Nigerian Oil Project Costs Up 50%-70% on Delta Crisis

LAGOS Sep 27, 2006 (Dow Jones Newswires)

The cost of executing oil and gas projects in the Niger Delta has risen by between 50% and 70% as a result of the lingering crisis in the region, Nigeria's Minister of State for Petroleum Resources, Edmund Daukoru, has said, according to a report Wednesday by The Punch newspaper.

The crisis has also forced many contracting companies to threaten to relocate from Nigeria, Daukoru said at a meeting in Abuja Tuesday with Ambassadors of the European Union and other oil industry executives.

Daukoru said the crisis has cast doubts over Nigeria's ability to meet its target output of 3 million barrels a day by the end of 2006. He said Nigeria's production currently hovers between 2.3m b/d and 2.4m b/d.

Kidnapping of oil workers and attacks on oil and gas facilities have led to a shut-in of crude production by some of the oil companies operating in the Niger Delta region, with companies evacuating their staff from the affected communities.

Niger Delta militants, fighting for regional control of oil and gas resources, abducted oil workers and only released them after the payment of ransom. Two of the workers, both Nigerian, died in captivity.

Daukoru blamed the crisis on political patrons, illegal arms dealers and bunkering by the elites.

"This group of people exploits a robust base of criminal gangs to fuel the crisis in the Niger Delta region," he said.

The E.U. Ambassadors, led by Analisa Calgan of Spain, expressed their concerns over the kidnapping of foreign oil workers by militants in the Niger Delta region.

"Many of the kidnapped oil workers are from the E.U. and we want to know what is happening in the region," he said, according to The Punch.

Speaking recently at an Organization of Petroleum Exporting Countries meeting in Vienna, Daukoru said Nigeria was losing 872,000 b/d on production shut in and pipeline vandalism. At Tuesday's meeting, he said Nigeria was losing about $33 million a day, according to the report.

The Nigerian government based its 2006 budget estimates on an output level of 2.5m b/d at an average price of $35/bbl.

Recently, President Olusegun Obasanjo submitted to the National Assembly a supplementary appropriation bill to raise funds, citing a shortfall in revenue due to the crisis in the Niger Delta, which he said had cut Nigeria's production to 2m b/d.

Receipts from crude oil exports, taxes, and royalty payments to the government account for about 80% of the Nigerian government's revenue.

Nigeria plans to auction 50 oil blocks in October, with 30 of these blocks located in the Niger Delta and the remaining 20 in the inland basins, officials of the Department of Petroleum Resources - regulator of the oil industry - have said.

Copyright (c) 2006 Dow Jones & Company, Inc.

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