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Oil and Gas

UPDATE 6-Nigeria leans on Western firms with China oil talks

* China eyes 6 bln barrels, sixth of Nigerian reserves

* Nigeria says not offered blocks under renewal negotiation

* Divisions in Nigeria over role of newcomers China, Russia

* Western firms’ output cut by militant attacks

* Militants say Chinese firms no better than Western ones

(Adds militant group warning to Chinese firms)

By Nick Tattersall

LAGOS, Sept 29 (Reuters) - Nigeria is in talks with several state-run Chinese oil firms wanting to buy proven reserves but has not offered them stakes in licences already being exploited by Western companies, a government minister said on Tuesday.

Minister of State for Petroleum Odein Ajumogobia told Reuters that CNOOC, China’s no. 3 oil and gas producer, was one of several Chinese companies engaged in “general discussions” with Nigeria about Beijing’s search for proven reserves.

According to a document leaked to the Financial Times, the licences under discussion include 16 currently operated by Royal Dutch Shell RDSa.L, Chevron CVX.N and ExxonMobil XOM.N which are either in litigation or up for renewal.

Ajumogobia said Nigeria was not offering the Chinese any oil licences operated by existing partners while renewal negotations were ongoing, adding it was the Chinese firms which identified the blocks as potentially interesting and approached Nigeria.

“We are not offering leases that are up for renewal in the middle of negotiations to renew. That is not happening,” Ajumogobia told Reuters in a telephone interview.

“We have not invited anyone to discuss the possibility of leasing these proven reserves. The Chinese made an offer and said they had identified certain blocks including some already being exploited by some of our partners,” Ajumogobia said.

“We are talking to them about their quest to buy proven reserves. This is not new, this predates this administration.”

Analysts said they did not doubt China was looking for new reserves to bolster its energy security but industry executives said the timing of the leak appeared calculated to strengthen Nigeria’s hand as it negotiates with existing partners.

The leaked document suggests China is eyeing 6 billion barrels of Nigerian oil, equivalent to one sixth of the country’s proven reserves, according to the FT.

Citing a letter from the Nigerian presidency to CNOOC’s representative Sunrise, the paper said 23 blocks were under discussion including 16 licences which are up for renewal.

Ajumogobia said some of the licences operated by Royal Dutch Shell, Chevron, and ExxonMobil originally expired last November.

Chevron and Exxon won a year’s extension, meaning their licences are due to expire this year, while Shell successfully sought a court injunction allowing it to continue to operate while it challenged the expiry, an industry executive said.

“It is a very confusing situation and different for each of the companies. It (the leaked document) looks like an initiative where Nigeria is trying to get more out of the international oil companies,” an industry executive said, asking not to be named.

The value of the potential deal was not disclosed, but some details suggested a figure of around $30 billion, the FT said.

Yang Hua, president of CNOOC Ltd 0883.HKCEO.N the listed arm that has been the main vehicle for the firm's overseas investment, declined to comment.

STOKING COMPETITION

There are divisions among the power brokers in Nigeria’s energy sector -- including senior figures in the presidency, oil ministry and state oil firm NNPC -- as to the role that newer partners such as China and Russia should play in the country.

Some feel Nigeria’s existing Western partners have become complacent and want to send a warning they have newer rivals.

Tanimu Yakubu, the Nigerian president’s economic adviser, said in the FT report that China may not secure “anything close” to the 6 billion barrels it is seeking, saying: “We want to retain our traditional friends.”

He added, however, that the Chinese are really offering multiples of what existing producers are pledging (for licences). We love to see this kind of competition.”

Other Nigerian officials fear the country will be exploited by its new suitors as part of a bigger geopolitical game.

“It is going to be a battle. Some of these blocks being discussed seem to be under development at the moment or they are already producing and some are due to be revised,” said Tom Pearmain, African energy analyst at IHS Global Insight.

“The Chinese are obviously trying to buy up assets, they have been on an acquisition hunt for the last few months. I also think it is possibly the Nigerian government is using Chinese interest to negotiate better terms,” he told Reuters.

China is seeking stakes in producers of the raw materials it needs to sustain its manufacturing exports. Analysts say its aim is to hedge against rising raw materials costs. [ID:nLT650368]

CONTROVERISAL REFORMS, DELTA UNREST

The talks with China come as controversial legislation to overhaul the oil sector is before Nigeria’s parliament.

The legislation aims to restructure NNPC into a profit-driven firm like those in Brazil, Malaysia and Saudi Arabia, but it could also allow the Nigerian government to renegotiate old contracts, impose higher costs on oil companies and retake acreage that firms have yet to explore.

Foreign oil firms have warned the plans could threaten billions of dollars of investment in Nigeria, which vies with Angola as Africa’s biggest oil producer, if they go ahead in their current form. [ID:nLB77467]

According to the International Energy Agency (IEA), Nigerian crude oil production was 1.74 million barrels per day in August 2009. Its potential would be around 3 million bpd but output has been hit by militants in the Niger Delta using sabotage to back demands for more local control of oil resources. [ID:nLT470103]

The country’s main militant group warned new Chinese oil firms not to invest in the impoverished region until peace is achieved. [ID:nLT615648]

“The Chinese should be careful about investments until there is justice in that region,” a spokesman for the Movement for the Emancipation of the Niger Delta (MEND) told Reuters.

“We can guarantee that if the government of Nigeria fails to address the root issues, the Chinese will regret they were negotiating with the wrong people.”

MEND, responsible for attacks that have wrought havoc to Africa’s biggest energy industry for the last three years, has imposed a three-month ceasefire in the Niger Delta to allow for peace talks with the government. For a FACTBOX on Chinese oil deals in Africa, please see [ID:nPEK341264] (Reporting by Randy Fabi in Abuja, Joe Brock, Muriel Boselli and Jan Harvey in London, Chen Aizhu in Beijing and Sui-Lee Wee in Hong Kong; Writing by Nick Tattersall; Editing by Anthony Barker and James Jukwey)

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