Oil Companies Eye Security Challenges in Nigeria

Nov 29, 2006 (Dow Jones Newswires)

With more violence from militants and further oil-worker abductions expected ahead of Nigeria's presidential election next April, energy firms are poised to take tougher security measures to protect workers and spend more money to compensate staff in the increasingly volatile region, security and energy analysts say.

Already, violence and the threat of it have reduced oil production by roughly 700,000 barrels a day, or about 39% of the country's current total output. If the violence continues or increases, companies may be forced to curtail even more production and take more drastic steps to protect workers and infrastructure.

Onshore production has been mired repeatedly over the years in violent clashes with communities, but militants and criminal gangs have recently ventured further out to sea.

That threatens multibillion dollar offshore projects that companies like Royal Dutch Shell PLC (RDSA.LN) and Exxon Mobil Corp. (XOM) are counting on to boost oil reserves and profits at a time of stiff competition with state-run energy firms in other parts of the world.

The offshore oil fields are also crucial for Nigeria if it is live up to its sharply higher oil output forecasts over the next few years.

The killing of an expatriate oil worker last week during a botched military hostage-rescue effort sharply ratcheted up the stakes for international oil companies. Executives will have to convince their own employees and governments back home that they are doing everything they can to protect workers in Nigeria.

"We're at the point that the whole security apparatus in Nigeria is in question, including the offshore," said Sebastian Spio-Garbrah, a New York-based Africa analyst at Eurasia Group.

Oil companies "are in a real conundrum," he said. "Staff are more vulnerable, the military is unable to prevent these attacks and they're also having to pay more to keep workers on the ground and insure them."

Shell, the country's biggest international operator, declined to comment about its security policy and staff in Nigeria.

Around 485,000 barrels a day of Shell-operated production, via a government joint venture, have been lost since February largely due to attacks by militants. Shell's direct stake in the lost output, through its 30% stake in the joint venture, is about 145,000 barrels a day.

Total SA (TOT) said it had recently reviewed its security processes. The company declined to give details of its review or to say whether it is operating significantly differently because of the recent violence.

"What we have reviewed are the processes of managing our security and surveillance and increased dialogue with all our partners, including the communities," the French oil giant said in a written statement.

Chevron Corp. (CVX) declined to discuss the measures it's taking to protect staff. Exxon also declined to discuss specifics of its security arrangements in Nigeria. Eni Spa (E) was unavailable to comment.

One security consultant familiar with some of the oil companies' operations said they have been paying higher "combat-zone" compensation and insurance premiums to keep staff on the ground.

In many ways, the hands of the oil companies are tied, leaving them at the mercy of a so-far ineffectual military and police service.

Many of the companies employ private security workers for added protection, but Nigerian law doesn't permit those workers to carrying weapons.

Armed Nigerian security personnel guard most installations on the ground. In addition, it is common for companies to have former and off-duty policemen with automatic weapons guarding facilities and staff, analysts said.

"There are guns on the premises at company sites, at facilities and the compounds where the staff live. It's very common. The companies need to protect their staff," said one oil industry official in Nigeria.

That could be an explosive mix. Companies may be pressured to rely more on their private security staff to repel attacks, this official said. "They (the companies) have to protect their workers, and it's not being done by the government," the official said.

Earlier this month, the U.S. consulate in Lagos warned about the possibility of coordinated attacks on oil installations in the Niger Delta, underscoring the perception among diplomats and outside observers that the violence is likely to increase ahead of Nigeria's 2007 general election in April.

David Hunt of the U.K. was killed last Wednesday after Nigerian security services tried to rescue a group of workers kidnapped hours earlier from an offshore production vessel about 30 miles offshore. The vessel was operated by Eni.

While hostage-taking has increased sharply this year, most of the kidnappings have ended peacefully after companies and the government reach some accommodation - usually in the form of handsome ransom payments - with the kidnappers, who are often aggrieved community youths, militants or local thugs.

Security analysts also say a policy change by Nigerian President Olusegun Obasanjo in August that gave the military authority to take firmer action against hostage-takers may be exacerbating tensions between militants and the oil companies. An Obasanjo representative was unavailable for comment.

Many communities in the Niger Delta, where most of Nigeria's oil is produced, distrust the military, which has long been accused of harassing locals and, often, using heavy-handed force in situations that don't require it.

"This new (government) tactic could cause dissent between the oil companies and the government," said Paul Adams, a London-based Africa specialist for global risk consultants Kroll Inc.

Copyright (c) 2006 Dow Jones & Company, Inc.

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