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U.S. Cuts Royalty Rates For Oil Firms

U.S. Cuts Royalty Rates For Oil Firms

The U.S. Administration has been…

Shell Will Soon Decide On Bonga Field Expansion

Shell is close to making the final investment decision on the expansion of its deepwater Bonga field in Nigeria, S&P Platts reports, citing a statement from Shell Nigeria Exploration and Production Co.

The expansion, which will add some 1 billion barrels of crude to Nigeria’s oil reserves, has been slowed down by a legal dispute between Shell Nigeria and its partner, the Nigerian National Petroleum Corporation, regarding the production sharing contract for the Bonga field.

The dispute stemmed from Nigeria’s attempt to prop up its finances amid the oil price collapse by introducing royalty rates on deepwater projects, which, until then, were royalty-free. The proposal involved a 3-percent royalty rate for projects located at depths of over 1,000 meters and another 8-percent royalty rate for fields that produce up to 50,000 bpd.

The Bonga field is the first deepwater oil project in Nigeria , which started production in 2005 and has a daily output capacity of 225,000 barrels of crude. By the end of 2017, Bonga had produced a cumulative 763 million barrels of crude.

Originally, Shell had planned to make the final investment decision on the expansion of production at the field by the end of this year, but since negotiations on the production sharing contract with the government are continuing, the FID has been postponed until 2019.

Related: Bypassing The World’s Key Oil Chokepoints

The expansion is expected to add another 180,000 bpd to Bonga’s daily production rate with an investment of some US$10 billion. According to the head of SNEPCo, the project will be profitable at oil prices below US$50 a barrel.

Besides NNPC, which holds the concession for the field, Shell’s partners in the project include French Total, Italian Eni, and South African Sasol Petroleum. Under the terms of the contract, the NNPC partners finance the drilling works and then recover their investment from the marketing of the oil produced, after paying royalties to the federal government.

By Irina Slav for Oilprice.com

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