Nigeria Reconsiders Its Oil Contracts

Nigeria is in a quandary when it comes to energy. Its onshore and shallow-water oil reserves are maturing, and increasingly being eclipsed by the potential of the country's deep-water oil reserves. Yet, having neither the technological know-how nor the finances to develop deep-water wells, the Nigerian government relies on international oil and natural gas companies such as ExxonMobil and Shell to exploit its offshore fields. Nigeria has been trying since 2008 to renegotiate its archaic contractual terms with the companies it has come to depend on. There are deep-seated concerns that the Nigerian government in Abuja is missing out on billions in oil revenues. Though keen to maximize its revenue share, Nigeria has historically faced difficult market issues that have constrained its ability to negotiate the best terms. 

An announcement last week by the head of the Nigerian National Petroleum Company (NNPC) that contract negotiations were underway is revealing, but perhaps premature. Speaking at a Nigeria-France business forum in Paris, general managing director Ibe Kachikwu said that contractual terms with international oil and natural gas companies (IOCs) were under review, especially those relating to deep-water offshore fields. Nigeria has been in discussions for some time, but will have to tread carefully to avoid alienating the very companies it so desperately needs, which will take finesse.