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Financial Times: Expat worker’s death to raise oil group costs

By Dino Mahtani in Lagos
Published: January 18 2007 02:00 | Last updated: January 18 2007 02:00

Oil companies operating in Nigeria are facing an escalation in expatriate salaries and security costs following the death of a Dutch oil worker during an attack by armed gunmen on Tuesday.

The worker from Hyundai, the South Korean industrial group, which has a Nigerian oil service unit, was shot dead late on Tuesday in an attack on a vessel transporting Nigerian and Korean workers near an oil and gas export terminal in the oil producing but turbulent Niger Delta region. At least one Nigerian was also killed.

Dozens of expatriates have been kidnapped in the delta region during the past year by armed groups seeking ransom payments, extorting oil companies and claiming to be fighting for greater autonomy. But it is still rare for a foreign oil worker to be killed in the region.

The killing, which security sources say was either an armed robbery attempt by pirates or a revenge attack by fighters loyal to a delta militia leader who has recently been jailed by -Nigerian authorities, was the second expatriate death in the past three months. In November, a British oil worker taken hostage by militants was killed when a Nigerian navy patrol came across his captors and a gunfight ensued.

Industry analysts said they expected expatriate workers, who consider an assignment in the Niger delta as one of the world’s most dangerous, to make greater demands on their companies.

Expatriates could ask for more expensive helicopter transit and greater paid protection by Nigerian security services when working in the delta’s waterways.

“This incident alone is not enough to force drastic measures, as the oil industry has been dealing with this kind of threat for some time, but it does keep up the momentum of security pressures,” said one industry security source.

Oil service companies, which do the bulk of engineering and drilling work for multinational oil companies, are already smarting from higher costs relating to insurance or the setting up of more comprehensive security arrangements. Militant activity has risen since the start of last year, when attacks forced Nigeria to shut down a quarter of its total production.

Oil analysts say increasing security burdens for oil service companies are weighing down project completion times. Some oil service company executives say they expect a shift towards more safe offshore projects, which ultimately produce more expensive oil for international markets because of larger developmental costs.

The delta is expected to see a surge in violence in the run up to elections in April, when armed groups are likely to vie for power.

Oil companies this week evacuated staff from three oilfields in the eastern delta after a dispute, between groups vying for control of compensation payments offered by oil companies, resulted in the deaths of 12 people. As a result Shell, Nigeria’s largest oil producer, closed down 12,000 bpd of production.

The killing of the Dutch worker has not prompted fresh evacuations anywhere else, though industry security sources said companies would react if militants were to take more expatriate hostages. Oil companies have already withdrawn hundreds of workers after last year’s attacks.

Copyright The Financial Times Limited 2007

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