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Royal Dutch Shell Carries Out Repair Works in Nigeria Despite Security Threats

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By Micheal KaufmanJun 8, 2016 at 10:50 am EST

Although Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is carrying out repair-work at two sites in Nigeria, the company said it could not “operate or repair” the facilities in the Niger Delta if its employees are not safe. The militant group, Niger Delta Avengers, has attacked Shell’s Nigerian facilities thrice in the past five months.

Attacks

First, the militants attacked Shell Forcados terminal and an under-water pipeline in February. The pipeline links offshore port with the onshore crude oil storage tanks. This was the first time that the group carried out an attack in public.

Later in May, militants attacked the Anglo-Dutch oil giant’s facility in the Eja oil field. The blast forced the company to evacuate its workers and shut down operations.

Last week, the militant group blew up the 300,000 barrels of crude oil per day (bpd) Forcados export pipeline for the second time. The group has now attacked the area of the oil pipeline between the terminal and the shoreline.

The attacks on Forcados pipelines have released hundreds of gallons of crude oil into the region. Following the first attack, Shell Petroleum Development Company (SPDC) of Nigeria halted operations and started repairing the pipeline. The company also declared force majeure on Forcados crude oil. The latest attack on the facility forced it to stop the repair works and suspend crude oil exports for an indefinite period of time.

According to Bloomberg, which cited a source familiar with the matter, the energy giant is carrying out repair works on the crude oil pipeline under tight security. The news sources added that the Hague-based company is carrying out repair works on the site of the first leak, and is preparing its crew to start work on the site of the second leak soon.

The government has deployed military personnel on international oil & gas companies’ facilities in the Niger Delta. The local authorities want to keep crude oil production intact. According to the Nigerian officials, in the past few months, oil production has dropped by almost 800,000 bpd.

Shell CFO, Simon Henry said he was stopping repair works on the pipeline last week because of the increasing threat of militant attacks. In its Capital Markets day 2016, he said the company cannot operate in such hazardous conditions. He is of opinion that the latest attacks are more effective than the previous ones, with “better organization and targeting.”

The presence of military personnel has provided some relief to Shell and has encouraged it to carry out repair works in the Western Niger Delta. However, the militants have warned Shell and other energy companies such as Chevron Corporation (NYSE:CVX) that it would continue to attack oil & gas facilities despite high military presence.

Mr. Henry believes the deployment of army personnel in the region would not be enough for the Nigerian government to control militant activities. The officials should take a comprehensive approach, he added.

Militant Attacks

Shell is not the only foreign oil & gas company that has suffered the wrath of the Niger Delta Avengers. The militants have also attacked Chevron and Italy’s Eni SpA (ADR) (NYSE:E) facilities in the past few months. While the group has attacked Chevron’s facilities four times, it blew up two of Eni’s crude oil pipelines last week.

The militants have demanded international energy companies to end operations in the Niger Delta and stop oil pollution. The group believes that Nigerian President, Muhammadu Buhari and foreign oil companies have ignored the locals completely. The militant group wants a larger share of crude oil revenue to be given to the locals.

Impact on Oil Prices

Although the militant attacks are likely to cost billions of dollars to the Nigerian economy and international oil companies, they have positively impacted global crude oil prices. The gap between international oil supply and demand seems to be narrowing, following the reduction in Nigerian crude oil production and Canadian wildfires.

Global crude oil benchmark, Brent trades at $51.53 per barrel, as of 12:29 AM today. Meanwhile, North American crude, West Texas Intermediate (WTI) trades at $50.56 per barrel.

Editing by Omair Siddiqui; Graphics by Ahsan Mansoor

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