Nigeria Expropriates 24 Oil Blocks Awarded to Shell, Chevron and Others

In a new development today that may presage greater interest in developing the country's indigenous producers, Nigeria today expropriated 24 oil blocks that it awarded at least 10 years ago to companies including Royal Dutch Shell and ChevronTexaco.

While Nigeria is by no means a communist government, it is the second time this week that governments of oil-rich nations have taken steps to seize privately-held or leased public lands. The government of Venezuela this week announced that it is planning to "redistribute" what it called "idle" farmlands owned by a British firm to small native farmers. The British owners said the land is used for pasture, not idle.

Shell and Chevron Texaco have both clashed with either the government or indigenous groups over a wide range of issues, including the demand that oil discovered in Nigeria be refined internally and that it buy a refinery there, that Shell pay more than $1.25 billion in fines, and that ChevronTexaco improve working conditions for its pipeline and exploration workers.

Today's report from the Dow Jones News Service conveyed no alarm, as the oil companies' concessions have always been reclaimable by the government under their production sharing contracts with Nigeria.

Smaller companies affected by today's move originally bid for and won the concessions without adequate cash to develop them, hoping instead to sell them to a major producer for a quick profit. That has not happened, and the majors have not displayed much interest in developing the fields, either, which can be a potent revenue stream for the government once developed.

What made the report a little more interesting was a parallel development in Nigeria's offshore Joint Development Zone with Sao Tome and Principe, where giant ExxonMobil has balked twice at signing a Production Sharing Contract. A failure to sign the contract within the month conceivably could require the company to forfeit its rights back to the two countries, or result in ChevronTexaco and Energy Equity Resources - its two minority partners - getting the block instead.

If Nigeria, the dominant partner in the JDA relationship, is using these blocks to demonstrate it may get tough, there is no indication that ExxonMobil is listening.

ExxonMobil has a 40 percent interest in Block 1, and is also expected to choose or sell two 25 percent preferential interests in two of the five blocks on offer in the second round of licensing.

That selection has also been slowing down the process, forcing Sao Tome to borrow money from Nigeria to pay its bills, using signature bonus payments and future royalties as collateral.

Many investors have started calling for just such action by the two governments after growing tired of endless delays in awarding the promised blocks to successful bidders.

Here is some of the Dow Jones report:

LAGOS (Dow Jones)--The Nigerian government has revoked development rights for 24 undeveloped oil blocks and will offer them again in the country's next major oil licensing round, an official of the country's oil industry regulatory
agency said Tuesday.

The blocks had been awarded to oil majors including Royal Dutch/Shell Group (RD SC), ChevronTexaco Corp. (CVX), as well as small oil companies, according to the Department of Petroleum Resources official.

He said the previous owners of the blocks had held them for at least 10 years, beyond which the government can revoke development rights.

"The government felt the thing to do was to reacquire them and make them part of the next licensing round," he said.

The Nigerian government has already had to recast and delay its own licensing round for other blocks due to the dragged-out discussions over the ExxonMobil PSC and the twice-delayed 2004 JDZ Licensing Round for Blocks 2, 3, 4, 5 and 6.