By SPENCER SWARTZ in London and WILL CONNORS in Lagos

Nigeria has decisively reclaimed the mantle of Africa’s top oil producer, with rising output and crude prices spurring growth in the continent’s most populous country. But the same industry driving the economy—oil—faces a host of challenges.

In the next month, Nigeria’s national assembly is expected to approve energy legislation that U.S. and European oil executives warn could curtail investment. The presidential election early next year may reignite fresh violence in the Niger Delta, the West African country’s main oil region, where Royal Dutch Shell says its pipeline was attacked recently.

The sabotage reflects longstanding discontent among the poor in the area. Some attacks are conducted by oil thieves who set up illegal refineries.

Nigeria—which holds the world’s ninth-biggest proven oil reserves— produced almost 2.2 million barrels a day in July, its highest average since November 2007, according to analysts and traders.

The upswing stems largely from a lull in militant violence against Niger Delta oil pipelines and is linked to a government amnesty deal for militants who had been on a bombing spree against oil-industry infrastructure.

Thanks to the relative peace, idle oil fields are pumping again, allowing Nigeria this year to consistently produce more crude than Angola, Africa’s second-biggest producer.

Output has also increased amid the rise in fuel prices this year. Benchmark U.S. crude prices are expected to average $78 a barrel in 2010, up from $62 last year. That could push Nigeria’s economy to expand by about 7% this year, some analysts say, putting it among the fastest growing in Africa. But the rising crude output masks weaknesses in the industry.

An ominous sign for Nigeria’s production is slumping international investment. Foreign direct investment, mostly in the petroleum sector, sank to $5.85 billion last year from $13.96 billion in 2006, according to a recent United Nations report.

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Move Ends Talks on Chunk of Big Oil Discovery, Opens Doors for Other Players

By WILL CONNORS, SIMON HALL and DAVID WINNING

ACCRA, Ghana—Exxon Mobil Corp. said Wednesday it has canceled plans to buy $4 billion in oil assets here controlled by Kosmos Energy LLC, dealing a blow to the U.S. oil company’s drive to tap an important new oil region in West Africa and possibly triggering a scramble for a stake in a new frontier market.

“ExxonMobil has terminated the share purchase agreement with Kosmos Energy,” an Exxon spokesman said. The spokesman declined to provide further details of the talks.

The move ends fraught negotiations over a large chunk of one of the oil industry’s biggest recent discoveries and opens the door for other players—namely Chinese state-run oil company Cnooc Ltd.—to enter the Ghana oil market just months before production begins.

In June, Ghana’s state-run oil company GNPC signed an agreement with Cnooc valued at more than $4 billion to purchase the Kosmos stake, according to a person in Ghana familiar with the situation. This month, President of Ghana John Atta Mills had scheduled a meeting with the State Department’s top official for Africa, Johnnie Carson, to inform him that the government of Ghana would not approve the Exxon-Kosmos deal.

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By SPENCER SWARTZ And WILL CONNORS

Nigeria and China signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, strengthening the countries’ energy partnership.

Nigeria, Africa’s most populous country and one of its top oil producers, has been eager to boost gasoline supply and overhaul its rickety refineries. And by helping Nigeria build new refineries, China may be able to expand access to the country’s high-quality oil reserves.

“This is a deal we need for Nigeria to cut our reliance on imports,” said a senior Nigerian oil official. He added that the refinery deal puts China “in the running” for getting additional access to oil acreage. “This is business, but it builds goodwill.”

Under terms, Nigeria’s state oil company, along with a host of Chinese government-run entities, would build three refineries and a petrochemical complex, according to a statement from the state oil company, Nigerian National Petroleum Corp.

Officials said critical details remain unsettled, such as the pact’s financial terms and who would operate the plants.

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BULIISA, Uganda—One of Africa’s biggest nature parks has turned into a battleground over oil, pitting foreign energy companies and the government of Uganda against environmentalists eager to shed light on their venture.

Oil companies led by London-listed Tullow Oil PLC have found oil reserves estimated to hold up to two billion barrels in the Albertine Rift Valley, which contains Murchison Falls National Park. The park is one of Uganda’s biggest tourism draws and home to elephants, giraffes, lions and rare birds.

Tullow’s project, which contains one of Africa’s biggest onshore oil finds in decades, is seen as crucial to the Central African nation’s economy as the government attempts to diversify away from tourism and rely less on foreign aid. The government has given a Tullow consortium the green light to explore and drill in the park.

“As much as we need to protect the environment, oil is an important resource for the country if properly managed,” said Aryamanya Mugisha, the executive director of Uganda’s state-run National Environmental Management Authority, or NEMA.

That stance has irked environmentalists and villagers who benefit from park tourism. Protected areas support over 80% of Uganda’s tourism industry and bring in about $600 million a year in revenue, according to official estimates.

Big oil and environmentalists have never had an easy relationship, but tensions in Uganda run especially high. Civil society groups say that many of the government’s decisions surrounding oil have been shrouded in secrecy and that details of Tullow project, including any clear plan to minimize its environmental impact, haven’t been disclosed.

