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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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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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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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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Squabbling Rebels, Corruption Cast Doubt on Peace Plan

By WILL CONNORS

THE NIGER DELTA, Nigeria — Nigerian President Umaru Yar’Adua unveiled an offer in June for rebels to turn in their weapons in exchange for amnesty. Militant leader Ateke Tom watched the news conference on a flat-panel TV at his remote camp deep in this oil-rich expanse of wetlands.

“We want to observe the government’s moves before coming out,” Mr. Tom said a few days later in an interview at his outpost. Outside his concrete residence, young men in camouflage tank tops watched American movies and smoked marijuana in cigar-size joints, their AK-47s lying in the mud beside them.

Mr. Tom, a squat man sporting a G-Unit T-shirt and a gaudy medallion around his neck, said he was negotiating with federal officials, not the state government, which he doesn’t trust. “The governor wants me dead,” he said.

Mr. Tom and other militant leaders have wreaked havoc in recent years on Nigeria’s oil industry — and consequently its economy — from this vast network of densely forested creeks that fan out to the Gulf of Guinea. Now they must decide whether to stop their costly attacks on oil facilities and come out of the creeks once and for all.

Printed in The Wall Street Journal, page A1

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