Shell, Nigeria Reach Basic Agreement On JV Funding Gap

ABUJA, Nigeria, April 9, 2008 (Dow Jones Newswires)

Royal Dutch Shell PLC said Wednesday that it has reached a basic agreement with Nigeria's state-owned oil company on how to resolve the chronic funding shortfalls at its joint venture that was delaying oil projects and hampering production.

Meanwhile, Nigerian Oil Minister Odein Ajumogobia told Dow Jones Newswires in an exclusive interview that the government intended to raise funds on both local and international capital markets to help fund such joint ventures and avoid future shortfalls. But in the meantime, the private partners would help bridge the funding gap with their own financing, he said.

"We have agreed on how to deal with the funding arrears and how to fund the processes in the future," Basil Omiyi, country chair of Shell in Nigeria, said in an interview in the Nigerian capital.

"This just needs to be put into a formal agreement," he said.

Shell is the largest foreign oil company in Nigeria and owns 30% of joint venture Shell Petroleum Development Co., or SPDC. The government-owned Nigerian National Petroleum Corp., or NNPC, which owns 55%, had earlier delayed payments of its share of funding in joint ventures with Shell and other foreign companies, slowing new oil developments in the country.

Officials say that at present, there is a $3.8 billion shortfall in funding at such joint ventures operating in Nigeria. The Shell-NNPC joint venture accounts for the bulk of that with a $2 billion funding gap.

"We're addressing the funding issue head on," said Ajumogobia.

The oil minister said that for the first time the government will try to fund the joint ventures "leveraging on assets in the same way as our partners have always done. So we're going to the capital markets to raise funds, both local and international."

In the short term, the government hopes to have "interim arrangements with our partners, which are bridging financing," he said.

He said that "is pretty much concluded" and "we're close to an agreement."

The government is "in the process" of mandating local banks to help fund the joint ventures in the long term, Ajumogobia said.

But in the meantime, it was easier for the partners' to bridge the funding gap because, "they don't have the due-diligence issues that banks would have and they're investors already."

"Even though it's not typical, they see the benefits in terms of moving projects (forward)," he said.

ABUJA, Nigeria, April 9, 2008 (Dow Jones Newswires)

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