After US and European firms lose interest, a Chinese company wastes no time in pouncing on a giant OPEC prize…
With a $10 billion check in hand, an undisclosed Chinese firm has made a gigantic investment in an area known as the Bida Basin, located in the Niger State of Western Nigeria.
This is a big deal – especially considering the fact that the West African nation is wrought with corrupt governance and sectarian violence leading to a poor human rights record, health issues, decaying education system, and crime.
Nigeria, a member of OPEC, is the largest oil producer in Africa and is the world’s 25th largest natural gas producer. The country produced about 2.0 million bpd of crude, and also produced 1.2 trillion cubic feet of dry gas in 2012. It also happens to be the 4th largest exporter of liquefied natural gas (LNG) in the world as well.
Like many other OPEC states, oil and gas is the lifeblood of Nigeria — accounting for 40% of GDP and 80% of government revenues. Any major new discovery will directly affect the entire Nigerian economy.
The famed Niger Delta has traditionally been where the majority of Nigeria’s petroleum operations were situated. But it’s the yet to be developed Bida Basin that’s been garnering a great deal of attention lately.
Bida is estimated to contain a 30/70 ratio of oil to gas compared to the Niger Delta’s 25/75 — thus increasing the potential for more lucrative payouts.
To determine just how fertile the Basin really is, significant exploratory work would have to be undertaken — which requires a huge capital investment.
However, many firms are reluctant to take the leap. Industry leaders including Shell and Chevron, have gradually seen their profit margins erode in Nigeria with their operations under constant threat from oil thieves. Consequently, they are now divesting some of their assets in the region.
But while Shell and Chevron have been looking to taper down their presence in Nigeria, the Chinese have been buying in.
And not surprisingly, the Nigerian government is rolling out the red carpet.
The Chinese Move In…
The Chinese are determined to be the first to find out what the Bida Basin is all about — and this latest $10 billion investment could be just the beginning.
For over forty years, the two nations have been key economic and political allies. In exchange for Nigerian petroleum, China has provided significant economic, military, and political support to the country.
The amount of business conducted between the two countries has exploded in that time, with bi-lateral trade surpassing $13 billion in 2013.
The Chinese are by no means oblivious to the fact that Nigeria is facing stifled growth from within.
But if the Bida Basin is as abundant with oil and gas as they hope it is, they definitely feel that the rewards would far outweigh the risks.
In the coming few months, we’ll keep a close eye on what happens in the Niger State.
My guess is, to have the means to cut a check for $10 billion, especially when investing in a region as volatile as Nigeria, the company would likely have to be one of China’s 3 state-owned oil corporations: China National Offshore Oil Corp (NYSE:CEO), Sinopec (NYSE:SHI), or China National Petroleum Corp.
But whether it’s one of these three giants or not, the $10 billion investment could merely be a scratch on the surface once the Bida Basin opens up and reveals its hidden bounty. I’ll keep a close eye on developments here and if I see a company worth recommending, you’ll be the first to know.
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