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Financial Times: Bonga project delays hit Shell

 

By Joanna Chung and Michael Peel in Lagos

Apr 03, 2004

 

Royal Dutch/Shell will again delay production at an important deep-water project in Nigeria until 2005, the latest disappointing news emerging from the oil and gas group.

 

A Shell official said the Bonga project had been delayed because the floating production vessel used to pump the oil was not yet ready.

 

Bonga is the first of a clutch of new deep offshore production projects in Nigeria and Shell had taken some time to work out which contractors were good enough to do the work, the official said.

 

"You could say it is bad planning on our part but with a project that size, it is bound to happen," the official said. "It is a first for most of the companies involved."

 

Bonga, forecast to produce about 225,000 barrels a day, is critical to Shell's plans to expand Nigerian operations through deep offshore production.

 

Shell is the largest oil producer in Nigeria, operating a joint venture that accounts for almost half of the country's 2m barrel a day output.

 

The delay of a few more months is only a minor irritant for Shell, said analysts, but it could affect Nigeria's efforts to secure a bigger share of output from its partners in Opec, the cartel of oil producing countries.

 

Bonga is one of several projects meant to help increase the country's total production capacity by 50 per cent or more by 2007.

 

The trickle of of bad news, however, is likely to weigh further on investors' confidence in Shell, which has downgraded its proved reserves by more than 4bn barrels so far this year.

 

Neil Perry, analyst at UBS, said: "People's confidence in Shell is at the lowest I have ever seen."

 

Shell is trading at a 17 per cent discount to its peer BP and at a 29 per cent discount to ExxonMobil, according to Deutsche Bank.

 

It also emerged yesterday that Shell was facing "cost pressures" - partly from exchange rates, and higher raw material and contractor costs - at the Sakhalin II development, the largest single foreign direct investment project in Russia.

 

Shell owns 55 per cent of Sakhalin Energy while Mitsui and Mitsubishi, two Japanese companies, hold the rest of the stake.

 

Shell would not confirm whether the costs for the second phase would exceed the $10bn (5.9bn) figure indicated last May but said the first cargo of liquefied natural gas would be delivered in 2007 as planned.

 

Analysts pointed out that it was not uncommon to have varying cost estimates during the lifetime of projects.

 

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