Foreign Participation In The Nigerian Oil and Gas Industry
BACKGROUND
Foreign participation in the Nigerian petroleum industry dates back to the
early 20th century when European authorities recognized oil as the fuel of
the future and encouraged private businesses to undertake aggressive
exploration all over the world. In Britain, specifically, the Royal Navy had
begun its changeover from coal to oil fuel and a British contributor
observed in the monthly journal, The Nineteenth Century, that "there is no
bigger and no more obvious gap in our...Imperial equipment than the paucity
of our supplies of oil." British oil companies, therefore, began exploration
in Trinidad, the East Indies, Burma, Persia and elsewhere.
Although the Persian oil fields were already in production, had vast
reserves, were closer to the surface and therefore required no new
technology, the imperial authorities nevertheless realized that the
involvement necessary to assure Britain secure supplies from that region
might lead to certain political and strategic complications. They therefore
considered that a similar source of oil within the British Empire, if
discovered, would be ideal.
In 1906, a British businessman, John Simon Bergheim convinced the Colonial
Office and the Government of Southern Nigeria that, based on his knowledge
of the region's geology, petroleum existed in Southern Nigeria and that his
company, the Nigeria Bitumen Corporation, could find it. He had already
achieved a monopoly on prospecting rights in Nigeria by buying up all other
drilling licenses.
For the next six years, officials in the Colonial Office protected
Bergheim's monopoly of the prospecting rights, rewrote mining legislation at
his request creating the Southern Nigerian Mining Regulation (Oil Ordinance)
of 1907 and provided the Nigeria Bitumen Corporation with a loan to support
its search for petroleum. By 1912, the Corporation had sunk about 15 wells
in Southern Nigeria, east wards from the Lekki lagoon towards the Niger
Delta, and had already spent 143,000 pounds.
In September that year, however, Bergeim was killed in an automobile
accident and with him died much of the aggressive drive to find oil in
Nigeria. Thus, the first search for oil in Nigeria ended in mid-1913 and was
not resumed seriously for almost 25 years. Shortly after Bergeim's death,
World War 1 set in and oil exploration in the country ceased until
1937, when an Anglo-Dutch consortium, Shell D' Arcy, came to Nigeria and had
the whole country as one concession. Between 1938 and 1939, the company
drilled seven bore-holes for about 16,296 pounds around Owerri without any
success. This second phase of the search for oil in the country was
interrupted by World War II (1939-1945) but by 1951, the company had drilled
its exploration well, called IHUO-1.
A second well soon followed in 1953 called AKATA-1, with just marginal gas.
Between 1953 and 1955, Shell had drilled 13 additional wells. It eventually
struck its first commercial well in 1956 at Oloibiri in present-day Bayelsa
State. That discovery, after an investment of over 30 million naira, proved
the venture commercially viable. Later, in the same year, more oil was found
at Afam in Rivers State. Subsequently, the construction of pipelines from
Oloibiri to Port Harcourt was undertaken to facilitate export. The export of
the first cargo of crude oil took place on 17 February, 1958.
The successes of Shell encouraged other companies to join in the exploration
race. Mobil had been awarded the Sokoto Basin, the Benue Trough and fringes
of the Niger Delta to explore in 1956. After some seismic and field
geological surveys in the Sokoto Basin where it recorded no success, it
withdrew from Sokoto and obtained license to explore in the Dahomey Basin.
Between 1959 and 1961, Mobil had drilled four wells in Dahomey Basin which
were dry and the company pulled out of the area. Meanwhile, in 1959, the
sole concession right over the whole country, earlier granted to Shell, was
reviewed and exploration rights were extended to other foreign companies.
This was in line with the policy of increasing the pace of exploration,
while at the same time ensuring that the country was not too dependent on
one company or nation. Shell thus, relinquished about 50 per cent of its
Niger Delta concession and retained the successful or potentially
successful parts. In April 1960, Tenneco, an American company, arrived in
Nigeria, and was granted a concession along the western coast. This was the
position when, in October 1960, Nigeria gained independence from Britain.
The attainment of independence in 1960 led to intense exploration
activities, as the nation put in place policies that would lead to major
economic and political changes in the oil sector. Firstly, exploration
companies outside Britain and U.S.A. were invited to establish presence and
explore in Nigeria. Oil was also becoming a vital energy fuel, and Nigeria's
production had more than tripled from 5,000 barrels per day in 1958, to
17,000 barrels per day in 1960.
