms.

After pipeline fire in Lagos in which hundreds of Nigerians lost their lives in late 2006, the Executive Director of the Environmental Rights Action (ERA), Rev. Nnimmo Bassey, in early 2007 called on the federal government and security agencies to immediately secure all pipelines crossing the country to avert further disasters. He said: "We need a comprehensive solution to these frequent occurrences of burst pipelines and the deaths associated with it".

Shell's deep-water Bonga field began producing at end-2005, reaching 225,000 b/d in April 2006. Bonga is estimated to hold recoverable oil reserves of 600m barrels. Oil from the field is stored in a floating production, storage and offloading (FPSO) unit, with capacity of 2m barrels. In August 2008, Shell plans to bring online its Gbaran/Ubie field (220,000 b/d), located offshore of the eastern delta.

SPDC holds 30% in the JV. Shell D'Arcy was the first major to pioneer Nigeria from 1936 and to put this country on the map of oil producers in 1958. Shell, the operator of the JV, plays many other roles. Most important among these roles are the following:

The CEO of Shell Nigeria, Basil Omiyi, acts as spokesman for all foreign majors involved in the six oil producing JVs and thus his views are taken seriously by Abuja. Addressing an industry conference in Abuja on Aug. 2, 2005, Omiyi said the government could either convert the JVs into PSCs on "favourable terms" or sell more of NNPC's equity in the six ventures to attract additional funding. But since then there has been no change in this respect.

Omiyi and his predecessor Ronald van den Berg have been warning Abuja since late May 1999 that failure to meet cash-calls by NNPC would result in a drastic reduction of work and staff, with the JV's capacity to fall as a result (see background in Vol. 61, OMT & Gas Market Trends No. 6 and omt6NigrFieldsAug8-05).

On behalf of the group, Shell supplies most of Nigeria's natural gas to industry and the power sector. A Shell priority is a set of projects to collect and utilise associated gas and end flaring in its areas in 2009.

SPDC has an expensive multi-faceted plan to resolve numerous communal problems in the oil-rich areas, including projects to improve the environment in the Niger Delta. It has faced complex problems and violence in Nigeria since it came to this country.

NNPC holds 55% in the JV. This was reduced from 60% when a cash-starved NNPC was forced to cede 5% to Elf (which now is part of Total). In return, the French firm increased its share in funding the group's expensive development plan.

Total holds 10% in the JV. Total (Elf) leads another producing JV in Nigeria (see Gas Market Trends) and its local unit has good knowledge of the country's geology, Elf having found major oil reserves off Angola. Total is also a partner in the Shell-led NLNG venture (see Gas Market Trends No. 7).

Agip holds 5% in the JV and is a partner in the NLNG venture. It leads a JV with NNPC producing light/sweet crudes from a number of fields. Agip also produces crude oil elsewhere in Nigeria under a PSC in partnership with NPDC.

SPDC's production system consists of two regional units, with each led by a high-powered executive: the Eastern Division has the capacity to produce over 520,000 b/d of the Bonny group of crude oils; and the Western Division which can produce another 500,000 b/d of the Forcados group. Most fields in the two units are onshore, with some extending to the shallow-water off the Niger Delta.

The Eastern Division has seven groups of fields yielding light/sweet crudes blended into Bonny Light and heavier ones blended into Bonny Medium. They include Nembe and its satellites (250,000 b/d cap); Cawthorn Channel and satellites (100,000 b/d); Ekulama and satellites; Imo River; Kolo Creek; Adibawa; and Etelebou. Bonny Light and Medium are exported from the Bonny island terminal.

The Western Division has six groups producing crude oils for the Forcados blend exported from the Forcados terminal, including Estuary South Bank and satellites (100,000 b/d); Jones Creek; Otumara; Olomoro; Sapele; and Egwa.

Bonny Light, 37.6 deg. API with 0.13% sulphur, is a gasoline-rich blend also known as Nigerian Light. Bonny Medium (Nigerian Medium) is rich in gasoil and gasoline: 25.7 deg. API with 0.24% S. Forcados, 30.5 deg. API with 0.2% S, is particularly rich in gasoil. The three blends are popular among European, US and Asian oil refiners.

A big number of discoveries made by Shell since 1985, after it introduced the 3-D seismic system in Nigeria, were developed quickly to replace small fields found in the late 1950s and early 1960s. Some of the large fields have since kept producing. A number produced at higher rates because Shell found Fms beneath them.

New fields in the Forcados group are Tunu which went on stream at end-1995 and Kanbo and Ogbotobo which went on stream in 1998. Discoveries made since 1990 have added over 1.4 bn barrels to the JV's proven oil reserves and there have been several gas finds. They include Gbaran-4, found in 1990, which was the biggest discovery in Nigeria for ten years, with 400m barrels of oil and 500 BCF of gas. Since it introduced the 3-D system, Shell has been revising estimates for existing oil and gas reserves. A re-evaluation of seismic data and well results from big fields is a constant process, as in the case of other major operators.

