China's latest and boldest bid to gain a strategic position in Nigeria's oil industry sets the stage for a showdown with western oil companies over control of some of the country's vast crude reserves.
The Financial Times has established that top Nigerian officials are discussing a proposal from CNOOC, a Chinese state-owned energy group, to acquire stakes in 23 prime oil blocks.
Until now, despite a furore over China's quest for African oil, its agreements in Sudan, Angola and elsewhere amount to only 3 per cent of the continent's reserves, according to Stewart Williams, senior analyst at Wood Mackenzie, an energy consultancy.
The stocks it is seeking in Nigeria – equivalent to around 6bn barrels of crude – would surpass the 4.7bn barrels Mr Williams calculates China has gained in its other African pacts.
Under the proposals, CNOOC would take 49 per cent stakes in blocks where Royal Dutch Shell, Total and Eni of Europe and Chevron and ExxonMobil of the US have interests.
The talks come at a critical moment for Nigeria's oil industry. Starved of investment and beset by rebellion in the Niger Delta oil region, the country is pumping at barely two-thirds of its capacity.
Nigerian officials suggest CNOOC may emerge with only a fraction of the reserves it covets. Moreover, it is unclear how the state would allocate equity to the Chinese without forcing western companies to relinquish it – a move that could prompt litigation and disrupt production.
Licences to 16 of the 18 onshore blocks expired last year, and two more run out in 2019. The final five are offshore, covered by production-sharing contracts until 2020 and include Bonga, a Shell deepwater project.
Chinese interest in the blocks is allowing the state to drive a harder bargain in the renewal of their licences. When ExxonMobil offered $78m to renew three expiring 40-year leases, the government responded with a counter-offer of $2.5bn.
Of the three majors that operate expiring blocks, Shell has taken out an injunction against any change of ownership. ExxonMobil and Chevron have extended their leases to the end of November and December respectively.
The oil groups and the government are at loggerheads over planned legislative changes before parliament and on which the fate of China's bid may partly hang.
The new lawsaim to increase revenues to the state, introduce transparency to a notoriously graft-ridden sector and turn the cash-strapped state oil company into a national champion like Brazil's Petrobras or Malaysia's Petronas.
Tanimu Yakubu, special adviser to Umaru Yar'Adua, president, says: “Under the existing model, our right to develop our resources to meet our national aspirations . . . [is] relegated to the operational requirement or exigencies of joint venture partners.”
The expired leases, he adds, are for sale “to the highest bidder”, but stresses that Nigeria has no desire to be rid of its “old friends” from the west, wanting them instead “not just to be happy but, in fact, to be happier as a result of the new bill”.
Mark Ward, managing director of ExxonMobil in Nigeria, has said that under the new legislation “all new planned [upstream] projects would be uneconomic”.
There are larger forces than commercial logic at play. A deal with the Chinese of the magnitude under discussion would be a snub to the US, for whom Nigeria is not only the fifth-biggest supplier of oil but a perceived hedge against volatility in the Middle East. But Nigeria has already alarmed the European Union by signing a $2.5bn gas deal with Gazprom of Russia.
