EXXONMOBIL PESSIMISTIC ABOUT INCREASED NIGERIAN

C O N F I D E N T I A L SECTION 01 OF 02 LAGOS 000189

SIPDIS

DOE FOR GPERSON, CHAYLOCK

E.O. 12958: DECL: 05/27/2018
TAGS: ENRG EPET PGOV VE NI
SUBJECT: EXXONMOBIL PESSIMISTIC ABOUT INCREASED NIGERIAN
OIL OUTPUT

REF: A. 07LAGOS 750

B. LAGOS 77

C. LAGOS 75

Classified By: Consul General Donna Blair for reasons 1.4 (B)
and (D)


1. (C) Summary. In a May 23 meeting, the number two executive
at ExxonMobil in Nigeria said he's not optimistic that Nigerian
crude oil production will increase significantly in the next few
months. Mark Ward placed the blame on the government of Nigeria's
failure to reinvest in onshore and near-offshore oil facilities
and ongoing security problems along Bonny River; he urged the
United States to help Nigeria find an immediate solution to
ongoing violence in the area. He claimed Venezuela is pushing
Nigeria to take a harder stance against international oil
companies in general and ExxonMobil specifically, a claim we
cannot verify at this time. The reasons behind Nigeria's falling
production are nothing new, but concern over its support for the
sanctity of contracts is growing. End Summary.


2. (C) Mark Ward, Exxon Mobil's Executive Director for Exploration
and Production in Nigeria told Econoff that the decline in
Nigerian oil production since the beginning of the Yar'Adua
administration can be attributed to ongoing security problems
in the Bonny River area.
(Note: According the International Energy Agency, Nigeria's oil
production fell sharply in the run up to the 2007 elections but
recovered and reached 2.2 mbpd in September. Since September
2007, production has steadily declined. General industry
consensus in Nigeria puts April's production around 1.81 mbpd.
End Note.) According to Ward, Nigeria is also feeling the
effects of a natural decline in production from aging onshore
and near offshore fields aggravated by the GON's failure to fund
the joint ventures responsible for producing oil and enhancing
oil recovery in those areas. Ward also blamed declining
production on a general paralysis within the Nigerian National
Petroleum Corporation (NNPC) and in particular within the
National Petroleum Investment Management Service (NAPIMS),
the NNPC unit that controls the joint ventures with the oil
companies. (Comment: Paralysis in NNPC since the announcement
of the reorganization is well known. NAPIMS is the crown jewel
of NNPC and its fate in a reorganized state oil company has
been the subject of much interest (ref A). End Comment.)
When asked about the prospects for Nigerian production in the
next six months, Ward said that beyond the anticipated boost
from Chevron's Agbami facility scheduled to begin operation
this summer, he was "not optimistic" about the possibility of
any sustained increase.


3. (C) Ward dismissed as inaccurate press reports that President
Yar'Adua had announced plans to force ExxonMobil and Shell to
pay USD 1.9 billion in a dispute over cost overruns at their deep
offshore oil facilities. He noted that ExxonMobil has been in
high level negotiations with the GON on this issue for months
and attributed the quote by Yar'Adua to bad advice from Emmanuel
Egbogah, the Presidential Advisor on Petroluem who is leading
the GON's push for tougher contract terms. Ward thought the
statements were little more than a negotiating ploy and didn't
believe they represented a real shift in the GON's policy.
The dispute however is far from resolved and Ward said the GON
had been taking far more equity oil from the Production Sharing
Contracts (PSCs) than it was entitled to under the contract terms.
(Note: PSC's, used in the development of the risky deep
offshore fields, allow the oil companies to recover their
significant exploration and development costs before the GON
receives its share of oil. End Note.) While Ward noted the
ongoing discussion with the GON, he said ExxonMobil stood ready
to seek legal remedies should the negotiations fail.

Venezuela Attempting to Influence Nigiera?
--------------


4. (C) According to Ward, there is a growing feeling within the
company and industry that Nigeria may be slipping away from it
tradition of respect for oil agreements. On a disturbing note,
Ward accused Venezuela of trying to turn Nigeria, and other oil
producers, against international oil companies in general and

LAGOS 00000189 002 OF 002


ExxonMobil in particular as part of Venezuela's ongoing dispute
with Exxon. Ward claimed Venezuela was encouraging Nigeria to
develop its state owned oil company as an alternative to
international oil companies and was offering Nigeria help in
doing so. When pressed, Ward could not give examples of
Venezuelan influence nor cite specific meetings between Nigeria
and Venezuelan officials other than to say he thought a meeting
between Venezuelan and Nigerian officials may have occurred in
February 2008. He said others in the company could provide more
detail and he promised to supply more information later. He also
claimed Russia, through Gazprom, is similarly trying to influence
Nigeria, but he agreed that Gazprom's actual presence in Nigeria
is insignificant and he downplayed public statements by a Gazprom
executive that gas deals were in the works (ref B).

Bonny Attacks Threaten Output
--------------


5. (C) On security, Ward warned that ongoing attacks along the
Bonny River are the single biggest and immediate threat to
Nigerian oil output. He said the Nigerian navy was down to two
boats it could use for escorting oil service vessels operating
in convoys on Bonny River. Ward thought the best thing the USG
could do to restore Nigeria's lost production was to help the
GON rapidly increase its capacity to provide security on and
near Bonny River. He noted the GON routinely requests the oil
companies provide money and logistics to improve security in the
area, something ExxonMobil is unwilling to do. According to Ward,
the Lagos deep offshore support base, being developed as an
alternative to the Onne offshore support base on the Bonny River,
would not be ready in time to provide any relief to the current
security problem.


6. (C) Comment: There is nothing new in the conversation with
Ward to suggest that the declining oil production is the result
of anything other than the oft-noted problems of bad security,
failure to fund the joint ventures, and general paralysis in NNPC.
What is new, or at least what is growing, is concern within the
industry over Nigeria's regard for the sanctity of contracts.
Earlier in the week, a group of British gas executives told
Econoff they have noted a change in tone regarding contracts
in Nigeria since October/November 2007. One executive
attributed it to the example set by President Yar'Adua in the
reversal of several non-oil deals agreed to under the Obasanjo
administration. Many Nigerian politicians seem eager to shout "
due process" while merrily overturning any deal done by Obasanjo
that they don't like. We've heard dire warnings of
nationalization before (ref C),however, Ward's assertion
that Venezuela is actively meddling in the Nigerian petroleum
sector is the most specific claim, but one we cannot verify at
this time. End Comment.

HUDSON