As a small producer that depends on oil for 60 percent of its government revenue, Chad has aggressively tried to increase its share of profits from the oil it produces. On Oct. 6, a high court in the country ruled that U.S. supermajor ExxonMobil must pay $819 million in unpaid royalties for oil previously produced by its consortium in Chad. On top of that, the court slapped the company with a fine of $74 billion — around five times Chad's annual gross domestic product. The proposed fine and royalties will only add to the strain between the Chadian government and international oil companies. But instead of trying to collect its payment, N'Djamena will likely use it as leverage over ExxonMobil in renegotiating its contracts with the company's consortium, a strategy it often uses to strengthen its control over oil revenues.
Like many other oil producers, Chad has been hit hard by the drop in global oil prices, which was made all the more painful by the country's decreasing production. From 2010 to 2015, oil production in Chad fell 36 percent to 78,000 barrels per day. New projects have since bounced production back to between 120,000 bpd and 150,000 bpd, but these figures are still below the country's 2005 peak production of 173,000 bpd. Moving forward, Chad hopes to increase production to 150,000 bpd to 200,000 bpd, a target that is not entirely unreasonable from a geological point of view. Glencore, CNPC and a few other smaller companies are all exploring an expansion in production, but low oil prices have soured investment prospects. In fact, Glencore has already announced that it will scale back its drilling program for this year, having reduced the estimate of its Chadian assets by $1 billion. Chad's aggressive tactics with regard to ExxonMobil will do little to entice other investors. Despite its attempts to improve relations with international oil companies, for example by striving to reduce corruption, Chad risks driving them away if it continues to exert so much pressure on them.
Whatever the outcome of its dispute with ExxonMobil, Chad will continue down its rocky road with international oil companies. Though increasing oil production in the long term is a priority for the Chadian administration, maintaining stability in the short term — for instance, by not driving oil companies out of the country — is imperative.
