NIGERIA WARRING NATION ON VERGE OF A NEW OIL BONANZA

Press, Volume CIX, Issue 31975, 30 April 1969, Page 12

NIGERIA WARRING NATION ON VERGE OF A NEW OIL BONANZA

(By

BRIDGET BLOOM.

in the “Financial Time*”. London?

(Reprinted bv arrangement >

A bird s-eye view of an oil boom—that’s what Mr Wilson would have had were he not flying so high over southern Nigeria last month. Below the Prime Minister were all the signs—the green and waterv delta traced with unnaturally symmetrical lines, an occasional spade-shaped cut of water glinting m the sun, a 20-mile swathe breaching the surf-edged coastline.

After 15 months interruption, Nigeria’s biggest oil company is producing again. A helicopter view of the delta in the Midwest state of Nigeria shows the signs for what they are—seismic survey traces, drilling rig locations, and a flotation canal carrying a new oil pipeline. This line, two others, and an impressive array of storage tanks, flow-stations, wharves and loading facilities, account for most of a £s2m (£N45m) investment by Shell-BP in Nigerian oil development this year.

This is the company's biggest-ever single investment in Nigeria. The British Government, in supporting Nigeria in its current war with Biafra, has been fully aware of the oil industry’s importance even though, when he was there, Mr Wilson saw nothing of the operation on the ground.

, largest Concession The Shell-BP Petroleum s Development Company (to - give it its full title) is the ; largest concessionaire as well ias producer. It is thus the I most important agent of the , current Nigerian oil boom which should, according to estimates, put the country among the world's top 10 producers by the early 19705. The company. jointly t formed by Shell and BP. s which in Nigeria combine for - exploration and refining but i market independently, began r the search for oil in 1938. | Surveying began in earnest I after the war. then test , drilling came in the early . 1950 s The first commercially , viable discovery was the . Oloibiri field in the then i Eastern region (the East was , divided into three States by . the Federal Government in . May, 1967, making Nigeria a 12-state Federation); the first . oil exports began in 1958. By 1962. it had already become clear that oil in } Nigeria was big business. } Shell-BP, surrendering some of its onshore leases, was ■ joined by Gulf. Safrap. Agip. Tenneco and later Phillips, while offshore concessions were split between Shell-BP. Gulf. Amoseas and Mobil. Production grew rapidly. Just before the outbreak of civil war in July, 1967. ShellBP's fields in the former . Eastern region and in the} , Midwest were producing (in . the proportion of two to one) . almost 500,000 barrels a day ! (25m tons a year). , Gulf then produced only a } tenth of this figure, but unlike . Shell, its promising fields 1 . offshore from Escravos. in the I Midwest, were not affected by , the war. Gulf's production . is now approaching 200.000 . barrels a day (10m tons a . year). I Production Cut Off Shell-BP, on the other hand, found itself in an excessively uncomfortable position when war began. Production, ail

onshore, was cut off completely as a result of the federal blockade of Biafra (at that time the whole of the former Eastern region) in July, 1967. It teetered unhappily for several months between Biafran. threats to sabotage installa-! tions unless royalties were! paid to Biafra, and Nigeria’s' insistence that the Federal! Government remained thel legal receiving authority. The company’s position was complicated by the Biafran invasion of the Midwest a! month after the outbreak of! war.

The recapture of the Midwest by Federal troops in September 1967 was decisive however, and outstanding royalties of some £N7m were paid to the Federal Government in November (and have continued to be paid to Lagos since). The recovery-of the company's fortunes since then, with the civil war continuing, has been nothing less

than remarkable. Production, which began again only last October, will soon be back to | pre-war levels. When the new facilities in the Midwest come into operation, pre-war levels should be quickly exceeded. Total production of crude oil, from all companies, should reach a million barrels a day—or 50m tons a year—by the end of this year, with this total being rapidly exceeded thereafter. Three Plans Essentially, this year’s £s2m investment involves three separate plans—two to increase output in the Midwest state, and one to boost production in the Rivers state, an area which was formerly in the eastern region and then became part of Biafra. Until the latest plans were | revealed, the centre of the company’s Midwest operation was Ughelii. The area’s main fields are connected to the east by a 100-mile pipeline which crosses the Niger I River and dispels crude at } Bonny, downstream from {Port Harcourt. At the outbreak of war, Nigeria con- ’ trolled the Midwest stretch of this pipeline, but Biafra controlled the rest. It became clear at once that whatever happened to this line (in the .event it only suffered minor damage) more than one outlet was needed. So last year,! about six months after the ; company’s technicians returned to the Midwest, ShellBP announced construction of | a new £Nlsm pipeline from' I Ughelii to Forcados, on the | edge of the Midwest delta. It is this line—24 inches in diameter from Ughelii to! Rapele, 28 inches from there’ to Forcados and 48 inches from Forcados to a point 17 miles offshore—which is currently being laid. Shell technicians on the spot reckon it will be complete by July 1. Already line has been laid across the critical Forcados estuary-, and across the ! heavy surf breaks on the I shore. By July the line will }be connected to an offshore loading system, involving an ielevated manifolding system and two single buoy rnoor;ings capable of receiving, in current jargon. V.L.C.C.'s—very large crude oil carriers, :of between 200,000-300.000 tons.

