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NIGERIA - Shell - Ron van der Berg.

The Shell-led group is by far the biggest among the JVs in Nigeria, accounting for about half of the country's oil production capacity. It is the biggest gas supplier to industry and the power sector. The group consists of: Shell Petroleum Development Co. (SPDC), holding 30% and acting as operator; NNPC, holding 55% (reduced from 60% when the cash-starved state company was compelled to cede 5% as it could not pay its full share in funding the group's development plan); Total, holding 10% (raised from 5% out of NNPC's 60%); and Agip, holding 5%. Total and Agip are also among the main oil operators in Nigeria and are partners in the Shell-led LNG venture, the biggest project in this country (see Gas Market Trends No. 7). Shell D'Arcy was the first major to pioneer Nigeria from 1936 and to put it on the world's petroleum map in 1958.

Ron van der Berg is the current chairman/CEO of SPDC and is most influential among the foreign executives in Nigeria. He was appointed to this position in late May 1997 to succeed Brian Anderson, who became chairman of Shell operations in Greater China. Until then, Van der Berg used to be the CEO of Shell's operations in Brunei. A Dutchman having joined Shell in the 1960s, Van der Berg has many capabilities and has been assigned to exceptionally difficult Shell missions.

Like his predecessor Anderson, Van der Berg acts as a "spokesman" for the CEOs of the other foreign oil companies operating in Nigeria during crises with the government. Some of the crises are caused by NNPC's failure to pay its share of capital obligations towards their capacity expansions and new exploration work.

Van der Berg has reduced SPDC's permanent staff in Nigeria from 5,100 in mid-1997 to a little over 4,400, because of a decline in operations caused by NNPC's payment failures and reduced budgets. But the company also has about 9,000 contract workers, reduced from over 10,000 in early 1999 because of violence in its areas of operations. SPDC's corporate HQ has been moved from Lagos to Abuja, the federal capital, where Van der Berg is in constant contact with President Obasanjo's aides like Lukman (see OMT). To protect his staff - some of the fields are located in areas long neglected by the government, so the communities are often hostile - Shell employs about 2,500 security men at the cost of $18-20m/year.

One constant challenge for Van der Berg is to lower operating costs. The same goes for his British colleague Andrew Jamieson who has succeeded Steven Ollereanshaw as the CEO of Nigeria LNG. Ollereanshaw retired in late 1999. Although hydrocarbon production costs up to loading at terminals in Nigeria are generally low by non-OPEC standards, though high by Persian Gulf standards, costs for oil produced in SPDC's large onshore fields are now below $3/b, compared to about $3.50/b in mid-1995. The average oil production cost in Nigeria is about $4/b (up to the loading terminals). Costs for offshore oil exceed $4/b, while the costs in ExxonMobil's offshore operations are less than $3.50/b. In some fields in Nigeria the cost is over $5/b, as in the case of a major part of Chevron's offshore production. But for companies to maintain oil production levels, they have to keep exploring as the size of most fields is small.

SPDC is committed, on behalf of the group, to raise its oil production capacity by 500,000 b/d to 1.6m b/d by 2010, compared with targets first set in late 1991 of 1.3m b/d for 1996 and over 1.8m b/d for 2008. The current target was announced in February 1999 by Van der Berg who then unveiled an $8.5 bn ten-year plan for Nigeria. The money is being invested in 12 projects, onshore and offshore, including an expansion of the LNG venture which began exports in October 1999 (see Gas Market Trends No. 7). In January 2002, Shell and its JV partners announced a three-year plan to invest another $7.5 bn in this country's petroleum industry. A big part of this is going new phases of the Shell-led Nigeria Liquefied Natural Gas (NLNG) project, the biggest energy investment in Sub-Saharan Africa. Shell's share of the new investment was $2.4 bn.

This and the 1999 plan depend on NNPC funding its share of the investment, with Shell, Total and Agip sharing the rest. SPDC is committed to develop large non-associated gas fields, as well as cut the rate of flaring of its associated gas, again on condition that NNPC pays its share of the funding on time (see background in Vol. 57, Gas Market Trends No. 8).

In early 2003, however, Shell indicated that it will not be able to end gas flaring in its operations by the 2008 deadline, because of delays in funding for projects by NNPC in recent years.

