For some time now, oil giants, such as Shell, Total, ENI and Chevron, have been complaining about the difficulties of working in the Niger Delta, but as the Associated Press reports, they are sinking more money into the country
Nigeria is something of a trouble spot for the oil industry. Though Africa’s largest oil producer, blessed with ample hydrocarbon resources and a large infrastructure network, security problems in the country’s oil-rich Niger Delta plague companies operating in the region, causing frequent supply disruptions.
The earnings reports of Europe’s oil majors this quarter were littered with references to the difficult operating environment in the country and the impact oil theft and sabotage has had on companies’ production.
However, a quick run-down of the figures suggest things aren’t actually that bad.
Italian oil major Eni SPA lost just 30,000 barrels a day of oil equivalent in the first half of the year as a result of oil theft and flooding in Nigeria, that’s equivalent to 2% of the company’s overall production in the period. France’s Total SA said increased incidences of theft and sabotage in Nigeria had offset an increase in production as a result of better security in Yemen in the second quarter of the year, but at the same time, the restart of the country’s Ibewa field helped boost output by 2%.
Even Royal Dutch Shell Plc, which said it lost 100,000 barrels of oil equivalent a day in the second quarter due to the deteriorating security situation in Nigeria, only took a $250 million hit to its earnings as a result of the disruptions. That’s peanuts when compared with the $2 billion write-down it took on the value of its shale assets in North America.
Royal Dutch Shell posted a drop in its 2013 second quarter profit to $4.6bn, compared to $6bn in the same period of 2012, primarily due to oil thefts and gas supply disruptions in Nigeria and the weak Australian dollar.
Shell CEO, Peter Voser, said oil theft and disruptions to gas supplies in Nigeria are causing widespread environmental damage, and could cost the Nigerian Government $12bn in lost revenues per year.
“Higher costs, exploration charges, adverse currency exchange rate effects and challenges in Nigeria have hit our bottom line. These results were undermined by a number of factors – but they were clearly disappointing for Shell,” Voser added.
In June, the company said it was considering the further sale of assets in the eastern Niger Delta, where it has security problems.
“On a current cost of supplies (CCS) basis, the company’s earnings were $2.4bn for the second quarter of 2013.”
Voser further said Shell could not solve its problems in Nigeria by itself and needs the support of the government.
The company recently launched strategic portfolio reviews in both Nigeria onshore and North America resources plays.
Cash flow from operating activities for the quarter was $12.4bn, compared with $13.3bn in the same quarter of 2012, while capital investment for the second quarter of 2013 was $11.3bn.
The company has completed divestments worth $21bn in the last three years and some $4bn in the last year alone.
Meanwhile, even as companies loudly publicise the difficulties of operating in Nigeria, they’re sinking more money into the country.
In June, Total said it had got final approval to develop Egina, an oil field in deep water offshore Nigeria that the company predicts will produce 200,000 barrels a day.
Shell, which has sold off several of its assets onshore Nigeria in recent years, has also made fresh commitments to the country. The company’s planning on spending $1.5 billion to build a new and more secure loopline for a major pipeline in the Niger Delta and a further $2.4 billion on five new gas projects in the country. It has also expressed interest in buying several oil licenses Chevron Corporation has put up for sale.
So despite the various difficulties, the European oil majors aren’t jumping ship. But they are looking to move their money into assets less easily targeted by oil thieves and saboteurs.
Information from the Associated Press was used in this report.