ThisDayOnline: Nigerian Federal Government, Shell Disagree Over Oil Reserve

By Mike Oduniyi
6 April 04

The Federal Government and Shell Petroleum Development Company (SPDC) are heading on collision course over the actual volume of crude oil reserves the oil company slashed from Nigeria's hydrocarbon reserve claims.

While the Nigerian government said the recategorisation of oil and gas reserves carried out by Shell last January reduced Nigeria's oil reserves by 1.9 billion barrels, Shell said the reduction was by 1.3 billion barrels.

Also, hopes of raising the nation's oil production capacity substantially this year through the Bonga deep offshore field operated by Shell, has been dashed as the oil company said the start up of the $2.5 billion field has been pushed to next year.

The Special Adviser on Energy, Dr. Edmund Daukoru said Shell's energy reserve downgrade meant that Nigeria's total reserves were down by six percent, "which is considered to be within the margin of error."

Daukoru in the first official reaction to the crisis rocking Shell since the reserves recategorisation issue broke out, said Nigeria's oil reserves have consequently fallen from 33 billion barrels to about 31 billion barrels.

Shell officials, however, said yesterday the company's reserves in the country was slashed by equivalent of 1.3 billion barrels of oil and that the figure had already been made known to the Federal Government.

Shell is Nigeria's biggest oil and gas producer, accounting for more than 50 percent of the country's daily output of 2.3 million barrels.

Last January, the company shocked the global oil industry when it announced that it had cut its oil reserves claims by 20 percent or 3.9 billion barrels. It further reduced the claims by 250 million barrels, citing Nigeria as one of its operating areas affected most by the exercise.

Sources in the company told THISDAY yesterday that the planned job cut (up to about 20 percent of the 5,000 workforce) by the management was not unconnected with the reserve downgrade.

"The company might have recruited based on the volume of oil that will be produced. The objective now may be to maintain the workforce needed to produce the reduced oil reserves," a source said.

Nigerian oil industry regulators have however, before now maintained a silence on the matter. According to senior officials of the Nigerian National Petroleum Corporation (NNPC), the downgrade was as a result of the classification used by the US Security and Exchange Commission to assess Shell's proven reserves.

Nigeria's oil reserves, according to the officials, are calculated based on what is known as P1 plus P2, where P1 is when the oil reserves in a well is 90 percent proven to be in place and P2, 50 percent proven.

"US regulations only accept P1 as the true reserve claims of oil companies," said a senior NNPC official.

Nigeria has been forging ahead to build oil reserves and production capacity to back its demand for higher quota from the Organization of Petroleum Exporting Countries (OPEC).

Figures from the Department of Petroleum Resources (DPR) put Nigeria's reserves at 34 billion barrels as at end of 2003 and production capacity at 2.6 million bpd.

However, hopes of adding another 250,000 bpd of oil to Nigeria's growing capacity this year from Shell's Bonga deep offshore, suffered a set back as the company said the field would not be put on stream this year as earlier planned.

The Bonga field located in Oil Mining Licence (OML) 118 with reserves of more than one billion barrels, was initially billed to commence production last month.

Officials of the Shell Nigeria Exploration and Production Company (SNEPCO) said the shift in production schedule was due largely to the delay in the delivery of the Floating Production, storage and Offloading (FPSO) vessel which was handled by a UK firm, AMEC.