Shell is to spend $9 bn in Nigeria through to 2010 on its JV, PSC ventures, the LNG export system and gas utilisation projects to end flaring. Shell has revamped both the Bonny and Forcados terminals. It has modernised its network of pipelines.

Shell's shallow water EA field resumed production in early April 2006 after being shut for security reasons in mid-February. Shell evacuated EA after attacks by ethnic rebel group the Movement for the Emancipation of the Niger Delta (MEND) which have cut the country's crude oil production by more than a quarter. EA, in the Gulf of Guinea, went on stream in late 2002 at its floating production storage and offloading (FPSO) vessel, 'The Sea Eagle' - then described as the third largest in the world. During violence in April 2003, Shell took the unusual step of advertising in local newspapers to highlight threats to attack this vessel by "criminal elements", who it said were planning to set fire to 'The Sea Eagle'. EA, on Block OML79, was first found in 1965. EA produces 140,000 b/d of oil and 100 MCF/d of gas. EA crude is light - 38 deg. API - with less than 0.1% S. The gas, pumped through an offshore system, is converted to LNG at the Shell-operated NLNG plant on Bonny Island. The partners in EA are Shell (30%), NNPC (60%), and Total (10%).

Bonga, Shell's massive deep-water field on OPL212, has been on stream since 2005, after almost two years of delay. It can produce 250,000 b/d of oil and 150 MCF/d of gas. Bonga is estimated to contain 700m barrels of oil. Shell is the operator (55%) in this $3.5 bn venture, partnered with ExxonMobil (20%), Agip (12.5%), and Total (12.5%). The field is serviced by a 2m-barrel FPSO vessel. The operator of this is Shell Nigeria Exploration and Production Co. (Snepco). In June 2006, the DPR demanded payment of royalty on Bonga, with the department's head Tony Chukwueke then saying: "The royalty due to the government has to be paid". He said the only revenue the government had received from the field by then was the $30m signature bonus paid when Snepco won Bonga in 1992. It was later said the problem was resolved.

Bonga South-West, found in May 2001 and containing 1 bn barrels of recoverable oil, should be on stream by 2008 at 120,000 b/d and a peak of 150,000 b/d. It will have its FPSO vessel. Part of Bonga South-West extends to Chevron's Aparo oil prospect on OPL213, where the US major in August 2002 completed drilling of the Aparo-2 appraisal to a depth of 3,527 metres under 1,245 metres of water, 5.5 km north of the Aparo-1 well drilled in 2001. Chevron said it had encountered a "substantial" amount of net oil sand and the well had been suspended following a "successful drill stem test", confirming the commercial viability of OPL213. A Chevron executive was in August 2002 quoted as saying: "We will be working jointly with the OML118 operator [Shell] over the next few months to ascertain the optimum development of these resources" - suggesting a joint development. But a Shell spokesman was quoted as responding that, while a "part of the [Bonga South-West] accumulation may extend into OPL213", it would be "premature to comment on whether this had any implications for development".

Shell's other main PSC prospects under deep water include the Bolia field in OPL219, being developed for a 50,000 b/d capacity, and the Doro gas field. Shell's partners in these are ExxonMobil, Agip and Total. The Bolia-1X discovery well, drilled under 1,100 metres of water 110 km offshore, in January 2002 flowed at 6,000 b/d. Doro, under 1,000-1,200 metres of water some 120 km offshore, was found in 1999. Later it was found that Doro extended to Statoil's OPL218, where the Norwegian company had found the Nnwa gas field in 1999. The two are being developed jointly by Shell and Statoil. Statoil's partner in OPL218 is Chevron's affiliate, Texaco Nigeria Outer Shelf Ltd.

Shell is targeting production of 174,000 b/d from dormant wells by 2008. Shell is producing over 110,000 b/d from more than 100 re-entered wells.

In January 2002 a $540m contract was awarded to Shell by the National Electric Power Authority for two major gas-fired projects at the Afam Power plant near Port Harcourt. Under the contracts - to refurbish, operate and transfer (ROT) the Afam I-IV plant and to lease, operate and transfer (LOT) the Afam V plant - Shell in 2002 took over the assets and began operating the Afam power plant for a period of 15 years. The projects were undertaken in conjunction with Eskom Enterprises of South Africa. Eskom is handling the daily running of the plant and has supervised the construction phase.

Shell Nigeria Gas is marketing natural gas in the country. In January 2003 Shell and Nigerian Gas Co. (NGC) connected 30 industrial firms in the Agbara/Ota areas of Ogun state to their system. Five gas utilisation projects needed to cut Shell's flaring will not be complete until 2009, a fact it blames on inadequate NNPC funding of the JV and cost over-runs.