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Cablegate: Oil Advisor Says Nigeria Is No Venezuela

VZCZCXRO4352
PP RUEHMA RUEHPA
DE RUEHOS #0717 3041438
ZNR UUUUU ZZH
P 311438Z OCT 07
FM AMCONSUL LAGOS
TO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 9322
RUEHC/SECSTATE WASHDC PRIORITY 9553
INFO RUFOADA/JAC MOLESWORTH AFB UK
RUEKJCS/SECDEF WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAIIA/CIA WASHINGTON DC
RHEFDIA/DIA WASHINGTON DC

UNCLAS LAGOS 000717

SIPDIS

SENSITIVE
SIPDIS

DOE FOR GPERSON, CGAY

E.O. 12958: N/A
TAGS: EPET ENRG PGOV NI
SUBJECT: OIL ADVISOR SAYS NIGERIA IS NO VENEZUELA

1. (SBU) Summary. The Nigerian president's special advisor
on petroleum said that recent press reports on petroleum
contract renegotiations were overblown and Nigeria was "no
Venezuela." He clarified that the older oil production
contracts were past due to be reworked, but the process will
take some time and they will not all be done at once. These
contract reviews are likely connected to plans to reform the
Nigerian oil and gas sector. End Summary.

2. (SBU) In a meeting with Econoffs, the Special Advisor to
the President on Petroleum Matters, Dr. O. Emmanuel Egbogah
said that recent international and local press stories that
Nigeria was renegotiating all its oil contracts were
overheated. (Note: During a recent press conference, another
presidential advisor, Rilwanu Lukman, told reporters that
Nigeria would renegotiate its oil production contracts with
the international oil companies (IOCs). That led to much
press speculation about the scope of the renegotiations. End
Note). Egbogah took pains to point out that Nigeria was not
going to attempt to replicate what happened in Venezuela.
According to Egbogah, only the joint venture contracts with
the IOCs would be reviewed. Most of these contracts are with
Shell and Chevron and cover onshore and some shallow offshore
oil fields. Some of the contracts date back twenty years and,
although their terms permit periodic renegotiation, few have
ever been updated. Deeper offshore oil fields use more
modern production sharing contracts (PSCs) which will not be
renegotiated at this time. Egbogah said that the PSCs were
"working okay."

3. (SBU) According to Egbogah, as part of the renegotiations,
Nigeria will likely seek to change the structure of the
contracts from unincorporated joint ventures to incorporated
joint ventures. Incorporating the joint ventures, Egbogah
claims, would permit the partners to seek funding from third
parties and end the cash calls that Nigeria has been unable
or unwilling to meet. Egbogah acknowledged that Nigeria is
currently about 5 billion USD in arrears in cash call
payments. Contracts will be reviewed on a rolling basis, not
all at once, and the process is likely to take months, if not
longer. Egbogah told Econoffs that plans for renegotiating
the contracts were made in consultation with the oil
companies and he routinely meets with the IOC managing
directors to discuss the issue. He said the push to
renegotiate is part of larger plans to restructure the
Nigerian National Petroleum Corporation (NNPC).

4. (U) Egbogah has a significant international petroleum
resume. He did his undergraduate studies in Moscow in the
1960's and earned his PhD in petroleum engineering from
Imperial College in London in 1979. Egbogah is the chairman
of several small international energy companies and worked
for the Malaysian state oil company PETRONAS as a technical
advisor in the 1990's. He has also worked for oil companies
in Libya and Canada.

5. (SBU) Comment: Egbogah's comments are reassuring in light
of the uncertainty that followed Lukman's press conference.
Such public comments need to been seen in the context of a
future restructuring of the NNPC. Both reflect the Nigerian
government's desire to end the burden of cash call payments
to the joint ventures. The IOCs routinely cite Nigeria's
failure to meet its funding obligations as a serious
impediment to expansion of the oil and gas sector. An
incorporated joint venture structure may be an acceptable
solution for all parties. End Comment.
HUTCHINSON

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