Shell to finance Nigerian underfunding worth $3.1 billion

Shell Petroleum Development Company (SPDC), Royal Dutch Shell's Nigerian joint venture with the state-owned Nigerian National Petroleum Corporation (NNPC) has signed a $3.1-billion oil financing agreement with the Nigerian oil firm with which it has a joint venture for upstream petroleum exploration. Shell operates onshore and shallow water oilfields in Nigeria through the joint venture with NPPC, which owns a 51-per cent stakein SPDC.

Of the total agreement value, Shell will cover $1.3 billion in shortfall of the Nigerian government's equity contribution in thre exploration projects and the remainder $1.8 billion as a bridge loan amounting to the Nigerian oil company's outstanding share of the joint venture's cash calls for 2006-07.

The signing of such agreements with foreign oil operators to recover the underfunding of the government's share from joint projects with oil giants has been credited to Nigerian president Umaru Yar'Adua who wants to raise funds from foreign oil companies for the years of under recoveries suffered by the government, at a time when crude prices have risen to record levels along with the pace of oil exploration.

After the president won last year's elections, Nigeria announced its plan to obtain a better share from global oil giants holding deepwater production contracts, which in several cases were pegged at prices when the contracts were signed, often dating back to the 1990s when oil prices were below $20 a barrel. Unlike onshore agreements, foreign oil companies were not required to operate through joint venture firms with the government for offshore exploration.

Part of the dispute between Shell and the government is over the Bonga project, which began producing in 2005. According to the NPPC, Shell has already recovered its investment costs on its Bonga deepwater field, for which Shell has estimated the recovery at $3.6 billion. The field is forecast to export 180,000 barrels a day in June.

The Nigerian government had recently signed similar agreement for  recovering $2-billion from ExxonMobil and $1 billion from French energy group Total's Nigerian subsidiary Elf Petroleum Nigeria Ltd - TOT.

The Nigerian government holds a 55-per cent stake through the NNPC - SPDC joint venture in a petroleum exploration consortium comprising SPDC, Elf Petroleum Nigeria and Nigeria Agip oil Co, which hold the remaining stake.

NNPC, which owns a 51-per cent stake in Shell's onshore venture, is only required to share revenue with the other partners for the first $30 a barrel, leaving the state-owned company with $100 for every barrel produced by the joint venture.