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Reference ID: 09ABUJA1907
Subject: (C) SHELL MD DISCUSSES THE STATUS OF THE PROPOSED PETROLEUM INDUSTRY BILL
Origin: Embassy Abuja, Nigeria Classification: CONFIDENTIAL//NOFORN
Created:20 Oct 2009 Released:08 Dec 2010

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Tuesday, 20 October 2009, 06:17
C O N F I D E N T I A L SECTION 01 OF 04 ABUJA 001907
NOFORN
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E.O. 12958:EO 12958 DECL: 02/04/2029
TAGS:EPET, ENRG, EINV, ECON, ETRD, PGOV, NI
SUBJECT: (C) SHELL MD DISCUSSES THE STATUS OF THE PROPOSED PETROLEUM
INDUSTRY BILL
Classified By: Deputy Chief of Mission Dundas McCullough for reasons
1.4. (b & d).
Ref: Abuja 1836
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SUMMARY
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1. (C) Shell EVP for Shell Companies in Africa met with the
Ambassador on October 13 to discuss the status of the proposed
Petroleum Industry Bill. She said the GON wanted the National
Assembly to pass the bill by November 17 and that the international
oil companies would have to move quickly if the House passed the bill
in the coming weeks. She said there was "total alignment" among the
IOCs and with the Nigerian oil companies. She said it would be
helpful if the Embassy would continue to deliver low-level messages
of concern and call on the Speaker of the House to see where he stood
on the bill. She expected the situation in the Niger Delta to be
"quiet" until the end of the year but would get "out-of-hand" when
the election cycle starts up at the end of the year. Shell's views
of the PIB track closely with ExxonMobil's views as reported in
reftel. END SUMMARY.
-------------------------
CURRENT STATUS OF THE PIB
-------------------------
2. (C) Shell EVP for Shell Companies in Africa Ann Pickard met with
the Ambassador at the Embassy on October 13. The DCM and Economic
Counselor joined the Ambassador, and Shell consultant Peter FrancisXXXXXXXXXXXX accompanied Pickard. The Ambassador asked Pickard for her views
about the status of the Petroleum Industry Bill (PIB). Pickard said
the GON wanted the National Assembly to pass the bill by November 17
in order for the GON to be able to announce it at the upcoming CWC
Gulf of Guinea Conference in London November 17-19. She said that if
the House passes the PIB in the coming weeks, "we need to move
quickly" to obtain any necessary changes before it becomes law.
Fortunately, she added, "We are working with the House and the House
appears to want to work with us." She continued that if the Senate
passes the PIB, "We aren't worried." Unfortunately, she explained,
"We think the Senate will pass a bad bill" but it won't really
matter. She added that she would be at the Nigerian House and Senate
later that day and would let the Embassy know if there were any
unexpected developments.
3. (C) The Ambassador asked if Shell had had engagements with the
GON outside the National Assembly, such as with the Ministry of
Finance and the Central Bank of Nigeria. Pickard said, "We are
meeting with them at all levels." She noted that an IMF team headed
by Charles McPherson was in Abuja to look at the PIB and that Shell
would be meeting with them as well. In contrast, she said, "We are
worried about the World Bank's political agenda and it is not clear
what their agenda is." She said the World Bank was working on how to
make the IJVs "bankable" so that they would be able to go to
international and domestic banks for financing.
------------------------------
GAS FLARING AND CLIMATE CHANGE
------------------------------
4. (C) Pickard said the PIB requires an end to gas flaring by 2010.
She said the industry won't be able to do that due to the lack of
QShe said the industry won't be able to do that due to the lack of
investment and security. Shell is ahead of the other IOCs and could
be ready by 2011. Shell would have to spend $4 billion to do this,
but the GON would also have to fund its part and that is a risk.
Shell would shut in oil production in fields where it is uneconomic
to end gas flaring, and it would let others have the gas for free
where it is economic to do so.
5. (C) Pickard continued that NNPC General Managing Director Dr.
