Weekly Offshore Rig Review: Niger Delta Forces

New Fast-Paced Bidding Round
The Nigerian bidding rounds have finally been announced, but don't blink. Before you know it, they'll be finished. Bids are due in no later than May 1.

Earlier this week, Nigeria offered 45 oil blocks up for bid, which is 15 less than the postponed Q4 2006 sale had promised.

According to several AP reports, Energy Minister Edmund Daukoru said the offer process would be completed before the new government takes office on May 29. Elections are scheduled for April 14 and 21. Daukoru also announced that block winners will have to pay half of the signature bonus at the bid conference on May 3. The remaining balance is to be paid before a production-sharing contract is signed.

Of the 45 blocks on offer, only 10 are in deepwater. Eleven blocks are located in inland basins and the remaining are onshore and on the continental shelf.

Some critics have questioned if the concise bidding period coupled with unrest throughout the country and the lack of security for foreigners will even allow for a credible award.

Kidnappings Continue
On the heels of the bidding round announcement came a report from The Scotsman. Graham Tran, a regional officer of Amicus, demanded that all British oil companies leave the Niger Delta region until the safety of foreign oil workers is assured. Amicus is the largest union for manufacturing, technical, and skilled workers in the UK, and it represents a large portion of the UK's offshore oil and gas workers.

His call to withdraw from Nigeria is fueled by the most recent report of a kidnapping. This time it was a Scottish oil worker. On Saturday, March 31, Gordon Grey was kidnapped by Nigerian rebels as he worked on the Bulford Dolphin drilling rig on OML 122. Thankfully, Equator Exploration, the operator of OML 122, announced that he had been released from captivity in good health on April 4.

Though most foreigners are released unharmed after a cash payment, the number of kidnappings is rising. According to AP reports, since January nearly 70 foreign oil workers have been taken, which is approximately the total kidnappings in all of 2006.

Scotland is not the only country affected by kidnappings. Nigerian militants continue to hold one Dutch construction worker and two Chinese workers in captivity.

Offshore Rig Managers
The 11 rig managers working off Nigeria are international companies with international workers. As can be seen in the table below, the majority of the rigs working offshore Nigeria belong to US-based companies. Only Stena Drilling, which has just one rig, the Stena Tay semisubmersible, is a UK-based company that would be directly affected by the Amicus call for withdrawal of UK-based companies from operating in Nigeria.

However, Nigeria's security issues affect every country represented by those 11 drilling contractors whose workers hail from nearly every corner of the globe. While Amicus' call for improved safety measures in Nigeria may be the first of its kind, it may not be last. As such, rig managers from around the world may find it increasingly difficult to attract qualified workers to continue exploration and development work on Nigeria's 31 offshore rigs if security doesn't improve soon.

Offshore Rig Managers in Nigeria
As of April 4, 2007
Manager Country Jackups Floating Rigs Barges Total
Transocean US 2 rigs 6 rigs 0 rigs 8 rigs
Noble US 6 rigs 1 rigs 0 rigs 7 rigs
Shell Nigeria Nigeria 0 rigs 0 rigs 4 rigs 4 rigs
Saipem Italy 0 rigs 2 rigs 0 rigs 2 rigs
SeaDrill Ltd Bermuda 2 rigs 0 rigs 0 rigs 2 rigs
GlobalSantaFe US 2 rigs 0 rigs 0 rigs 2 rigs
Lonestar Drilling Nigeria 0 rigs 0 rigs 2 rigs 2 rigs
Dolphin A/S Norway 0 rigs 1 rigs 0 rigs 1 rigs
ENSCO US 1 rigs 0 rigs 0 rigs 1 rigs
Pride Int'l US 0 rigs 0 rigs 1 rigs 1 rigs
Stena Drilling UK 0 rigs 1 rigs 0 rigs 1 rigs
Total Rigs 13 rigs 11 rigs 7 rigs 31 rigs

While the ongoing security problems and the call to leave Nigeria affects offshore drilling contractors, the larger impact is felt by the operators working to produce oil in the region.

Shell is the largest oil producer in Nigeria, accounting for more than 900,000 b/d of Nigeria's 2.4 MMb/d. The Dutch-Anglo giant is also the largest operator of offshore rigs in Nigeria. As can be seen below, Equator Exploration, whose worker was kidnapped last week, is the only other UK-based operator with rigs working offshore Nigeria.

Offshore Operators in Nigeria
As of April 4, 2007
Operator Country Jackups Floating Rigs Barges Total
Shell Holland / UK 1 rigs 2 rigs 6 rigs 9 rigs
ExxonMobil US 3 rigs 2 rigs 0 rigs 5 rigs
Total France 1 rigs 3 rigs 0 rigs 4 rigs
Chevron US 3 rigs 1 rigs 0 rigs 4 rigs
Addax Canada 2 rigs 1 rigs 0 rigs 3 rigs
Conoil Nigeria 1 rigs 0 rigs 0 rigs 1 rigs
ENI Italy 0 rigs 1 rigs 0 rigs 1 rigs
Equator Exploration UK 0 rigs 1 rigs 0 rigs 1 rigs

Nigeria is already seeing oil production fall off due to the disruption caused by kidnappings, sabotage, and social unrest. Officials have said that Nigeria lost $4.4 billion last year as a result of reduced output.

Considering that operators have only a month to place a bid, the state of security in the Niger Delta, and the upcoming change of government, this bidding round may not draw the majors and large independents Nigeria is accustomed to attracting. At the same time, this could represent an opportunity for operators to secure acreage in Nigeria at cheaper prices than might otherwise be possible.

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