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Shell itself ‘Feeds’ Nigeria ‘violence’, May End Onshore Work

The report said in some cases employees of the Shell venture in Nigeria collaborate with local criminals to sabotage company facilities…

Bloomberg.com: Shell itself ‘Feeds’ Nigeria ‘violence’, May End Onshore Work

June 10 2004 (Bloomberg)

Royal Dutch/Shell Group, Europe’s second-biggest oil company, may have to quit onshore production in Nigeria, which supplies 9 percent of the company’s oil, because of escalating civil strife, according to a company-funded report.

Violence in the Niger River delta, home to a majority of Nigeria’s oil reserves, kills about 1,000 people a year, on par with conflicts in Chechnya and Colombia, according to the Shell- funded report that said rebels sell stolen oil to buy weapons. The 93-page survey also said Shell itself “feeds” the violence and may have to leave the area by 2009.

Shell disagrees it will have to leave and will instead “help reduce conflict by changing our operating, security and community development practices,” spokesman Simon Buerk said.

“It’s an important region for Shell,” said Finlay MacDonald, a fund manager at Britannic Asset Management in Glasgow, Scotland, which has the equivalent of about $20 billion under management. “Given the degree of political instability there, it’s a region that comes with a relatively high degree of risk.”

Dated December 2003, the study was commissioned by Shell, based in The Hague and London, and conducted by WAC Global Services, a group of experts in conflict resolution based in Lagos, Nigeria. Bloomberg News obtained a copy of the report.

Nigeria was Shell’s fourth-largest oil producer in 2002, supplying 215,000 barrels a day. Once the largest publicly traded oil company, Shell has been struggling after disclosing on Jan. 9 that oil and gas reserves were overstated by 20 percent, a restatement that centered on Nigeria.

`Entrenched Violence’

Shell’s behavior in Nigeria has been criticized from the swamps of the delta to shareholder meetings in London, a legacy of the hanging of writer Ken Saro-Wiwa in 1995 by a then-military government of General Sani Abacha. Saro-Wiwa had protested Shell’s work, and his relatives alleged the company recruited police to attack villages and suppress opposition to its work. Shell denied the charge.

Shell has shipped oil from Nigeria, Africa’s most populous nation, for 50 years. Seventy percent of its 130 million people live on less than $1 a day. A nationwide strike started yesterday over rising fuel prices, adding to concern about oil output.

“The basis for escalated, protracted and entrenched violence is rapidly being established” in Nigeria, the report said. “It would be surprising if (Shell) is able to continue onshore resource extraction in the Niger Delta beyond 2008, whilst complying with Shell Business Principles.” Those company guidelines set standards for honesty, integrity and respect for people and society.

The report said in some cases employees of the Shell venture in Nigeria collaborate with local criminals to sabotage company facilities, only so they can receive part of the compensation payments that Shell makes.

“Staff, contractors and some community members make alliances to cause, repair and clean up oil spills,” the report said. “Instigating violence in the community so that claims based on `force majeure’ can be made towards SCIN has become a business in itself.” The report refers to Shell companies in Nigeria as SCIN.

A Step to the Top

Shell calls Nigeria an oil “heartland.” Its past two chairmen, Philip Watts, 58, and Mark Moody-Stuart, 63, worked in Nigeria along their way to the top of what is now the world’s third-largest publicly traded oil company.

“There is serious conflict in parts of the delta, and this has the potential to get worse if no action is taken,” said Shell’s Buerk. “The fieldwork highlighted how conflict makes it difficult for us to operate safely and with integrity, how we sometimes feed conflict by the way we award contracts, gain access to land and deal with community representatives.”

The chairman of Shell Nigeria, Chris Finlayson, in the company’s annual report for the country, released today, said “we remain committed to corporate social responsibility, one aspect of which is our contribution towards the development of the Niger Delta and the reduction of poverty, but recognize that our development activities in the past may have been less than perfect.”

Shell’s Faults

The study, entitled “Peace and Security in the Niger Delta,” said Shell companies have worsened fighting in the Niger delta through payments for land use, environmental damage, corruption of company officials and reliance on Nigerian security forces.

The actions of Shell companies and their staff “creates, feeds into, or exacerbates conflict,” the report said. “After over 50 years in Nigeria, it is therefore reasonable to say that SCIN has become an integral part of the Niger Delta conflict.”

Nigeria was one of the main reasons of this year’s reserve cuts, which led to the departure of Watts and two colleagues. Of the 3.9 billion barrels of reserves that were wrongly booked, a third were in Nigeria. The U.S. Securities and Exchange Commission and Justice Department are investigating the matter. Shell is cooperating with the probes.

Shell Transport & Trading Co. shares traded in London lost more than 10 percent after the first reserve cut. They closed at 395 pence yesterday, down 5.25 pence from the previous day.

More Dangerous

As production onshore in Nigeria becomes more dangerous, oil companies are drilling in deep waters offshore. Shell and partners are spending $2.7 billion at the Bonga project, which lies in water more than 1,000 meters deep. Exxon Mobil Corp. and partners are building the $2.5 billion Erha development in waters about 1,200 meters deep and 165 kilometers southeast of Lagos.

