NIGERIAN GEOPHYSICISTS DISCUSS POTENTIAL FOR

C O N F I D E N T I A L SECTION 01 OF 03 LAGOS 000478

SIPDIS

DOE FOR GPERSON, CHAYLOCK

E.O. 12958: DECL: 11/24/2018
TAGS: EPET ECON ENRG PGOV PREL NI
SUBJECT: NIGERIAN GEOPHYSICISTS DISCUSS POTENTIAL FOR
UNCONVENTIONAL OIL

Classified By: Consul General Donna Blair for Reasons 1.4 (B,D)


1. (C) Summary: At the annual convention of the Nigerian
Association of Petroleum Explorationists November 17-21, the
head of the association said Nigeria has 40 billion barrels
in unconventional oil deposits in Osun and Ogun States. The
Minister of State for Energy (Petroleum) acknowledged the
troubles in Nigeria's oil sector and said production growth
has fallen off dramatically since the 1990s. Despite falling
oil prices he urged companies to continue investing in the
sector. A Total executive said large scale oil and gas
projects in Nigeria take fifteen years on average from the
time the oil block is awarded to a company to initial oil
production, with capital expenditures on deep offshore
projects costing between USD 5 to 10 billion and USD 1 and 5
billion for onshore near offshore project ranging between.
He said Total employs as many people for security as it does
for actual oil exploration and production in Nigeria.
Exploitation of Nigeria's unconventional reserves is not
economically realistic in the short and medium term. A
Russian diplomat attended the opening day's ceremonies,
unusual for such a technical conference. Opinions were mixed
about the probable appointment of Rilwanu Lukman as the new
energy minister, but he will need a strong presidency backing
him to implement oil sector reform plans. End Summary.

Nigeria: 40 Billion in Unconventional Reserves
-------------- -


2. (SBU) At the 26th annual convention of the Nigerian
Association of Petroleum Explorationists (NAPE),Dr. Kinsely
Ojoh, outgoing NAPE president, told an assembled audience of
geophysicists, oil executives and government officials that
Nigeria has 40 billion barrels in unconventional oil reserves
in addition to its 35 billion of proven, conventional oil
reserves. The unconventional oil fields lie in southwestern
Nigeria, mainly in Osun and Ogun States and consist of tar
sands, heavy oil, and tar pits. Ojoh urged the government of
Nigeria to move control of these resources from the Ministry
of Solid Minerals to the "Ministry of Petroleum" (presumably
he meant the new Ministry of Energy) and to develop oil block
licensing for these areas.


3. (U) Dr. Ojoh's speech was followed by a presentation by
the current Minister of State for Energy (Petroleum) Odein
Ajumogobia (Note: Also in attendance was Honorary Special
Advisor to the President and prospective minister Rilwanu
Lukman and Special Advisor to the President on Petroleum
Matters Dr. Emmanuel Egbogah. End Note.) The Minister
remarked that the industry and the GON find themselves in a
difficult situation with crude oil prices and production
quotas falling. He acknowledged the industry's worry about
over investment in the face of future oil price uncertainty,
but cautioned against underinvestment in exploration and
production. Past periods of falling oil price led, he
claimed, to supply capacity constraints when oil prices rose
and he noted that growth in Nigeria's oil production capacity
has tapered off significantly since the 1980's. The minister
called on companies to step up exploration in Nigerian inland
basins of Anambra, Benue, Bida, Chad, Dahomey, and Sokoto
saying these areas will lead to Nigeria reaching its goal of
40 billion barrels of proven conventional reserves by 2010.

Exxon: USD 86 Billion Needed for Gas Export Projects
-------------- --------------


4. (SBU) Chikwe Edoziem, an executive with ExxonMobil, told
the audience that exploration and development of
non-associated natural gas is vital for ensuring reliable
supplies to international and domestic markets, but he noted
the commercial framework must be in place to make natural gas
viable. ExxonMobil predicts West Africa will need USD 65
billion over the next five years for new and expanded
liquefied natural gas plants in Nigeria and Equatorial Guinea
and USD 21 billion for the proposed trans Sahara gas pipeline
connecting Nigerian gas fields to Algeria for export to
Europe. (Note: Edoziem did not mention the USD 35 billion
the Nigerian National Petroleum Corporation predicts Nigeria
will need to build its domestic natural gas infrastructure as
part of the country's gas master plan. End Note.)

