Cablegate: Nigeria: Exxon Official Highlights Threats And

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E.O. 12958: N/A
TAGS: ECON PGOV SOCI NI
SUBJECT: NIGERIA: Exxon Official Highlights Threats and
Opportunities

1. (U) Summary: An Exxon Mobil Official confirmed that 500,000 -
600,000 barrels per day (bpd) of oil is currently shut-in in the
Niger Delta. The cost of rig renting has risen from USD 40,000 -
50,000 to approximately USD 200,000 per day, while a Niger Delta
security premium of 10 - 40 percent has increased exploration costs
in the region. GON investment in the industry, USD 4 billion per
year, is low and stifling output growth. The Exxon Mobil official
recommended the Nigerian National Petroleum Corporation (NNPC) raise
bonds to finance its portion of the joint venture agreements with
oil majors. End summary.

2. (U) On August 7, 2007, the Lagos Business School held its monthly
breakfast meeting for business executives. This month's meeting
focused on the Niger Delta. Cyril Ordu, Director, Upstream Business
Services, Exxon Mobil Nigeria, spoke on challenges and opportunities
in the oil and gas industry.

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500,000 bpd Shut-in in the Delta
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3. (U) On August 7, Ordu speculated that Nigeria's hope of producing
4 million barrels per day (bpd) of oil by 2010 was fading.
Approximately 500,000 to 600,000 bpd of crude oil are shut-in due to
unrest in the Niger Delta.

4. (U) Unrest in the region has created a vicious cycle in the
industry, he said, which has contributed to high production costs as
well as high world oil prices. For example, while rig rentals used
to average between USD 40,000 - 50,000 per day, they are now as high
as USD 200,000 per day. Additionally, companies now pay a Niger
Delta "security premium," which costs between 10 - 40 percent of
their exploration costs. Ordu said these cost increases have stalled
two liquefied natural gas (LNG) projects.

5. (U) He said the industry, without success, had implored the Niger
Delta Development Commission (NDDC) to spend at least 60 percent of
international oil company contributions in oil-producing
communities. Currently, Exxon spends an average of USD 10 million
(naira 1.3 billion) on its host communities and contributes USD 38
million (naira 5 billion) annually to the NDDC.

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GON Must Invest USD 7 billion Annually for Growth
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6. (U) Ordu berated the Government of Nigeria (GON) for not
investing in the industry, even though it sets targets to increase
overall output. In 2006, the GON received USD 60 billion from the
industry, only USD 4 billion of which was re-invested. (Note: This
is the same amount the GON has been investing over the last few
years. End Note.) If the GON does not increase its investments in
this industry, growth would not be achieved, Ordu warned. He
speculated that the GON would need to invest USD 7 billion annually
in order to increase output.

7. (U) Ordu suggested the Nigerian National Petroleum Corporation
(NNPC) could raise bonds to finance its portion of the joint venture
agreements with oil majors.

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2008 Flare-out Deadline Unlikely
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8. (U) While the industry may not be able to meet the 2008 flare-out
deadline, Ordu speculated a lot has been achieved in gas
utilization. However, these efforts are undermined by the lack of a
national gas grid. Most gas plants and recently commissioned power
plants are not connected to gas supply sources, rendering them
useless.

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Downstream: NNPC Should Partner Foreign Refineries
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9. (U) On the downstream sub-sector, privatizing refineries would
not solve the energy shortage in the short term, he said. Importing
petroleum products is the only solution, for now, as repairing old
refineries and building new ones would take two to three years.
However, concessioning and revamping infrastructure at Atlas Cove,
where imported products are received, would make product
distribution more efficient. He further commented that products
should be imported through Port Harcourt to reduce the 6,000 plus
trucks that transport products from Lagos to other parts of the
country.

10. (U) Ordu commented the NNPC could invest in or buy refineries

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abroad in the short term. The NNPC could also enter joint ventures
or begin crude swaps with foreign refineries, depending on the
length of time needed for local refineries to be repaired or built.

11. (U) Comment. With new appointees at the helm of Nigeria's oil
industry, ideas like those proposed by Ordu may highlight innovative
ways forward. End Comment.

McConnell

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