Communities in the Niger delta, a maze of creeks and rivers feeding into one of the world’s biggest remaining areas of mangroves, are among Nigeria’s poorest. The report cites studies showing per-capita income in the area to be below the national average of $260. Unemployment surpasses 90 percent in some areas.

Those communities are gripped by “social disintegration” caused by a “combination of endemic corruption, poverty and inequality, as well as high youth unemployment,” the report said.

The authors based their findings on the views of more than 200 people with stakes in the future of Nigerian oil, from youth groups and local leaders to senior oil managers, according to the report. Shell and Total cooperated in the process, the report said.

Steal Oil, Buy Guns

Violence in March of last year around the town of Warri led Shell and San Ramon, California-based ChevronTexaco Corp. to idle 37 percent of Nigerian output for two weeks. Vandalism is still keeping Shell from pumping 29,000 barrels a day, Buerk said. Chevron has been unable to restart 140,000 barrels. Those barrels are a lost $5.9 million in revenue a day as the 11-member Organization of Petroleum Exporting Countries, including Nigeria, pumps near its limits.

Seven people, including three Nigerian navy troopers, two U.S. workers on contract and two Nigerian boatmen, were killed during an April visit by Chevron staff to the area, Chevron said on its Web site.

Government officials, including Edmund Daukoru, 60, Nigeria’s OPEC delegate and the oil adviser to President Olusegun Obasanjo, say thieves siphon oil from export pipelines using a method known as “hot-tapping,” which allows them to avoid detection by maintaining pressure in the lines. Daukoru’s predecessor, Rilwanu Lukman, last year said more than 200,000 barrels a day is lost.

Criminal Gangs

Criminal gangs in the theft, known as “bunkering,” are importing weapons and forming militias out of unemployed youths who are increasingly challenging the authority of their traditional rulers, the report said.

A day’s worth of illegal oil bunkering in the Niger Delta at 100,000 barrels and $15 a barrel “will buy quality weapons for and sustain a group of 1,500 youths for two months,” it said.

Oil theft is costing Nigeria as much as $6 billion a year, and the oil companies as much as $302 million a year, assuming a world price of $30 a barrel, according to the report.

Illegal Bunkering

“Illegal oil bunkering is probably the most significant accelerator of conflict in the Niger Delta,” the report said. Weapons flowing into the region include “thousands” of automatic weapons, rocket propelled grenades, explosives and “possibly short-range missiles,” the report said.

Analysts such as Kojo Bedu-Addo, who advises companies in Africa for Control Risks Group in London, said he doubts Shell will have to abandon all onshore production. The majority of Nigeria’s oil reserves are onshore.

“Leaving onshore altogether is probably too extreme, but Shell may have to reduce their overall capacity onshore because of the violence,” Bedu-Addo said in a telephone interview from London. “In the long term, Shell may have to sell off some of its onshore assets to local Nigerian companies.”

Daukoru said oil companies shouldn’t flee.

“I wouldn’t particularly advise companies to move offshore just for the sake of problems onshore,” Daukoru told a group of reporters on June 4 after an OPEC meeting in Beirut.

U.S. Coast Guard Ships

The Nigerian navy, which is using four refurbished ships donated by the U.S. Coast Guard, is intensifying the fight against oil thieves and militias in a campaign called Operation Restore Hope, Daukoru said last week.

“Even as we maintain discipline and fight basic criminality, you have to also tackle the underlying problems that lead to youths being part of this thing,” Daukoru said. “So poverty is involved. Sometimes it’s just disenchantment, inter-communal problems are involved. It’s a number of linked issues and we are looking at it comprehensively.”

Daukoru himself had worked as a geologist for Shell in Nigeria and for the company in the Netherlands, Italy, Spain, France, Switzerland and Tunisia before becoming managing director of the state oil company in 1992. He was a Shell Scholar while studying geology at university in London, according to OPEC.

Shell spends more than $60 million a year in Nigeria on a variety of community development projects ranging from funding jobs programs and school scholarships to building roads and financing electricity production.

Too Late?

The report was designed to help Shell find a new way to resolve Nigerian conflict, called the Peace and Security Strategy, a “comprehensive approach to establishing security through peace rather than through (previously tried) fiscal means” such as injecting money directly into the community.

Human rights campaigners welcomed the report’s preparation for Shell, though said they doubt the company has time to adapt to the deteriorating situation in the delta.

“The report may be too late, and I don’t see how Shell can change before what it predicts comes true,” Oronto Douglas, an environmental lawyer, said in a telephone interview from Port Harcourt, Nigeria. “Unless good reasoning and counsel prevail on the government and Shell, the violence will only skyrocket, because the necessary combustible materials are there.”

To contact the reporter on this story:

Karl Maier in Rome at [email protected]

To contact the editor responsible for this story:

Tim Coulter at [email protected]

Leaked Shell Nigeria Report PEACE AND SECURITY IN THE NIGER DELTA: December 2003

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