NNPC funding has been a major problem for Van der Berg and the other foreign CEOs. As NNPC failed to pay its share of funding for a $6.5 bn investment plan launched in 1992 by the group, based on a July 1991 MoU with the state, SPDC and other foreign operators stopped exploring for oil and delayed most development projects. As a result, SPDC's capacity was reduced from nearly 1m b/d in 1991 to about 900,000 b/d in 1995. At the time, Van der Berg's predecessor Anderson had to resort to a carrot diplomacy as well as be firm with the then military dictatorship. Now, the JV's oil production capacity is 1.1m b/d.

Van der Berg has been pursuing a proposal, made in 1996 by then finance minister Anthony Ani (one of the key aides to then military dictator Abacha), that the oil producing JVs be converted into production sharing agreements (PSAs). In a PSA NNPC is relieved of a heavy funding burden and the foreign operator covers all the exploration and development costs. But NNPC's top management is still resisting such a change.

Like his predecessor, Van der Berg has spearheaded a multi-faceted drive to resolve numerous communal problems in the oil-rich areas, and SPDC has embarked on a programme to improve the environment in the Niger Delta which has become a model for the other JVs to follow. Some of the JV's fields have been attacked since the 1960s by the local communities.

These communities get little economic benefit from the oil produced in their territory but are affected by pollution which they claim to be caused by the oil companies. An example is the case of the Delta's Ogonis, one of 250 ethnic groups in Nigeria, whose oil-rich Ogoniland has been affected. The Ogonis accused Shell of collusion with Gen. Abacha's junta in the execution in November 1995 of Ken Saro-Wiwa, a leader of the 550,000-strong community who campaigned against Shell's operations. SPDC then said 60% of the oil spills in Ogoniland had been the direct result of sabotage made to claim compensation.

Mrs. Ineka Van der Berg, the wife of the Shell CEO, is active among the spouses of foreign oilmen in Nigeria. She and Mrs. Bernadette Van de Vijver, whose husband is a member of Shell's MD committee in Hollad, in early 2003 committed the company's support for a plan to boost tourism in the Federal Capital Territory.

Steve Ratcliffe: Shell's director for new business, gas and planning in Lagos, told Petroleum Argus in an interview published on Aug.4, 2003: "The industry supports the government's efforts to persuade OPEC to increase its (oil production) quota and to recognise that high unit costs in Nigeria's deepwaters are not typical of anywhere else in OPEC. There are high development costs in Nigeria and it is costly to switch such developments on and off. There are precedents in OPEC for taking oil and gas assets into consideration that do not fall into the low unit cost production category.

"The key thing is investment decisions that we have to take in 2004, and we don't know what the situation will look like then. The government is realising that if the quota situation does not improve, it will be hard for people to take investment decisions. But we continue to develop our upstream projects".

Andrew Jamieson: A capable executive like his predecessor Ollereanshaw, Jamieson is the CEO of Nigeria LNG (NLNG). He is one of Shell's heavyweights.

Jamieson has warned that the emergence of several LNG ventures in Nigeria and other West African countries could threaten his project to expand NLNG's complex from three to six trains. But Shell is promoting a floating LNG venture in Nigeria in a JV with Statoil (see Gas Market Trends No. 7).

Jemieson's predecessor Ollereanshaw faced an extremely difficult situation as he took over in early March 1997, because then oil minister Dan Etete intervened in Italy without prior agreement with NLNG's board to solve a dispute with Enel over LNG purchases. The crisis took a dangerous turn after Etete withdrew the NNPC directors from NLNG's board and in July 1997 gave the partners an ultimatum. Van der Berg and other Shell heavyweights, including Theo Oerlemans, rushed to help Ollereanshaw in dealing with the problem. To repeated verbal attacks by Etete, the response of Ollereanshaw and his senior colleagues was "the less said the better". The problem was solved in a new 22-year accord signed on Dec. 31, 1997, with NLNG to deliver 3.5 BCM/y of LNG to the Gaz de France terminal of Montoir and GdF to give Enel an equal volume of Algerian and Russian gas by pipeline from France to Italy.

(Oerlemans became chairman and CEO of NLNG in late 1993 to help get the project off the ground. Until then he was head of Shell's gas businesses in South-East Asia, Australasia and the CIS, including the giant oil/LNG venture on Russia's Far Eastern island of Sakhalin).
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Publication:APS Review Gas Market Trends
Date:Aug 25, 2003
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