The Wall Street Journal: Chevron Move Hurts Oil Markets, Nigeria

By SPENCER SWARTZ and CHIP CUMMINS
May 12, 2007; Page A3

Chevron Corp.’s decision Friday to pull workers from oil fields in the south of Nigeria deals a blow to thirsty global oil markets and to the African country’s effort to smoothly hand over power to a new president later this month.

Attacks by self-styled militants have ratcheted up significantly this month in the wake of nationwide elections that local and international observers condemned as deeply flawed and unreliable. While the country has avoided popular demonstrations against the polling, election-related attacks against foreign oil companies in the oil-rich Niger Delta have significantly cut into the country’s already-diminished crude output.

Unrest over the past few weeks has shuttered about 220,000 barrels a day of output. That tally includes about 57,000 barrels a day at Chevron-run facilities and an additional 163,000 barrels a day from fields run by Italian company Eni SpA.

All told, almost a third of Nigeria’s pumping capacity of some 2.5 million barrels a day has been shut down by the violence. Royal Dutch Shell PLC evacuated staff from one of its big offshore oil fields and its western Niger Delta onshore fields early last year after a series of attacks and threats of more violence there. The move by Shell shut down about a fifth of the country’s output in one swoop.

On Friday, Chevron issued a statement saying that it was “temporarily suspending some non-essential work activities in its offshore activities” in Nigeria. The stoppage would affect “numerous” contractors working for the oil giant, the company said. Chevron officials originally said hundreds of workers would be affected, but a spokesman late Friday said it wasn’t clear how many workers would be affected.

The violence and production shortfalls have pushed up global oil prices. Nigeria is a major oil producer and one of the biggest exporters of crude to American refineries. In late trading in New York Friday, U.S. benchmark crude oil for June delivery settled at $62.37, up 56 cents.

The attacks come at a sensitive time for Nigeria. The April elections were widely condemned for rampant vote-rigging and other irregularities. Nigerian officials, including the country’s ruling party, have acknowledged problems but are plowing ahead with plans for the country’s first transfer of power from one elected president to another on May 29.

Analysts say the looming handover date could trigger more violence as groups in the Delta try to gain leverage over federal and local governments and oil companies eager for peace. For years, groups have staged attacks and kidnappings, typically backing down eventually in exchange for cash, jobs or other concessions.

The lost output is starting to strain Nigerian finances, despite today’s high oil prices. For instance, the federal government has had to dip into a savings account of oil revenue that it has been socking away for a rainy day. Instead, it is using some of the money to meet budget shortfalls arising from the output cuts.

A self-described militant group earlier this month abducted six Chevron workers in an attack on an offshore oil field. The group has sent photos of the workers — an American, a Croatian and four Italians — by email to media outlets. The group said the move was aimed at embarrassing the departing administration of President Olusegun Obasanjo and at voicing disapproval for the incoming government of Mr. Obasanjo’s hand-picked successor, Umaru Yar’Ardua.

•  The News: Chevron is pulling oil workers from Nigeria amid rising violence there.
 
•  The Background: Self-styled militants have stepped up attacks after elections many observers said were flawed.
 
•  The Fallout: With oil prices high, recent unrest has shuttered about 220,000 barrels a day of output in Nigeria. Almost a third of Nigeria’s pumping capacity of some 2.5 million barrels a day has been shut down by the violence.

–Ana Campoy contributed to this article.

Write to Spencer Swartz at [email protected] and Chip Cummins at [email protected]

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