OilVoice - Petroleum Bill Forcing Majors to Hedge Against Regulatory Risk in Nigeria

Petroleum Bill Forcing Majors to Hedge Against Regulatory Risk in Nigeria

Wednesday, March 03, 2010

Italy's Eni is set to double its investment in Nigeria against the backdrop of concerns about proposed regulatory changes in the country. Despite frequent pledges to launch new projects in the Africa's most populated nation, most overseas oil firms are not inking any agreements until the fate of the controversial Petroleum Industry Bill becomes clear.

Oil major Eni's commitment to Nigeria was reaffirmed by Claudio Descalzi, its director of upstream division, during a working visit to the Nigerian National Petroleum Corporation (NNPC) last month. The largest project in Eni's Nigerian pipeline is the much-delayed Brass liquefied natural gas (LNG) plant, on which a final investment decision is expected to be made later this year. Descalzi commented that the firm was 'ready to start work and we will be part of the financing of the project'.

At present, Eni operates the Brass LNG project in partnership with peers ConocoPhillips and Total, with each major holding a 17% stake. The remaining 49% is held by NNPC. The investment decision on the $10 billion project was initially due to be made as long ago as December 2006 but progress has stalled owing to unrest in the Niger Delta, feedstock shortages and, most recently, the poor outlook for the Atlantic Basin LNG trade.

Given the above ground risks to Niger Delta operations, overseas firms will most likely have to head far offshore to secure additional gas for Brass. The prohibitive fiscal implications of the petroleum bill, however, will undermine the economic feasibility of Nigerian deepwater projects, international oil firms have protested. Under the current provisions of the new law, which is at present under debate in the national assembly, the government is set to raise tax and royalty rates on oil production. This will in turn increase project financing oversight and tighten rules on the renewal and cancellation of permit contracts.

The petroleum bill is being staunchly opposed by the Western operators in Nigeria. While Descalzi has been touting Eni's ongoing commitment to Nigeria by emphasising the launch of the mid-sized offshore Oye oil field in December of last year, the firm has in fact has reduced stakes in some of its licences in recent months, perhaps to hedge regulatory risks.