This is plan one. In effect, it means that crude supplies now being exported through the Trans-Niger pipeline from Ughelii to Bonny will be fed into the new line: Midwest production is currently about 120,000 barrels a day (6m tons a year). But this will be rapidly swelled by new production from the greater Ughelii area. Main fields now in production are Ughelii itself, Kokori, Oweh, Olomoro and Uzere. Afiesere was hooked into the system last November, while new fields —notably Oroni, Evwreni and Utorogu—will come in during the year. By the autumn of this year, production from the greate" Ughelii area should be almost trebled at 350,000 barrels a day.

New Finds ! But there are other developments in the Midwest which I could eventually put even the greater Ughelli area in the •shade. Shell-BP’s second plan I involves two quite separate land new finds. The most exciting of these appears to be the Jones Creek field, north--west of Warri. This was dis- , covered just before the civil | 'war, but has been properly appraised only recently. ShelT -experts say, cautiously, that lit is likely to prove as good; as their best single find yet, I i the Imo River field in the] I former eastern region. In earlj' 1967, Imo River -was producing 120.000 bar-' rels a day (six million tons a year), which is equivalent Ito the whole of current pro-J duction from the Midwest. A new 20in pipeline. 20 miles: long, will connect JonesCreek and two other smaller fields. Egwa and Ogidi, with the new trans-Forcados pipeline. Jones Creek should be hooked into the system in the first half of 1971. The second new Midwest

The second new Midwest find is in the Forcados estuary. Discovered when technicians got back into the Mid-

west, the first well was drilled in August last year and there are now eight wells, on and-off-shore, whose production can easily be work.-d into the new Forcados pipeline system. Other Midwest exploration activities are going on—at Escravos. south from there in the Ramos river area, and also off-shore, where the neighbouring Gulf concession has proved richly endowed. Shell-BP’s third area of expansion is in the Rivers State in an area which came under Federal control about a year ago. Small and medium-sized

fields in the Cawthorne channel area will be fed by a 57mile, £N6m pipeline and so into the Bonny terminal. This line is due for completion in the middle of next year, the fields are expected initially to realise some 90.000 barrels a day. Additionally, the Bonny terminal, whose pumping facilities were badly dam-

faged in fighting in 1967. will | be fully repaired and extended at a cost of around | £Nl.5m. How Much Revenue? That increased oil activity means increased revenue for Nigeria goes without saying The real question is how much more revenue Nigeria is likelv to receive, and this depends directly on the rate of production. It is estimated—fairly conservatively—that Nigeria receives royalties amounting to about $0.50 a barrel; this excludes the smaller sums accruing from rents, personal taxes and other indirect benefits. At Im barrels a day. or 50m tons a year, this would bring ! Nigeria about £N75m, a year. The last published oil revenue figure, for 1967 when the civil war interrupted production in July, was £N2B.Bm. However, Chief Awolowo. Federal Finance Commissioner, recently estimated that by 1975 Nigeria would be earning an extra £N3OOm a year in net foreign exchange from oil. This is almost double current Nigerian revenue from all sources. The basis of his calculations is not entirely clear. It could be that he was calculating royalties on the basis of $0.70-$O.BO a barrel. But on the 80.50 a barrel formula, production would then be {some 4m barrels a day, or 200 m tons a year. Whatever Nigeria receives, I it will be a tidy sum—though ! with reconstruction of war damage and future development for an estimated 55m people, Nigeria will never be a Kuwait. Obviously, the Government finds the prospect of these greatly increased revenues pleasing. But its hesitation in proclaiming oil’s potential benefit to the economy is not simply natural caution about raising expectations prematurely. Oil, as the Federal Commissioner for Economic Development. Alhaji Gusau, pointed out last month, played a major part in the origins of the civil war. And it wiil be a major factor in politics in the future as the Federal Government wrestles with the contending claims of the oil-rich States, two or three at the most, and those eight or nine States deprived of oii but determined to get a share in the profits.

Another peace initiative has failed and the tragic civil war in Nigeria drags on. But oil production, badlv hit during the early days of the conflict, is almost back to pre-war levels and is being rapidlv expanded. Bridget Bloom, Africa correspondent of the “Financial Times” London, recently visited the country's main oil centres.