The Feb. 10 Punch story was among the latest in the Nigerian press to question the viability of foreign oil operations there. In another published yesterday, a ChevronTexaco spokesman there said the company has suffered the loss of some 86 million barrels of oil valued at more than US$4.6 billion to assorted thieves, hijackers, looters, pipeline destruction and refinery and flow station barricades.
The company admitted this week to $600 million in losses related to violence in Warri alone since 2003.
The inability of the Nigerian government to meet deadlines in the second licensing round of the Nigeria-Sao Tome and Principe Joint Development Zone, meanwhile, has made some investors wonder if offshore investments are also likely to be compromised by political interference and corruption.
Nigeria is said by Transparency International, a corruption watchdog group, to be the world's third most-corrupt country.
The Punch/Sunday Times story spelled out the problems for Shell in Nigeria:
The Punch, Thursday, February 10, 2005
[Culled from the Sunday Times]
Nigeria looms as wild card in Shell recovery. Despite the record profits, big trouble is bubbling up with the crude.
LONDON -- Shell’s chief executive, Jeroen van der Veer, spent an hour on Thursday in London’s Tower Thistle Hotel giving as good as he got from 50 reporters who were bombarding him with questions at the end of the company’s 2004 annual results press conference.
The 57-year-old Dutchman insisted that Shell's year-long nightmare, stemming from its exaggerations about its oil reserves, was over. The company had drilled down into those exaggerations and after five downward revisions had finally got its reserves estimate right, he promised. “We intend to move on,” he said.
On Friday the market signaled that it would give Shell space to move on by responding calmly to the news of ts fifth reserve cut.
After reporting record profits of £9.8 billion for 2004 in spite of its reserves debacle, Vander Veer will now try to prove that the world’s third-largest publicly owned oil company has not lost the knack for finding petroleum, or lost so much ground against rivals Exxon Mobil and BP that it cannot recover. “I am confident about our future,” he said.
With the Middle East and Russia in the middle of oil industry maps, there is reason be skeptical overall. There is additional reason for skepticism about Van der Veer’s confidence.
Shell depends on Nigeria. The company gets 9 percent of its oil and gas from the country’s Niger Delta, a maze of creeks and mangrove swamps the size of Scotland. Nigeria is one of the most difficult operating environments in the world for oil companies.
As Van der Veer and reporters sparred .verbally in London, Charles Nwokanma, a 28-year-old machete-toting tribesman, and five others manning a road-block outside a Shell compound in the delta sparred with the oil company for real.
Nwokanma comes from Owaza, a community of 15 villages an hour’s drive from Port Harcourt, capital of Nigeria’s oil-producing region. He and neighbors last week barricaded two flow stations in Abia state, from where crude is pumped to the coast to be loaded on tankers.
“The Nigerian government is cheating the community,” Nwokanma said. He and his neighbors shut down the flow stations to press the government into appointing an Owaza villager to the Niger Delta Development Commission, a state-controlled body that distributes Nigerian oil money.
The stand-off followed a series of similar clashes in the region last year. Some 20 million Nigerians from 40 different ethnic groups speaking 250 dialects across 3,000 communities live in the Niger Delta - 70% of them on less than $1 a day.
Out of the clashes emerged Alhaji Asari Dokubo, the media-savvy Ijaw who leads a militia called the Niger Delta Volunteer Force. Dokubo, who professes admiration forOsama bin Laden, said he had enough AK-47s and rocket-propelled grenades to equip an an army of 2,000 men.
Until an informal truce was reached last autumn, Dokubo’s militia came close to a guerilla war with government forces.
In December Shell said that local protests would disrupt 10% of its Nigerian crude production throughout February, and gave notice that due to forces beyond its control it might be late in delivering on some crude contracts.
Speaking ahead of Shell’s press conference last week, Chris Finlayson, the Lagos-based chief executive of Shell exploration and production in Africa, said that despite violence and community protests Shell had suffered fewer disruptions in Nigeria in 2004 than in either of the previous two years. He characterized the security situation as serious but manageable.
“Shell has been operating in the Niger Delta for 60 years, through thick and thin,” Finlayson said. “It remains a challenging place to operate, but we are committed to playing our part as a business in contributing to the economic and social development of Nigeria.”
Local leaders were more downbeat. Ledum Mittee, president of the Movement for the Survival of the Ogoni People, the delta group led by author Ken Saro-Wiwa until his execution by Nigeria’s then-military regime in 1995, said: “Much of last year the situation deteriorated, and all the problems that led to the deterioration are still there. It just needs a spark.”
As investors monitor Shell’s turnaround efforts globally, political-risk specialists will focus on Nigeria. The optimistic Shell view is that the region’s poverty, political violence and gangster-style crime, including the theft of an estimated $1 billion worth of oil a year from pipelines and wells by groups like Dokubo’s, is dangerous but not explosive, because all parties depend financially on the continued export of crude.
Optimists argue that under the civilian government of President Olusegun Obasanjo, Nigeria’s oil wealth is increasingly trickling down to Niger Delta villagers. Shell continues to invest in building up Nigerian exports of liquified natural gas and expects the Bonga field, its first project in deep waters off Nigeria, to begin pumping in July.
The pessimistic view, best summed up in a 93-page report prepared for Shell in December 2003 by WAC Global Services, a Lagos-based group of experts in conflict resolution, is that Shell may have to retreat from the Nigerian mainland by 2009 as the violence gets worse.
WAC concluded that Shell’s presence in the country fed a deepening cycle of violence and corruption that would grow worse as Nigeria’s oil wealth failed to raise living standards in the delta.
Shell rejected this finding by WAC when the report was leaked in June. Finlayson said last week: “We believe that the government has responded to some threatening security situations. For instance, it recently held discussions that resulted in a truce with the Niger Delta Volunteer Force led by Asliri Dokubo.”
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