SENATOR SEES OIL COMPANY MALFEASANCE, PROMISES

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000647 SIPDIS SIPDIS DOE FOR GPERSON, CGAY E.O. 12958: DECL: 09/24/2017 TAGS: EPET ENRG PGOV NI SUBJECT: SENATOR SEES OIL COMPANY MALFEASANCE, PROMISES QUICK ACTION ON LOCAL CONTENT BILL REF: A) 05 LAGOS 01917 B) LAGOS 00073 Classified By: Acting Consul General Donald McConnell for reasons 1.4 ( B) and (D) ¶1. (C) Summary: The Chairman of the Nigerian Senate's Upstream Petroleum Committee said Chevron had grossly inflated the cost of building its Escravos gas to liquids (GTL) plant. He accused Shell of the same in the construction of its Bonga offshore facility and said Nigeria should use Shell's initial estimates instead actual costs as a basis for cost recovery calculations. The Senator promised to share the results an investigation into the corruption surrounding cash call funds and asked for information and financial help in other ongoing congressional investigations. He believes the Nigerian Content Development Act should be passed by the National Assembly within the next two months. End Summary. -------------- --- Senator: IOCs Inflate Costs at Nigeria's Expense -------------- --- ¶2. (SBU) During a round of introductory meetings with Nigerian legislators from congressional committees concerned with oil and gas legislation, Econoffs met with Senator Lee Maeba, Chairman of the Nigerian Senate Committee on Petroleum Resources Upstream. Senator Maeba is a second term legislator from the volatile Rivers State in the Niger Delta and worked for drilling firm Santa Fe as an engineer prior to his career in politics. ¶3. (C) During the twenty minute meeting Senator Maeba sounded off on a variety of corruption related topics. His primary complaint was excessive costs for oil and gas projects in Nigeria, which he said where inflated by the international oil companies (IOCs). He alleged that Chevron's Escravos GTL plant cost $2.9 billion and compared it to what he claimed was a similar plant in Qatar that was built for only $600 million. He denied that different operating environments or existing infrastructure would account for the difference and accused Chevron of gold-plating the project. He accused Shell of the same cost padding in the construction of its Bonga floating production, storage and offloading (FPSO) facility. According to the Senator, Shell,s initial cost estimates ranged between $2.5 and $2.9 billion while actual costs were between $3.5 and $4.0 billion. (Note: In Ref A, Post reported that projected costs for Bonga were $2.7 billion and actual costs came in at $3.6 billion. The Escravos GTL plant would have roughly the same nameplate capacity as the Chevron Oryx GTL plant in Qatar. Press reports indicate the Qatar plant cost around $1 billion. End Note). Bonga is run under a production sharing contract, where Shell first recovers its costs before sharing the revenues from oil production with the Nigerian government, hence determining the amount actual costs is critical. In his opinion, Nigeria should force Shell to use the costs it estimated before that project and not the actual costs it claims it incurred. At the end of his diatribe the Senator asked for US Government financial assistance in paying for consultants to investigate the alleged cost overruns. -------------- - Senate Investigations May See the Light of Day -------------- - ¶4. (C) Senator Maeba briefly mentioned a completed investigation into the interest and returns made on cash call money held by the Nigerian government. While he did not disclose the results, he promised to provide an advance copy to Econoffs Unlike previous investigations where the results never saw the light of day, the Senator said he would make the results public soon after submitting his report to the senate president. He asked for US government information on the sale of the Nigerian subsidiary of oilfield services firm Willbros. (Ref B) According to the Senator, it was unclear who controlled Ascot Offshore, the Nigerian company that purchased the subsidiary, nor was it clear how much it had actually paid Willbros. He claimed the Nigerian company was an unknown entity in the Nigerian oil industry and hinted at corruption surrounding the sale. (Note: Willbros exited the LAGOS 00000647 002 OF 002 Nigerian market in 2006 after labor disputes and charges of violating the Foreign Corrupt Practices Act. According to corporate financial filings, Willbros sold its operations to Ascot Offshore for $155 million. End Note) -------------- - Local Content Legislation to Move Forward Soon -------------- - ¶5. (SBU) On pending industry legislation, Senator Maeba said the Nigerian Content Development Act was vitally important to the country and the National Assembly would pick up work on the bill where it left off the previous term. As such, he expected the bill to pass the legislature in the next two months. The act mandates stricter level of Nigerian value added content in petroleum and gas related projects and has been cited by many international oil company executives, particularly oilfield service companies, as an impediment to doing business in Nigeria. The Senator did not address in any substantive way President Yar'Adua's announced plans to reform the Nigerian National Petroleum Corporation. ¶6. (C) Comment: Bonga was plagued by cost overruns and the National Assembly threatened to conduct an investigation around the time of its completion in 2005. Apparently it continues to lack either the funds or the will to do so. It is not clear if the Senator had specific information behind his concerns over the sale of the Willbros subsidiary. His promises to publish the results of congressional investigations are welcomed, but so far he has not followed through with his promise to share the initial results with us. End Comment MCCONNELL