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Shell Says Appetite for Nigeria Exploration Waning

Source: Reuters 2/21/2012, Location: Africa

Attacks on oil pipelines, a dearth of funding from the state oil firm and regulatory uncertainty have dampened appetite for exploration of Nigeria's huge oil and gas reserves, its biggest producer Royal Dutch Shell said on Tuesday. In a speech to an oil and gas conference in the capital Abuja, Ian Craig, Shell's director for sub-Saharan Africa, said Nigeria could produce 4 million barrels of oil per day (bpd) but that big changes would be needed for this to happen.

"We still face major challenges (there is) chronic underfunding of the onshore joint ventures where NNPC (the national oil company) is the majority shareholder," Craig told the conference. "The greatest challenge, however, is the massive organised oil theft business and the criminality and corruption which it fosters. This drives away talent increases costs, reduces revenues both for investors and the government and results in major environmental impacts," he added.

Nigeria currently produces around 2.5 million bpd of combined crude oil and condensate, and this will soon increase by 180,000 bpd, Oil Minister Diezani Allison-Madueke said in a speech. Craig said loss of oil to theft in Nigeria was currently in the region of around 150,000 barrels per day. Thieves in the oil-rich Niger Delta use explosives or even just hacksaws to cut open pipelines and siphon out oil, a practice known as bunkering that hurts production and is thought to be part of a large international criminal enterprise.

Since an amnesty for militants in 2009, attacks on oil facilities have become much less frequent and less destructive, but bunkering operations remain a costly headache. Regulatory uncertainty, meanwhile, will be cleared up only by the Petroleum Industry Bill, which aims to change everything from fiscal terms to an overhaul of the state oil company but which has been stuck in the National Assembly for years. It shows no sign of being passed soon. President Goodluck Jonathan told Reuters in an interview last month he expected a final version to be submitted to parliament by the end of this month, but nothing has surfaced yet.

"The challenges I have described in the onshore, shallow water and gas sectors have held back development and have unfortunately led to a reduced appetite for exploration," Craig said. The output rise in Angola had proven that Nigeria's oil development is well below potential, he said.

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