Tuesday, April 29, 2008

Nigeria's Delta is where Western oil giants meet local militants

Political unrest has made the Niger Delta a high-risk region for Western majors and their staff, write Russell Hotten and Mike Pflanz.

It is early morning, just after the 7pm-to-6am curfew is lifted, and convoys of minibuses led and tailed by armed escorts speed oil industry workers to their offices, refineries and workshops. The threat of kidnap is everywhere. Oil pipelines and facilities are regularly attacked. For employees of Royal Dutch Shell, ExxonMobil, Chevron and a host of other companies, there is no such thing as a normal day at the office.
Welcome to Nigeria, the world's eighth largest crude exporter - but where concerns about the worsening security situation have contributed to the recent surge in oil prices.
Last week, the wife of an executive at oil services company Lonestar was reportedly kidnapped. The week before, two Shell pipelines pumping oil to an export terminal were blown up, cutting production by 169,000 barrels a day.

"It's going from very bad to very much worse. When we're not at work, we're on lockdown," said a Western contractor who lives in Port Harcourt, the main city in the troubled Nigerian Delta region, where the country's vast oil reserves are located.

To live as an expatriate working in the Delta's oilfields is to live as a virtual prisoner, albeit one earning up to £800 a day in wages and danger money.

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Compounds, half empty now since many major firms pulled out dependants and non-essential staff, are ringed with 12ft walls and electric fences, guarded by dogs and patrolled by armed paramilitaries contracted from the government.

Restaurants and bars are now off-limits and food to cook at home is scarce. "The best we can do is to arrange a bus with an armed convoy to take us to the supermarket on a Sunday," said a British helicopter pilot who has flown the oilfields of Nigeria for 30 years.

Shell, the biggest oil company operating in the Delta, has about 5,000 staff on the payroll there, mainly Nigerians now. Many oil firms and support contractors - the Italian Saipem, Addax of Canada, the oil-drilling firm Noble - have pulled all expatriate staff back to the former capital and largest city, Lagos.

Shell does not disclose how much it has invested in the country, though the company acknowledges that it amounts to many billions of pounds.
Much recent investment has gone into drilling offshore, where platforms and facilities are a safe distance from the troubles on land. Oil and gas (Shell has invested in a huge liquefied natural gas facility) goes straight into the export terminal at Bonny, in the south east of Nigeria, and is shipped off in relative security.

Onshore operations, however, are a different matter. "We have some projects making limited progress," admits a Shell spokesman. "Because of the security situation we cannot extend as we hoped." But pulling out is not an option. Companies like Shell, Exxon and France's Total - which is expanding its operations - have too much at stake in Africa's largest energy exporter.

With the crude price at record levels, the potential profits to be made are too great, especially as the independent oil majors like Shell are struggling to replenish reserves. "With oil at $115 a very serious incident would have to occur for the majors to withdraw," said a senior executive with a European drilling contractor.

Nigeria's daily output is 2.1m barrels, despite exports having been cut by a quarter since January 2006 because of unrest in the Delta. In 2005-6, the security situation in the Warri area, in the west of the region, became so bad that production was halted completely for a year.

Production was restarted after what Shell called "long term engagements in the community" to improve the conditions of the people. Shell admits that the region "has been neglected by various governments for years". But the spokesman said that the current government was unquestionably doing much more for the people. "And so are the oil companies," he said.

The Delta petro boom now pumps more than £30bn into Nigeria's national exchequer each year, making up 95pc of foreign exchange earnings and 80pc of government revenue. But despite claims that things are improving, very little of that money - officially, 13pc of export revenue - returns to the 10m of Nigeria's 138m population who live on the swamps, creeks and myriad waterways of the Delta.

Roads are dire, hospitals scarce, state-supplied electricity almost non-existent and illiteracy at the highest levels in Nigeria. Oil firms have stepped in to build schools and health centres, and supply electricity in an attempt to stem the tide of bitterness felt towards them by the local population.

And there was optimism that the security situation was improving. In 2007, eight foreigners were killed and 172 taken hostage. Of these, 13 were British, including three-year-old Margaret Hill, who was released unharmed after four days. But until this month, 2008 had been relatively "peaceful".

Now the leading militant group in the area, the Movement for the Emancipation of the Niger Delta (Mend), has pulled out of peace talks and has launched a fresh campaign, dubbed Operation Cyclone, against the oil majors.

Jomo Gbomo, Mend's pseudonymous spokesman, told The Daily Telegraph that British interests in Nigeria would be targeted and that his organisation planned new kidnappings.

"We are hoping to capture a Briton to be used for a hostage exchange," he said. "This will perhaps bring a serious focus on the Niger Delta question. Great Britain, the former colonial master, has disappointed us and they will suffer the consequences," he said in an emailed response to questions. "By turning a blind eye to a glaring injustice, they have created a generation of rebels that consider British oil industries operating in that region as legitimate targets."

To make matters worse, a crop of new armed gangs bent on extortion and kidnapping has sprouted, bankrolled by corrupt politicians who paid with guns to buy the thugs' muscle at election time.

Alongside the ideologically-driven militants like Mend and criminal warlords, Western oil majors are facing a third challenge - the growing influence of state-backed energy companies from China and Russia, both of which have offered huge loans to Nigeria in return for access to its oil and gas resources.

The Western companies may find it hard to resist the might of firms like Gazprom as Nigeria still needs billions of pounds to help exploit its resources. Shell has warned that Nigeria has withheld funding for planned joint venture investments, and Exxon this week faces a strike that has caused the partial shutdown of operations.

"Things have been a little bit fragile," says Shell of recent developments. That may turn out to be the understatement of the year.

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