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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ABUJA, Nigeria—Two bombs exploded early Monday outside a government building in the city of Warri, a Nigerian oil hub, said officials and witnesses, dealing a blow to a peace deal that aimed to prevent militant attacks on the nation’s oil infrastructure.

The attacks occurred just minutes before state governors were to convene to discuss a government peace program with Niger Delta militants. Several state governors had already taken their seats for the event when bombs in two nearby vehicles were detonated, say witnesses and officials. Although several people were injured, there were no immediate reports of casualties.

Oma Djebah, information commissioner of Delta State, which includes Warri, said the explosions occurred about 200 yards from the meeting and the venue was then evacuated.

The militant group the Movement for the Emancipation of the Niger Delta claimed responsibility for the attack. Earlier on Monday, MEND sent an email warning to media organizations about the attack.

“The deceit of endless dialogue and conferences will no longer be tolerated,” the group’s statement read. The militant group accused oil companies and government of stealing land “with the stroke of a pen.”

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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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By Will Connors
Of THE WALL STREET JOURNAL

LAGOS, Nigeria — Kosmos Energy said Monday it signed an exclusive deal with Exxon Mobil Corp. (XOM) to sell its stake in a significant oil discovery off the coast of Ghana, the first confirmation from either company of the deal, said to be worth $4 billion.

“I can confirm that Kosmos has entered into an exclusive binding agreement with a third party (an affiliate of Exxon Mobil) in relation to the sale of its Ghana assets,” Kosmos Senior Vice President and Chief Financial Officer Greg Dunlevy said in an email to The Wall Street Journal.

The announcement comes a day after it emerged that China National Offshore Oil Corp. (CEO, 0883.HK), or Cnooc, is in advanced talks with Ghana National Petroleum Corp. to make a rival bid for Kosmos’ stake in the field, known as Jubilee.

Dunlevy did not disclose the deals’ price tag, but sources told the Journal over the weekend that the deal was worth an estimated $4 billion.

(This story and related background material will be available on The Wall Street Journal Web site, WSJ.com.)

By JEFFREY MCCRACKEN, RUSSELL GOLD And WILL CONNORS

China National Offshore Oil Corp. is in advanced talks with the Ghana National Petroleum Corp. to make a rival bid challenging Exxon Mobil Corp.’s $4 billion offer for a stake in a giant oil discovery off of West Africa, said people familiar with the matter.

A GNPC-Cnooc bid, which one person said “will be competitive to what Exxon has offered,” reflects both the Chinese government’s desire to secure access to more of the world’s oil and the Ghanaian government’s to be a larger participant in the discovery, known as Jubilee.

The emergence of Chinese companies as eager bidders for global energy assets, in Ghana and elsewhere, is a significant challenge to Western oil companies’ traditional dominance. Companies such as Cnooc are backed by a government flush with foreign currency and with a growing desire to secure long-term access to commodities. Their global ambitions are strengthening the hand of oil-rich nations in their negotiations with foreign oil companies.

Exxon and Cnooc would both be vying for Kosmos Energy’s stake in Jubilee, a discovery that is estimated to hold 1.8 billion barrels of oil. With nearby discoveries in Sierra Leone, the region is emerging as a major new oil region and Ghana is expected to be an oil exporter by the end of next year. Jubilee is one of the largest oil discoveries in recent years and holds the type of light, sweet crude oil that is most sought after by global markets.

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ABUJA, Nigeria — Secretary of State Hillary Clinton condemned Nigeria’s electoral process and high levels of corruption, while pledging U.S. assistance in efforts to bring peace to the volatile and oil-rich Delta region.

During a town-hall meeting in the capital city on Wednesday marked by clapping and hooting, Mrs. Clinton urged Nigeria to fix its “flawed electoral system.” The meeting, which was by invitation, included democracy activists, several state governors and business leaders, including the country directors of U.S. oil companies Chevron Corp. and Exxon Mobil Corp.

Mrs. Clinton said that Nigeria had the potential to be a member of the Group of 20 countries, “but — a big but — the corruption reputation … it is a problem.”

While chiding Nigerian elections, Mrs. Clinton said, to a big laugh from the audience, “I know a little bit about running in elections, and I have won some elections and I have lost some elections. And in a democracy there have to be winners and losers.”

“Our democracy is still evolving,” she added. “You know we’ve had all kinds of problems in some of our past elections, as you might remember. In 2000, our presidential election came down to one state where the brother of the man running for president was the governor of the state, so we have our problems, too.”

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