Within the first five years of independence, therefore, no less than nine
international oil companies had become active in Nigeria, namely: Shell-BP,
Mobil, Tenneco, Texaco, Gulf (now Chevron), Safrap (now Elf), Agip, Philip
and Esso. These internationals were soon joined, in the late 1960s, by Japan
Petroleum, Occidental, Deminex, Union Oil, Niger Petroleum and Niger Oil
Resources. The climax of that era was the formation of the Nigerian
National Oil Corporation (NNOC), the predecessor of the Nigerian National
Petroleum Corporation (NNPC), and the admission of Nigeria into OPEC, the
Organization of Petroleum Exporting Countries, in July, 1971.
Oil production had, by this period, moved from 17,000 barrels per day (bpd)
in 1960 to 45,000 bpd in 1966 and later to 1 million barrels per day in
1970, shortly after the civil war. Nigeria's economy became increasingly
dependent on crude oil, on account of revenue accruing thereof, to meet the
challenges of the post-civil war era. The Nigerian government also entered
into joint venture agreements with several multinational oil companies
engaged in oil exploration and production activities in the country.
In January 1986, the government introduced more attractive fiscal terms for
private sector participation in oil and gas development in the country. This
was through a Memorandum of Understanding (MOU) providing a guaranteed
margin of two dollars per barrel to the producing companies in exchange for
certain exploration and enhanced recovery commitments. Five years later, the
government offered new MOU's which provided for much better terms in
recognition of inflation and to encourage foreign partners to continue to
expand their investments. Since then, the investments of the major oil
companies in the country have risen steadily in response to these
incentives. This response has been most evident not only in the oil sector
but also in the vast and continuing expansion of activities in the gas
sector, led by Shell, Mobil and Chevron.
MAJOR MULTINATIONAL OIL COMPANIES ENGAGED IN JOINT-VENTURE OPERATIONS IN
NIGERIA
Shell: Shell, whose forerunner, Shell D'arcy was a pioneer of oil
exploration in the country, is today the leading oil company in Nigeria. The
Federal Government acquired 35 per cent of the company in 1973, forming the
basis of the joint venture operation that persists today, and the company
assumed its present-day name in 1979. Shell has interests in four companies
in Nigeria, namely Shell Petroleum Development Company of Nigeria Ltd.
(SPDC), Shell Nigeria Exploration and Production Company (SNEPCO), Nigeria
LNG Ltd. (NLNG), and National Oil and Chemicals Marketing Pie. Shell
Petroleum Development Company of Nigeria Ltd. (SPDC) is the largest oil and
gas exploration and production company in the country. It is a joint
venture in which NNPC holds 55 per cent, Shell 30 per cent, Elf 10 per cent
and Agip 5 per cent. The present Joint Operating Agreement and Memorandum of
Understanding were last revised in 1991.
Today, SPDC produces almost half the country's oil from more than 90 oil
fields in the Niger Delta area. It also supplies 95 per cent of the
country's commercial gas and its oil mining lease area of 31,000 square
kilometres contains more than half of the country's oil reserves. The scale
of the company's operations is massive, involving an infra structure of
6,200 kilometres of pipelines, more than 1,000 wells, 87 production
stations, eight gas plants and two large oil terminals at Forcados and
Bonny, spread throughout the Niger Delta.
The company is divided into two divisions based in Warri, Delta State, and
Port Harcourt, Rivers State, with a small corporate centre in Lagos. These
divisions operate with a high degree of autonomy and are run in each case by
a general manager who reports to the Managing Director in Lagos. SPDC has
some 4,000 staff, ninety-five per cent of whom are Nigerian. In addition,
the company has another 8,000 contract staff, again mostly Nigerian, and it
is estimated that another 20,000 people are employed by contractors working
for SPDC. Shell has been an active participant in the nation's gas sector.
The company's involvement in utilization of Nigeria's natural gas began in
the early sixties when it initiated a project to supply gas to some
industries in Aba and to the National Electric Power Authority (NEPA), then
known as the Electricity Corporation of Nigeria (ECN), for its Ughelli power
station. Since then, several other major plants have been constructed at
Utorogu and Alakiri to supply quality gas for the manufacture of fertilizer
at Onne and for power generation at Egbin, near Lagos. The company now has a
N10 billion gas sale and purchase agreement with the Nigerian Gas Company
(NGC), under which Shell is to sell 250 million standard cubic feet of gas
per day to NGC over a 20 year period.