LAGOS 00000478 002 OF 003



Total: Long Term Projects Demand Stability, Security
-------------- --------------


5. (SBU) During an afternoon session on the Niger Delta,
Total exploration manager Pierre Cuisnier said development
times for his company's Nigerian projects average 15 years
from awarding of the oil block to first production of oil.
Given that a typical project in Nigeria will operate for
twenty to thirty years after first oil production, Cuisnier
emphasized that contract and fiscal stability were critical
for project planning and investment decisions. (Comment:
What was left unsaid by Cuisnier and other speakers was the
implicit criticism that the GON's policies, regulations, and
fiscal terms are increasingly unstable, deterring investment
in an already tough market. End Comment.) He did complain
about joint venture funding and said that at present joint
venture funding levels, Total expects to shut in oil wells in
the near future. The reduced funding level is also leading
to accelerated natural decline of oil fields, he said, as the
joint venture companies do not have the money to invest in
enhanced oil recovery equipment. He went on to lament the
growing threat of piracy in the waters off Nigeria's coast,
remarking that Total-owned and leased boats are operating in
convoys protected by armed, but inadequate, Nigerian Navy
escort boats, something he politely termed "not a normal way
of doing business." When asked by an audience member about
the impact of security costs on project expenditures,
Cuisnier could not provide a specific breakdown for security,
but he noted his company employs as many people in Nigeria
for security as it does for exploration and production.


6. (SBU) Cuisnier showed a PowerPoint slide that stated
Nigeria's current oil production had fallen to 1.6 million
barrels per day, down from 2.4 million 18 months ago.
Several other panelists nodded in agreement and no one from
the audience of petroleum experts rose to challenge the
current production number, which is significantly below
Nigeria's official figure of 1.98 million barrels. (Comment:
Nigerian oil industry engineers and geophysicists are
normally not shy about publicly pointing out errors and
misstatements by presenters. The minister and special
advisors were not in attendance for this presentation. End
Comment)


7. (C) A Russian Embassy third secretary from the trade and
economic section attended the conference. A UK commercial
officer noted the Russian's attendance as well and later
remarked to Energyoff that she had seen a Russian second
secretary at the NAPE pre-conference meeting in Lagos in
September 2008. She agreed that it was unusual to see
Russian diplomatic presence at Nigerian petroleum related
events, particularly at NAPE conferences which are technical
in nature and geared towards Nigerian industry insiders.
Several Chinese businessmen attended the conference, but no
Chinese diplomatic presence was evident.


8. (C) Comment: Although the conference was billed as
focusing on Nigeria's potential for unconventional oil, the
main topics of conversation on the opening day were the
familiar laments of poor security, inadequate funding, and
inconsistent policy. On the 40 billion barrels of potential
unconventional oil reserves, one participant put it best when
he said, "We're having problems just getting the conventional
oil out of the ground. Unconventional oil is a long way
off." During side bar conversations about the probable
appointment of Rilwanu Lukman as the new energy minister,
opinions were decidedly mixed. Many interlocutors commented
on his age, health, and presumed reluctance to take another
ministerial job. They wondered if he was the right man to
lead the sector reform, given his long history with the
industry and connections to private oil companies. (Note:
Lukman is the Chairman of Afren Plc, a UK-based oil and gas
company with significant investments in Nigeria and West
Africa. End Note.) However, some Nigerian oil executives
thought only an insider familiar with the inner workings of
Nigeria's oil sector would have the political savvy to reform
it. For reform of the oil sector to succeed, whoever is
leading Nigeria's energy ministry will need strong and
consistent support from the Villa. Unfortunately, strong and

LAGOS 00000478 003 OF 003


consistent are not adjectives one would associate with the
Yar'Adua administration's stewardship of the oil industry in
the past eighteen months. A president in ill health and an
aging, reluctant oil minister may not be the ideal
combination to take on the Nigerian National Petroleum
Corporation and all those who feed off its present structure.
End Comment.


9. (U) This cable cleared with Embassy Abuja.
BLAIR