May 26, 2008 / 6:59 PM / in 10 years

Nigeria signs $3.1 bln funding deal with Shell

ABUJA (Reuters) - Nigeria signed a $3.1 billion deal with the local arm of Royal Dutch Shell (RDSa.L) on Monday to plug a funding gap in their joint venture projects, the country’s state oil firm NNPC said.

A man walks past a banner for oil giant Royal Dutch Shell in Nigeria's main city of Lagos January 12, 2006. REUTERS/George Esiri

Under the deal, Shell would cover a $1.3 billion shortfall in NNPC’s share of the 2008 joint venture budget and provide an extra $1.8 billion loan to cover outstanding payments from 2006 and 2007, NNPC said in a statement.

The agreement is the third such deal in 10 days between the world’s eighth biggest oil producer and its joint venture partners to try to end chronic funding shortfalls in the industry which have delayed projects and depressed output.

“The money will be used to finance their upstream joint venture projects,” the statement said. It said the $1.8 billion loan would mostly be used to settle payments due to local contractors and suppliers.

Shell operates onshore and shallow water oilfields in Nigeria as part of a joint venture called SPDC. Long the biggest producer in Nigeria, it has been overtaken by ExxonMobil (XOM.N), which has a higher proportion of facilities offshore.

A company spokeswoman in Nigeria confirmed the deal had been signed but declined to comment on the details.

“We can confirm that SPDC has signed two sets of agreements with the NNPC,” the spokeswoman said.

“The agreements specify how to address the underfunding of the past through bridge loans, and the funding of ongoing projects and new developments with a modified carry agreement.”

She said detailed agreements now had to be signed before the deals could be executed.

Nigeria signed a $2 billion funding deal with Exxon last Monday, days after striking a similar $1 billion agreement with French energy group Total (TOTF.PA).

NNPC hopes the deals will help Nigeria to unlock significant shut-in output potential and has said they will help ensure the country meets or exceeds its OPEC quota — currently 2.2 million bpd — over the next one to two years.

But such agreements are only seen as a short-term solution to funding shortfalls in Africa’s top producer.

President Umaru Yar’Adua has been keen to bridge the funding gap in the oil industry through private sector financing since he took power a year ago.

Energy Minister Odein Ajumogobia said last month Nigeria planned to raise cash on both the international and local capital markets to help fund the joint venture projects and avoid future shortfalls.

Additional reporting and writing by Nick Tattersall; Editing by James Dalgleish

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