In April 1998, the company, on behalf of the NNPC, Shell, Elf, Agip joint
venture, signed a 65 billion dollar contract for the harnessing of gas from
its flares in the Niger Delta, through the Odidi Associated Gas gathering
project. The Odidi project, located 30 kilometres west of Warri, involves
the collection of 80 million standard cubic feet per day (scf/d) assorted
gas currently flared from five flow stations: Odidi-1, Odidi-ll, Egwa I,
Egwa II and Batan. The gas will then be transported via a low pressure
pipeline system to a central processing facility adjoining Odidi-I flow
station where it will be compressed and conditioned to sales specification
before being fed into the Nigerian Gas Company's Escravos-Lagos pipeline
system.
Work on the project commenced in 1996 following approval by the Department
of Petroleum Resources. The Odidi AGG project is scheduled for commissioning
during the fourth quarter of the year 2000. Shell's most significant
involvement in the nation's gas industry, however, is its investment in the
Nigeria Liquefied Natural Gas (NLNG) project in Bonny, Rivers State. The
joint venture partners in the project are NNPC which owns 49 per cent stake;
Shell, the managing partner with 25.6 per cent; Elf, with 15 per cent and
Agip, with 10.4 per cent. Shell's involvement with the project dates back to
1963 when the company teamed up with British Petroleum (BP) in seeking to
establish the first ever LNG plant in Nigeria and indeed all Africa.
That dream, however, was scuttled by commercial oil finds in the North Sea.
It subsequently suffered a number of false starts due to political changes
in Nigeria until it was effectively launched in 1993. A major step in
Shell's contribution to the project was the company's successful
commissioning of its Soku Oil Rim Development (ORD) in July 1998. The ORD,
an extension of the original Soku flow station in the east of the Niger
Delta, had been in production since Shell first discovered hydrocarbons in
the area in the early 1960s.
The new facility will allow nearly 500 million standard cubic feet of
associated gas from the Soku field to be processed and pipe-fed to the NLNG
project, daily. Shell, as the managing partner of the NLNG project, has also
been its driving force. The commencement of shipments overseas from the
Bonny plant in late 1999 not only elevated Nigeria into the elite league of
gas-exporting countries; it has also underscored the growing contributions
of Shell's joint-venture interests in Nigeria's expanding oil and gas
industry.
Mobil: Mobil, another leading actor in the Nigerian oil and gas industry,
traces its history in Nigeria back to 1907, when a predecessor company began
marketing Sunflower brand kerosene in the country. The small company,
beginning on the docks of Lagos, has evolved into the present-day Mobil Oil
Nigeria (MON), with some 400 employees overseeing assets of some $145
million and annual sales of petroleum products of more than six mil lion
barrels a year.
Mobil established its exploration and production presence in the country in
1955 with an exploration effort in northern Nigeria. Although that first
venture was not successful, Mobil continued the search by moving offshore.
In 1961, the company, received its first offshore Oil Prospecting Licenses
(OPLs). It drilled its first wildcat in 1963 and made its first discovery in
1964. Production began in 1970. The initial crude oil production was pumped
into a moored tanker, the Mobil Japan, which served as a floating storage
tank.
The onshore production and storage facilities at the Qua lboe Terminal near
Eket in Akwa lbom State were completed a year later. Over the quarter
century since the production began, Mobil and its joint venture partner,
Nigerian National Petroleum Corporation (NNPC), have produced over two
billion barrels of crude oil and condensate. in Today, Mobil is the second
largest liquid hydrocarbon producer among the multinational oil companies
operating in Nigeria.
A major milestone in the company's participation in the Nigerian petroleum
sector was the commissioning of Mobil's Oso-Natural Gas Liquids (OSO-NGL)
project in Bonny, Rivers State on, 19th November, 1998. The project
actually dates back to November 1992 when the famous Oso Condensate project,
with a field production of about 'at 110,000 barrels per day of condensate,
was completed. Subsequently, studies were conducted on the feasibility of
natural gas recovery project. Initially projected to cost about 855 million
U.S. dollars, the joint venture, in which Nigeria holds 49 percent equity (through NNPC) as against Mobil's 51 percent, actually cost 810
million dollars.
