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Page added on November 23, 2009

Western oil companies race to seal oil deals in Nigeria

Western oil companies operating in Nigeria are racing to lock up license renewals ahead of legislation that could boost tax and royalty rates.

Amid the negotiating scramble, several big players are expected to recommit to community-development programs and local infrastructure projects. Royal Dutch Shell PLC has even agreed to offer business training to former gun-toting militants in the volatile, oil-rich Niger Delta, following a government-sponsored amnesty here.

A sense of urgency arose among the Western oil majors after the Nigerian government said earlier this year it had received an expression of interest from oil-thirsty China to buy the rights to the expiring licenses. Nigerian officials confirmed in September that China’s state-owned Cnooc Ltd. was interested in more than 20 oil blocks, including nonexpiring blocks currently operated by Western companies.

China’s chances of actually acquiring the leases from the government were never very good. Apart from legal avenues Western companies could pursue to prevent their licenses from being taken and given to the Chinese, Western operators in Nigeria have been pumping oil for years and have longstanding, though sometimes volatile, relations with Abuja.

In more-recent discussions, their worry over Chinese competition seems to have subsided. “That threat appears to have gone away,” said an industry executive familiar with the talks. “It is not being used as a negotiating ploy to get the deals done.”

But oil companies are still eager to get renewal discussions over with and sign deals. That’s because the Nigerian government is considering legislation that would change the scope of new oil-related joint ventures, increasing tax and royalty rates paid by foreign companies.