Eni Declares Force Majeure at Nigeria Brass Crude Field

LONDON (Dow Jones), Apr. 28, 2010

Italian oil major Eni SpA (E) said Wednesday it has declared force majeure on some of its Nigerian Brass River crude oil production following unexpected disruption to flows.

Force majeure is a term in a contract that can be invoked when conditions beyond the control of the company make it impossible to fulfill the terms to which it originally agreed.

This is the first big disruption in four months in the Niger Delta, Nigeria's main oil-producing region. In January, Royal Dutch Shell PLC (RDSA) was forced to declare force majeure at its Forcados oil field.

Cessation of attacks this year has allowed the country to slowly build up its monthly export programs. Its energy ministers have been lobbying hard for an increase to its Organization of Petroleum Exporting Countries quota, which stands at 1.673 million barrels a day. A rise could see it regain pole position as Africa's leading oil producer.

"We need to force majeure because there has been a problem at Brass River. We cannot yet tell whether there was any attack on pipelines or sabotage involved but the problem has disrupted around 12,000 barrels of oil equivalent of Eni's equity production," a spokesman for the company told Dow Jones Newswires. Production from the field is shared.

The way the measure is implemented varies according to the nature of the disruption to supply, for example depending on whether the crude can be bypassed through different pipelines to buyers at its original destination or an alternative, or how much can be diverted this way and for how long. Market participants said they expect it to be applied to about 60,000 barrels a day of crude from the field.

When the Brass facility was running at maximum capacity a couple of years ago it could produce more than 150,000 barrels a day, but in recent months traders of West African crude pegged output nearer to 130,000 barrels a day.

The company spokesman said the team in Nigeria would carry out further investigations to determine the cause of the problem.

The Brent crude oil futures price shrugged off the news, which coincided Wednesday afternoon with the release of the U.S Department of Energy weekly inventories data. The front-month contract traded on the InterContinental exchange continues to trade more than $82 a barrel.

However, disruption to supply at one of Nigeria's main fields may lend some support to spot prices in coming days according to market participants, although the country has just issued one of its most ambitious loading programs in two years for June exports, aiming to ship more than 70 cargoes.

"The grades are under pressure, and there are large programs of Qua Iboe and Forcados crude," said one London-based trader. "So the Brass force majeure may have some impact but not a lot."

In the past couple of years unrest in the Niger Delta has cost Nigeria thousands of barrels a day of lost crude oil production. In recent months there have been few attacks reported on pipelines at oil hubs.

The group that claims responsibility for the majority of the attacks on the country's energy infrastructure, the Movement for the Emancipation of the Niger Delta, or MEND, says it is fighting for a bigger share of the region's oil wealth.

Copyright (c) 2010 Dow Jones & Company, Inc.