Nigeria - Low Price Effects On Abuja.

Because of falling prices, oil exporting states earlier in 2009 had to slash budgets and relied more heavily on their NOCs as piggy banks to fund social programmes. But not every petro-government had that option. The state-owned Nigerian National Petroleum Corp (NNPC) had to turn to Shell for a $3 bn loan to sustain oil production and investment. Shell, the biggest oil producer in Nigeria, has been badly affected by the Niger Delta violence. Its largesse has yet to translate into contractual benefits but has made it bolder in lobbying against Abuja plans to increase taxes on the petroleum industry, though its effort in this respect has so far been fruitless.

In stark contrast is the enviable position of IOCs. Far from being national piggy banks, big IOCs like ExxonMobil built up war chests of tens of billions of dollars during the boom years. That has spared them - at least for now - from having to slash budgets, cut dividends or turn to borrowing. The contrast is a significant one with the past five years when oil-rich governments and their state-controlled firms had the upper hand because high oil prices meant they could secure funding without the help of IOCs. During that time they re-wrote even legally binding contracts to the detriment of IOCs desperate to gain access to the dwindling number of attractive oil assets around the world.

Leading resource nationalists like Russia and Venezuela captured greater shares of profits and majority stakes previously held by IOCs. But such assertiveness has all but disappeared as IOCs have become more selective about the projects they choose to back. That has left NOCs, like Russia's Gazprom and Petroleos de Venezuela (PDVSA) having to slash their budgets. PDVSA has defaulted on payments to companies it hired to drill for oil. In Russia, cash-strapped NOCs have turned to China for loans totalling $25 bn, offering future oil supplies in return - a deal which would not have happened before oil prices fell. Brazil turned to the Chinese for money.

Wood Mackenzie has worked out that, before taxes, all the E&P projects around the world turn a profit with crude at $40/b. But under current tax regimes, only about half can break even at that price. This means many states will need to improve their terms if they want IOCs to find them more oil. Alan Murray, head of Wood Mackenzie's exploration analysis, on Feb. 27 was quoted as saying: "It is a big shift backwards" with the IOCs "recapturing some of the bargaining position they had before".

IOCs say the shift in power is yet to translate into changes in terms. ENI's CEO Paolo Scaroni earlier in 2009 said: "We might find ourselves one day refusing to do a development because we don't get a return and then the country being prompted to improve the conditions. But we are not there yet". For Iraq such evidence of change is a reminder of lost opportunity. Had Iraqi politicians in 2008 passed a petroleum law governing IOC investment and had their contract talks not been delayed, they would have been in a far stronger negotiating position than the one in which they find themselves now.

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