Mohammed Barkindo was interested in doing something on climate change
in preparation for the climate change summit in Copenhagen December
6-18. Barkindo was spread pretty thin so Shell will ask him how they
can help him prepare for the summit. She added that Shell had
recently told the oil producing countries that coal will squeeze out
oil as a result of the CO2 footprint issue if the oil producing
ABUJA 00001907 002 OF 004
countries and IOCs do not do more to address the issue.
------------------
POTENTIAL BENEFITS
------------------
6. (C) Pickard summarized the PIB's potential benefits. The
creation of fully integrated and independently functioning
international joint ventures (IJVs) would solve the oil and gas
industry's longstanding funding problems if the proposed IJVs are
done right. The Nigerian National Petroleum Company (NNPC) was
previously forced to reduce its ownership of some existing joint
ventures to 49 percent to make them profitable enough to obtain
financing. The proposed division of responsibilities between the
NNPC and the Directorate of Petroleum Resources also would be good.
The IOCs currently do not know if the NNPC is their partner or
regulator.
----------------------------
COHESION WITHIN THE INDUSTRY
----------------------------
7. (C) The Ambassador asked if the industry was united in its
approach to the PIB. Pickard replied that there was "total alignment
with the international oil companies at every level." She
acknowledged that Shell had more exposure to the loss of acreage than
any other company. "We could lose 80 percent of our acreage," she
said. The problem comes from the fact that the PIB will redefine how
a company can hold on to its exploration and production blocks,
limiting what can be kept to two kilometers around each well.
"Everyone offshore loses a lot," she continued. "We will have to
bring satellites on fast or we will lose the blocks." However, the
problem with that is that the companies have to be able to pass
things through to the blocks quickly and it takes years to get a rig
in due to delays in the Nigerian approval process. (NOTE: Pickard
told Econoff in Lagos that Shell "sent away" three platforms in late
September. END NOTE. )
-------------------------------------
ALIGNMENT WITH NIGERIAN OIL COMPANIES
-------------------------------------
8. (C) The Ambassador asked about the IOCs' alignment with the
Nigerian oil companies. Pickard replied that "the Nigerian companies
are with us" because they will be taxed at the same rate in the
current version of the PIB. The IOCs are starting to see what the
Nigerian companies want to do.
--------------
THE USG'S ROLE
--------------
9. (C) The Ambassador asked what the Embassy could do to help with
the Joint House Committee on Petroleum Upstream and Downstream and
Justice that is working on the PIB. Pickard said she hoped the
current level of dialogue between the GON and the IOCs continues.
Unfortunately, "We have not been able to meet with President Yar'Adua
for nine months," she said. "They have him protected." She said it
would be helpful if the Embassy would continue to deliver low-level
messages of concern. In particular, she thought it would be helpful
for the Embassy to call on Speaker of the House Dimeji Bankoke to see
where he stood on the bill. Beyond that, she would like to keep the
Embassy in reserve and use it as a "silver bullet" if the PIB passes
the House. The Ambassador noted that the U.S., U.K., Dutch and
Qthe House. The Ambassador noted that the U.S., U.K., Dutch and
French Embassies had already made a joint call on NNPC General
Managing Director Dr. Mohammed Barkindo.
----------------------------------------
CHINA'S INTEREST IN NIGERIA'S OIL BLOCKS
----------------------------------------
10. (C) Pickard mentioned China's recently reported interest in
Nigeria's oil blocks. She said Shell had received a copy of the
letter that Special Advisor to the President on Petroleum Matters Dr.
Emmanuel Egbogah had sent to the Chinese which said that their offer
for oil exploration blocks was not good enough. Minister of State
for Petroleum Resources Odein Ajumogobia had denied that the letter
ABUJA 00001907 003 OF 004
had been sent, but later conceded that the GON was only
"benchmarking" to see what the IOCs should pay for shallow-water
licenses. Pickard said Shell had good sources to show that their
data had been sent to both China and Russia. She said the GON had
forgotten that Shell had seconded people to all the relevant
ministries and that Shell consequently had access to everything that
was being done in those ministries.
