Shell and Nigeria: What drives the tensions in a difficult marriage

“Marriage,” said George Bernard Shaw, “is an alliance entered into by a man who can’t sleep with the window shut, and a woman who can’t sleep with the window open.”

So it often seems with Nigeria and Royal Dutch Shell, whose relationship began in earnest in the swamps around the mouths of the River Niger in 1956.

After Shell struck the first commercially viable oil in Nigeria, the country went on to become a profit bonanza for the Anglo-Dutch group. Nigeria has risen to be sub-Saharan Africa’s biggest energy producer, generating 80 per cent of government revenue from petroleum.

Yet so fraught is the union that rumours of imminent divorce follow it almost as closely as they do Premier League footballers.

This week, the tensions boiled over into an ugly public spat at an oil conference in Abuja, Nigeria’s sweltering capital.

Ann Pickard, whose four-and-a-half year tenure as Shell’s swashbuckling Africa boss ends in March, used a valedictory speech to put the boot in.

Proposals to impose tougher terms on oil companies as part of sweeping reforms designed to reverse the Nigerian energy industry’s stagnation would be ruinous, she warned. At blame for the malaise, she went on, was “a failure to recognise that we all benefit from taking a fair share of a growing industry rather than an excessive share of a declining one.”

A day later, Pedro van Meurs, a jovial Dutch consultant to the government who is a key player in shaping the proposed legislation, was dispatched to the conference to set the record straight. The new terms would still be highly competitive, he said, compared with other regimes such as Angola’s. Ms Pickard had predicted that its ambitious southern rival would leave Nigeria in its wake as planned investments worth $50bn were rendered unviable.

There is brinkmanship on both sides. Naturally, oil companies do not like paying higher taxes and royalties. The dire warnings from Shell, Chevron and ExxonMobil reflect concern for the bottom line as well as genuine fears that some parts of the gargantuan bill before parliament are unworkable.

The government, meanwhile, notes that the groups received fantastically generous terms in return for high-risk deepwater investments in the 1990s, which followed decades of pumping prime crude from the Niger delta. One senior foreign official says the terms were always going to be revised and suggests the oil companies are indulging in unhelpful hyperbole when they predict the death of the industry.

Underpinning the animosity is a longstanding sense among Nigerians that foreign oil groups have not been paying their fair share. The oil groups, by contrast, complain that their partner in local joint ventures – the stricken Nigerian National Petroleum Corporation – perennially struggles to fund its share of spending.

Yet for all the bluster, none of the oil groups that have withstood years of pipeline bombings and kidnappings in the restive delta appears to be heading for the exit.

Peter Voser, Shell’s new chief executive, may have said that “we no longer depend on [Nigeria] for our growth aspirations” but Ms Pickard was unequivocal: “Take it from me, Shell has no plans to pull out of Nigeria.”

Mark Ward, Exxon’s Nigeria chief and another fierce critic of the reforms, acknowledged that the world’s biggest listed oil group remained “bullish” about Nigeria. (Well it might, having just paid as much as $600m to renew some of its leases).

Indeed, the long-dominant western groups find themselves challenged by new rivals. Young Nigerian oil companies are hungrily expanding. An audacious offer last year from Cnooc of China to buy one-sixth of Nigeria’s 36bn barrels of reserves for as much as $50bn followed the $7.2bn takeover of Addax, an independent with Nigerian assets, by its compatriots Sinopec.

For the government, the new suitors strengthen its hand in negotiations over the reforms.

But with Shell, emotions run deep. In June it agreed a $15.5m settlement with the families of Ken Saro-Wiwa, an activist hanged in 1995 by the then military government after leading mass protests against environmental damage in the delta that forced Shell to cease part of its production. The settlement, in which Shell and its Nigerian subsidiary denied any liability, stemmed from allegations that it had been complicit in the executions.

“Given Shell’s messy record in Nigeria over the years, this looks a bit like the pot condemning the actions of the kettle,” Diarmid O’Sullivan of the campaign group Global Witness says of the latest criticisms.

It may be that the union will one day be put asunder. But it appears more likely, given the momentum behind the new legislation, that Shell and Nigeria will be forced into an even tighter bond, however uncomfortable.

The bill aims to transform the NNPC from a font of patronage to a lean Nigerian equivalent of Malaysia’s Petronas or Brazil’s Petrobras. The loose joint ventures with the foreign groups would then be incorporated, in theory allowing them to tap international capital markets to fund a surge of investment.

Those incorporated joint ventures are perhaps the most contentious part of reforms, with oil companies reluctant to get still further into bed with the NNPC unless it is thoroughly overhauled.

Yet oil is selling for $80 a barrel. Nigeria has plenty of it left. As Ms Pickard said: “It’s like a marriage: you work it out.”

Related links:

Being rich in resources really is a curse (FT Energy Source)
The struggle behind Nigeria’s oil production (FT Energy Source)

Energy Source is no longer updated but it remains open as an archive.

Insight into the financial, economic and policy aspects of energy and the environment.

Read our farewell note

About the blog

Archive

« Jan Mar »February 2010
M T W T F S S
1234567
891011121314
15161718192021
22232425262728