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DE RUEHOS #0570/01 2261037
ZNR UUUUU ZZH
R 141037Z AUG 07
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC 9325
INFO RUEHUJA/AMEMBASSY ABUJA 9113
RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/USDOC WASHDC
RULSDMK/DOT WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000570 
 
SIPDIS 
 
PASS TO DOE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV SOCI NI
SUBJECT: NIGERIA: Exxon Official Highlights Threats and 
Opportunities 
 
 
¶1. (U) Summary: An Exxon Mobil Official confirmed that 500,000 - 
600,000 barrels per day (bpd) of oil is currently shut-in in the 
Niger Delta. The cost of rig renting has risen from USD 40,000 - 
50,000 to approximately USD 200,000 per day, while a Niger Delta 
security premium of 10 - 40 percent has increased exploration costs 
in the region.  GON investment in the industry, USD 4 billion per 
year, is low and stifling output growth. The Exxon Mobil official 
recommended the Nigerian National Petroleum Corporation (NNPC) raise 
bonds to finance its portion of the joint venture agreements with 
oil majors. End summary. 
 
¶2. (U) On August 7, 2007, the Lagos Business School held its monthly 
breakfast meeting for business executives. This month's meeting 
focused on the Niger Delta. Cyril Ordu, Director, Upstream Business 
Services, Exxon Mobil Nigeria, spoke on challenges and opportunities 
in the oil and gas industry. 
 
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500,000 bpd Shut-in in the Delta 
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¶3. (U) On August 7, Ordu speculated that Nigeria's hope of producing 
4 million barrels per day (bpd) of oil by 2010 was fading. 
Approximately 500,000 to 600,000 bpd of crude oil are shut-in due to 
unrest in the Niger Delta. 
 
¶4. (U) Unrest in the region has created a vicious cycle in the 
industry, he said, which has contributed to high production costs as 
well as high world oil prices.  For example, while rig rentals used 
to average between USD 40,000 - 50,000 per day, they are now as high 
as USD 200,000 per day.  Additionally, companies now pay a Niger 
Delta "security premium," which costs between 10 - 40 percent of 
their exploration costs. Ordu said these cost increases have stalled 
two liquefied natural gas (LNG) projects. 
 
¶5. (U) He said the industry, without success, had implored the Niger 
Delta Development Commission (NDDC) to spend at least 60 percent of 
international oil company contributions in oil-producing 
communities. Currently, Exxon spends an average of USD 10 million 
(naira 1.3 billion) on its host communities and contributes USD 38 
million (naira 5 billion) annually to the NDDC. 
 
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GON Must Invest USD 7 billion Annually for Growth 
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¶6. (U) Ordu berated the Government of Nigeria (GON) for not 
investing in the industry, even though it sets targets to increase 
overall output. In 2006, the GON received USD 60 billion from the 
industry, only USD 4 billion of which was re-invested. (Note: This 
is the same amount the GON has been investing over the last few 
years. End Note.) If the GON does not increase its investments in 
this industry, growth would not be achieved, Ordu warned. He 
speculated that the GON would need to invest USD 7 billion annually 
in order to increase output. 
 
¶7. (U) Ordu suggested the Nigerian National Petroleum Corporation 
(NNPC) could raise bonds to finance its portion of the joint venture 
agreements with oil majors. 
 
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2008 Flare-out Deadline Unlikely 
-------------------------------- 
 
¶8. (U) While the industry may not be able to meet the 2008 flare-out 
deadline, Ordu speculated a lot has been achieved in gas 
utilization. However, these efforts are undermined by the lack of a 
national gas grid. Most gas plants and recently commissioned power 
plants are not connected to gas supply sources, rendering them 
useless. 
 
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Downstream: NNPC Should Partner Foreign Refineries 
--------------------------------------------- ----- 
 
¶9. (U) On the downstream sub-sector, privatizing refineries would 
not solve the energy shortage in the short term, he said. Importing 
petroleum products is the only solution, for now, as repairing old 
refineries and building new ones would take two to three years. 
However, concessioning and revamping infrastructure at Atlas Cove, 
where imported products are received, would make product 
distribution more efficient. He further commented that products 
should be imported through Port Harcourt to reduce the 6,000 plus 
trucks that transport products from Lagos to other parts of the 
country. 
 
¶10. (U) Ordu commented the NNPC could invest in or buy refineries 
 
LAGOS 00000570  002 OF 002 
 
 
abroad in the short term. The NNPC could also enter joint ventures 
or begin crude swaps with foreign refineries, depending on the 
length of time needed for local refineries to be repaired or built. 
 
¶11. (U) Comment. With new appointees at the helm of Nigeria's oil 
industry, ideas like those proposed by Ordu may highlight innovative 
ways forward.  End Comment. 
 
McConnell