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Business Day (South Africa): Nigeria attacks threaten Shell’s output goal

LONDON – Attacks on Nigerian oil facilities could make Royal Dutch Shell 2006 production goals unattainable, analysts said today.
Shell suspended a total 455,000 barrels a day (bpd) of oil production — 19% of Nigeria’s total output — after a string of militant attacks at the weekend.
It said today it had also evacuated staff from remote locations on the eastern side of the Niger Delta as a precaution.
Shell operates the fields on behalf of a consortium that includes Total of France, with a 10% share, and Italy’s ENI, with 5%.
Shell’s share of the current lost production is equivalent to almost 4% of the firm’s 2005 average daily output.
After its production fell around 7% last year to 3,5 million barrels of oil equivalent per day (boepd), and with an uncertain pipeline of new projects, the Anglo-Dutch company can ill afford the shortfall, analysts said.
Shell, the world’s third-largest oil and gas firm by market capitalisation, has indicated it expects production at the lower end of a 3,5-3,8 million boepd range in 2006.
But if the Nigerian violence continues, as the militants promise, this target could be lost.
“Their production target this year has had a bad start …
It will be difficult to reach the bottom part (of the target range),” said Jason Kenney, oil analyst at ING.
Although the shut-in barrels will eventually flow, Shell’s first-quarter results will be hit.
One analyst said the cost, in terms of lost revenues, damage repair and extra security costs, was likely to be hundreds of millions of dollars.
One consolation for Shell is that the lost barrels are not its most profitable, because the production-sharing contract which governs its operations means all the benefit of prices above $30 per barrel accrue to the government, a spokesman said.
Last year’s hurricanes in the Gulf of Mexico were especially harsh on oil firms’ bottom lines because the region yields such high margins.
Nonetheless, the Nigerian trouble could have a longer impact. Analysts at Eurasia Group said in a report that attacks could worsen before presidential elections in 2007.
Analysts at Citigroup noted that up to 40% of Nigeria’s production was disrupted by militant attacks in the run up to elections in 2003.
The militants seek the release of imprisoned ethnic Ijaw leaders and more local control over oil revenues.
Shell’s output in the eastern side of the delta, totalling 390,000 barrels a day, was not affected by the evacuation of its staff, a Shell official said.

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