In consonance with the practice worldwide, the NGL is being sold to
dedicated buyers and sales/purchase contracts have been signed with
various buyers, notably in the United States. The first sales shipment left
Nigeria for South America 'et on board the merchant tanker vessel, HELIOS,
on 30 27 August, 1999. A gas marketing subsidiary of Mobil is in charge of
delivery and marketing of the products. Huge revenue is expected to be
raked in from the project both for Mobil and for NNPC which is expected
to earn 3.2 billion dollars over the production period from petroleum tax
and royalties.
Chevron: Chevron Nigeria Limited began its its exploration and production
activities in Nigeria as Gulf Oil Company (Nigeria) in December 1961, when
it obtained its first oil prospecting license from he the Federal
government. The receipt of another in prospecting license in June 1962,
consolidated the company's interest over a concession area measuring 5,000
square kilometres offshore and about 2,500 square kilometers onshore in
the Niger Delta.
To facilitate its operations in the concession area which now straddles both
sides of the Niger Delta, the company established a base at Escravos, near
Warri, in Delta State to coordinate its operations in the west and another
in Port Harcourt, Rivers State, on for the eastern operations.
On 8 December 1963, the company made its ire first discovery, which was also
Nigeria's very first by successful offshore well. Befittingly, the field was
christened 'OKAN,' meaning 'one' in Itsekiri language spoken by the local
people of the nearby onshore area. That discovery marked the beginning of
the enduring relationship between the multinational and the country.
On 1 April, 1965, the company commenced export, shipping Nigeria's first
consignment of off shore crude to the world market. Over the next few years,
the company's exploration and production job's grew with the successive spud
ding and commissioning of the Delta South Oil Field (1969); and the Parable,
Malu, Isan and Abiteye oil fields (1972).
On 1 April, 1973, the Federal Government, through the Nigerian National
Petroleum Corporation (NNPC), initiated a process of participating working
interests in the company's operations by which, through the then Nigerian
National Oil Corporation (NNOC), the Nigerian government, acquired a 35 per
cent stake in the company. By 1979, this stake increased to 60 per cent. In
1984, when Gulf Oil Corporation and Chevron Corporation merged their global
operations, Gulf in Nigeria effectively became a subsidiary of Chevron.
The name change to Chevron Nigeria Limited was effected in July 1991. The
CNL/NNPC joint venture owns OPLS. A landmark development in Chevron's
participation in the Nigerian petroleum industry is the West African Gas
Pipeline (WAGP) project. Under this project, gas is to be pumped from
Nigeria's Escravos area in Delta State to the West African countries of
Benin, Togo and Ghana.
A memorandum of understanding for the project was signed on 11 August, 1999
between the governments of Nigeria, Benin, Togo and Ghana and the consortium
of Chevron, Shell, Nigerian National Petroleum Corporation, Ghana National
Petroleum Corporation, Societe Beninoise de Gaz and Societe Togoleise de
Gaz. The memorandum confirms the consortium as the project developer,
defines the legal framework for its execution and sets the stage for its
commercialization. It also confirms Chevron's status as project manager as
earlier proposed in the joint venture agreement.
According to Chevron Nigeria Limited, which operates the Escravos fields,
the target date for completing the 992km, 18-22 inch diameter offshore
pipeline is 2001 and the first deliveries of gas to Benin, Togo and Ghana
will be made on 1 January, 2002. A study conducted for Chevron by the Dames
& Moore Group of consultants estimates that the project will yield the
following benefits:
(i) Secure investment totaling 1.8 million U.S. dollars into Nigeria and the
other three West African countries;
(ii) Create 10,000-20,000 direct jobs in the sub-region as a result of WAGP
gas being available;
(iii) Reduce gas flaring by 78 million tones in Nigeria and thereby reduce
green house gas emissions in West Africa by as much as 100 million tons over
a 20 ; years period; and
(iv) Save hundreds of thousands of acres of native forests.
On the whole, the WAQP project, under Chevron management, promises to be a
commercial and environmental success and is expected to serve as "prototype
tor the inter-connection of the region, identifying and removing roadblocks
to economic integration" of the West African sub-region.
CONCLUSION
From the above, it can be concluded that foreign participation in Nigerian
oil and gas projects is not only extensive but critical to the success of
the entire enterprise. This is a vivid demonstration of how co-operation
between Multi-national companies and Nigeria can assist the economic
development of the nation.
