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.

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Senator: IOCs Inflate Costs at Nigeria's Expense
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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.

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Senate Investigations May See the Light of Day
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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

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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)

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Local Content Legislation to Move Forward Soon
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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