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Shell Warns Attacks Will Curb Its Profit


Shell Warns Attacks Will Curb Its Profit

Nigerian Militants 
Put Large Dent 
In Oil, Gas Output

LONDON — Royal Dutch Shell PLC warned Friday that oil-facility attacks in Nigeria this past week have substantially reduced its oil and natural-gas production in the West African country and will hurt earnings.

Shell said militants this past week had killed a second person, an employee of the Shell-operated consortium in Nigeria. The company said earlier in the week that a guard had been killed and reiterated Friday that it was evacuating some staff from production facilities.

[Shell oil Nigeria photo]European Pressphoto Agency

Militants from the Movement for the Emancipation of the Niger Delta as they patrol the volatile oil rich creeks of the Niger delta in Nigeria.

The Anglo-Dutch oil company said it was concerned about the damage to the facilities but didn’t provide an estimate on the total amount of oil and natural-gas output shut down as a result, or how long the production closures might last. Nigerian oil officials put Shell’s production losses this past week at about 100,000 barrels a day.

The company said the damage will hurt earnings. “This will ultimately add up to increased equipment downtime, repair and remediation costs and deferred earnings for Nigeria and the joint-venture partners,” Shell said.

Nigeria accounted for about $1 billion, or 4%, of Shell’s $25 billion net profit in 2007, according to investment bank Oppenheimer & Co.

Shell shares in London rose 54 pence, or 3.5%, to close at £15.95 ($28.94) Friday, mirroring the rise in most stock indexes, after initially trading lower.

Oppenheimer analyst Fadel Gheit played down Shell’s announcement, saying the company has seen this level of violence in Nigeria before. Mr. Gheit said he expects record oil prices from this summer to push the company’s third-quarter profit to $2.78 a share, which would be a quarterly record for Shell.

But the attacks against oil infrastructure and workers in Nigeria could get worse.

Clashes between Nigeria’s main militant group — the Movement for the Emancipation of the Niger Delta — and the military helped precipitate the latest attacks on oil infrastructure, coming less than a month after Nigerian President Umaru Yar’Adua shuffled his military leaders.

Some political analysts say Mr. Yar’Adua may be taking a more forceful approach to MEND, which comprises various factions, and other criminal groups that have had a free hand the past few years, bombing pipelines and crude-gathering stations and kidnapping foreign oil workers for ransom.

A tougher line could worsen tensions and problems for the government, foreign energy companies and the region’s people.

MEND has made six attacks against Shell-operated oil and natural-gas facilities since this past Sunday in the Niger Delta, the country’s main oil-producing region. Crude prices have so far had a muted reaction to the violence as market concerns have focused on the health of oil demand.

Militants also targeted a Chevron Corp. oil facility early in the week, although output wasn’t affected.

MEND and lesser-known militant groups see their actions — which have cost the government and companies several billions of dollars in oil revenue the past few years and worsened environmental pollution — as retaliation for years of ineffective government that has failed to improve circumstances for millions of impoverished Nigerians in the delta despite the area’s huge oil and gas resources.

Write to Spencer Swartz at [email protected]

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