--------------------------------------------- --
CHANGING RESPONSIBILITIES WITHIN THE GON'S TEAM
--------------------------------------------- --
11. (C) Pickard observed that there might be changes with how the
GON management of the petroleum sector is organized. Minister of
Petroleum Resources Rilwanu Lukman may be given the responsibility
for implementing the PIB, while Minister of State for Petroleum
Resources Ajumogobia may get the Directorate of Petroleum Resources
and ongoing business. The problem with these changes is that the GON
could still get "unempowered people" who are not able to address the
issues. The question is whether Ajumogobia would be able to step up.
(NOTE: Press reports on October 17 reported that Lukman will be
given overall responsibility for the formulation of policy, and
oversee the implementation of the PIB, the Integrated Joint Venture
negotiation and rollout, the fiscal terms transition and
implementation, the new organization implementation, and stakeholder
management. We will also supervise the NNPC and its subsidiaries,
the Organization of Petroleum Exporting Countries, the African
Petroleum Producers Association, and the University of Petroleum.
Ajumogobia will be in charge of the Gas Master Plan Transition
Implementation, the Gas Exporting Countries Forum, the Nigerian
Liquefied Natural Gas, the alternative fuels, and the Petroleum
Equalization Fund. He will also oversee the Directorate of Petroleum
Resources, the Petroleum Training Institute and the Pricing
Regulatory Agency. END NOTE. )
--------------------------
SHELL'S CURRENT PRODUCTION
--------------------------
12. (C) The Ambassador asked about the level of Shell's current
operations. Pickard said Shell was producing 663,000 barrels per day
as of October 13, including the Bonga field. Approximately 80,000
barrels per day had been brought back from the Forcados field on the
previous day. Some 900,000 barrels per day of capacity was still
shut in. Of that, Shell could bring back 600,000 barrels per day,
while the remaining 300,000 barrels per day is "too unreachable. "
--------------------------
AMNESTY IN THE NIGER DELTA
--------------------------
13. (C) The Ambassador asked Pickard what she thought about the
future of the GON's amnesty offer to militants in the Niger Delta.
She responded that Shell expected the situation in the Niger Delta to
be "quiet" until the end of the year. It will then get "out-of-hand"
when the election cycle starts up in December, January and February.
She expressed particular concern about Bayelsa State, home to Shell's
500,000 barrel-per-day capacity Bonny field. Pickard also noted that
Q500,000 barrel-per-day capacity Bonny field. Pickard also noted that
Shell saw Israeli security experts in Bayelsa, but not in the Delta,
and that there had been "a big drop in kidnapping" as a result.
-------------
Looking Ahead
-------------
14. (C) Pickard concluded the conversation by expressing concern
about the influence of NNPC General Manager for Strategy, Planning,
and PIB Implementation Dr. Tim Okon, a former ExxonMobil employee,
who had contracted internationally known oil consultant Pedro Van
Meers to advise the NNPC on the drafting of the PIB. Oil production
has declined and there has been a "fiscal disaster" in every country
where Van Meers has been. Pickard said Okon was "dangerous" and
Nigeria's investment climate "could go the way of Venezuela" if Van
Meers' ideas were not removed from the PIB.
XXXXXXXXXXXX
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COMMENT
ABUJA 00001907 004 OF 004
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15. (C) Shell's views of the PIB and the alignment among the IOCs
and with the Nigerian oil companies track closely with the views of
ExxonMobil, as reported in reftel. The main difference is that Shell
tends to minimize the different tax concerns and financial
vulnerabilities of the individual IOCs. Shell is much more
vulnerable than the other IOCs because its operations are
concentrated in less favorable JV concessions that are located in the
violence-prone Niger Delta. ExxonMobil and Chevron's operations are
concentrated in more favorable production sharing contracts (PSC) in
the relatively violence-free offshore areas. In the event that the
PIB retains negative terms or violence returns to the Delta, Shell
can be expected to hurt the most and cry the loudest.
16. (U) Embassy Abuja coordinated this telegram with ConGen Lagos.
SANDERS