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Shell to lend Nigeria $3bn

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By Ed Crooks, Energy Editor

Published: February 20 2009 18:49 | Last updated: February 20 2009 18:49

Royal Dutch Shell plans to lend Nigeria more than $3bn to sustain oil production and investment threatened by the lack of government funding.

The unusual move reflects Shell’s reliance on Nigeria, its largest source of oil and gas after the US. In 2007 Nigeria provided more than a 10th of Shell’s global production of about 3.3m barrels of oil equivalent per day.

Shell, which is Europe’s biggest oil company and has low gearing, will use its financial strength to support Nigeria, which has some of the world’s largest oil and gas reserves but is short of capital.

Nigeria’s oil industry has been hit not only by militant attacks that flared up in the Niger Delta in 2006, but also by shortage of investment finance from the Nigerian government.

Shell and other western oil groups work in the country in partnerships with NNPC, Nigeria’s national oil company, which has majority stakes of 55-60 per cent.

The government’s strained finances have prevented its meeting its share of the funding requirements, restricting investment. The lack of funds has hampered the development of Nigeria’s resources.

It has also meant that Shell has failed to meet its target to end routine flaring – burning off surplus gas – by the end of 2008. It has cut flaring in half, but needs a further $3bn of investment to stop it altogether.

To attract fresh capital, the Nigerian government plans to restructure the industry into joint ventures, possibly with NNPC reduced to a minority shareholding, which can raise funds on world markets. Those new joint ventures are unlikely to be set up until next year, however, threatening the industry with another year starved of capital.

To fill that gap, Shell is offering Nigeria $3.1bn in bridging loans at very low interest rates and project finance. $1.1bn of the loan has already been agreed, and the remaining $2bn is expected to be confirmed soon.

Militant attacks have cut Nigeria’s oil production by about 500,000 barrels per day, according to Jeroen van der Veer, Shell’s chief executive.

Nigeria’s total production was estimated at about 1.9m b/d last month. 

Shell’s share of that lost production has remained steady at about 180,000 b/d since the violence in the Delta flared up in 2006, but it has not always been the same fields affected.

Shell has been making progress in restoring production in the west of the Delta, around the Forcados oil terminal, but the volumes flowing through the Bonny terminal in the eastern Delta have been cut sharply.

A raid on Shell’s Bonga offshore oil facility last June raised fears that the threat from militant groups was growing. Bonga is 75 miles offshore, and deep-water facilities have previously been safe from attack.

Yet industry executives say they do not believe the level of violence against oil companies has escalated.

EDITOR’S CHOICE

In depth: Oil – Feb-03

Shake-up in pipeline as Shell chief eyes costs – Nov-19

Copyright The Financial Times Limited 2009

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