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Camp of Ailing President Says Vice President Will Rule for Now

By WILL CONNORS

ABUJA, Nigeria—The return of Nigeria’s ailing president after a three-month medical absence sets the stage for a showdown over who will ultimately call the shots in Africa’s most-populous nation.

President Umaru Yar’Adua, who had been receiving treatment in Saudi Arabia, returned home early Wednesday but remains too ill to govern, according to a presidential spokesman.

Mr. Yar’Adua, who didn’t make a public appearance, offered a message of support for his vice president, Goodluck Jonathan, who was appointed acting president earlier this month by the Nigerian National Assembly, to serve until the return of the president.

“President Yar’Adua wishes to reassure all Nigerians that on account of their unceasing prayers and by the special grace of God, his health has greatly improved,” presidential spokesman Segun Adeniyi said. “However, while the president completes his recuperation, Vice President Jonathan will continue to oversee the affairs of state.”

That statement appears to start a clock toward the return of Mr. Yar’Adua, 58, whose absence with kidney and heart problems left the country in political limbo. Stepping into the president’s role earlier this month, Mr. Jonathan has reshuffled the cabinet, made long-delayed government appointments and has held meetings with foreign oil companies to calm international investors and the public.

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LAGOS, Nigeria—The government of Ghana blocked the estimated $4 billion sale of a stake in a huge oil field, foiling months of talks between potential buyer Exxon Mobil Corp. and the stake’s owner, Kosmos Energy LLC.

The government accused Dallas-based Kosmos of cutting Ghana’s state-run oil company out of discussions about the field’s development and then sharing information about the field with potential buyers without government permission. The government in recent months itself has scouted for partners to work with Ghana’s oil company, including state-run China National Offshore Oil Corp.

Ghanaian Energy Minister Joe Oteng-Adjei said state-run Ghana National Petroleum Corp. would be the only entity allowed to buy the Kosmos stake in the so-called Jubilee field.

Last week, he sent a letter to Exxon informing the company that a deal with Kosmos wouldn’t receive government approval.

The letter, reviewed by The Wall Street Journal, said the government is “unable to support an Exxon Mobil acquisition of Kosmos’s Ghana assets.”

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WARRI, Nigeria — Western oil companies operating in Nigeria are racing to lock up license renewals ahead of legislation that could boost tax and royalty rates.

Amid the negotiating scramble, several big players are expected to recommit to community-development programs and local infrastructure projects. Royal Dutch Shell PLC has even agreed to offer business training to former gun-toting militants in the volatile, oil-rich Niger Delta, following a government-sponsored amnesty here.

A sense of urgency arose among the Western oil majors after the Nigerian government said earlier this year it had received an expression of interest from oil-thirsty China to buy the rights to the expiring licenses. Nigerian officials confirmed in September that China’s state-owned Cnooc Ltd. was interested in more than 20 oil blocks, including nonexpiring blocks currently operated by Western companies.

China’s chances of actually acquiring the leases from the government were never very good. Apart from legal avenues Western companies could pursue to prevent their licenses from being taken and given to the Chinese, Western operators in Nigeria have been pumping oil for years and have longstanding, though sometimes volatile, relations with Abuja.

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By WILL CONNORS

LAGOS, Nigeria — Exxon Mobil Corp. ended months of negotiations with Nigeria by renewing three oil leases for fields the company operates in the country, an Exxon spokesman said.

The three leases — for sites that produce more than 550,000 barrels a day — were extended for another 20 years with an option to renew, at a signing ceremony Friday in the capital, Abuja.

Neither Exxon nor the Nigerian government provided details about the price paid for renewing the leases.

A person close to the deal said the government had asked for about $4 billion for the leases, but that Exxon paid less than $1 billion.

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Oando becomes major player in African country long dominated by foreign energy companies

By SPENCER SWARTZ and WILL CONNORS

LAGOS, Nigeria—In a few months, Oando PLC, a small oil company here, is expected to take a rare step for any Nigerian company by applying for a listing on the London Stock Exchange. The move is an indication of something even more unusual about Oando: it is in position to become this oil-rich country’s first major energy company.

The Nigerian oil market has for years been dominated by major foreign players like Royal Dutch Shell PLC, whose advanced technology and know-how have allowed this West African state to become the world’s eighth-biggest oil exporting nation. But Oando, under chief executive Wale Tinubu, has bucked traditional investor views of Nigerian oil firms, most of which have little track record for being able to execute challenging oil projects.

Oando is parlaying its position as Nigeria’s leading fuel retailer—a status it built just in the last few years—into plans to be a bigger, integrated oil company. With strong management that is seen as credible to the broader investment world, Oando, which is audited by PricewaterhouseCoopers, has separated itself from a raft of other small local players.

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By WILL CONNORS

LAGOS, Nigeria—China Petroleum & Chemical Corp. has made an offer to the Ghanaian government to jointly bid for a stake in a major oil discovery off the coast of the West Africa country, according to a person familiar with the matter.

Sinopec, represented by Neil Bush, the younger brother of former U.S. President George W. Bush, recently made an offer to the Ghana National Petroleum Corp. to form a joint bid for a stake in the Jubilee field, the person said.

GNPC officials rejected the initial offer, according to the person, and are waiting to hear from all potential partners before making a decision.

Mr. Bush couldn’t be reached for comment.

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