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Nigerian Oil Thefts Prompt Shell to Act

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A version of this article appeared April 12, 2013, on page B1 in the U.S. edition of The Wall Street Journal


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PORT HARCOURT, Nigeria—Jacob Mandi says he failed to find work with Royal Dutch Shell PLC in Nigeria’s oil-rich swamps. So now the 25-year-old ocean diver earns a rich living stealing crude oil from pipelines in an activity the company warned on Thursday is part of a “massive and growing problem of oil theft” in Africa’s top crude-oil producer.

Mr. Mandi, drawing lines on a sandy beach, describes how he dives into the cool waters of the vast Niger Delta to puncture and siphon oil from Shell pipelines deep in its creeks. The bulk of the pilfered sweet crude is loaded onto ships bound for foreign countries, according to Shell, Nigerian oil officials and the thieves themselves.

“We know which [pipeline] is gas, products, crude,” he says, declining to disclose where he undertakes the widespread but illegal practice of “bunkering,” or stealing oil. “We can sense whether it is hot or cold. We need nobody’s help to know what’s inside.”

Tired of getting “bunkered,” Shell is stepping up a fight against sophisticated thieves that includes Mr. Mandi and his crew. The pushback reflects mounting frustration among Nigeria’s biggest foreign investors with a Nigerian government that appears powerless to halt the losses that earn thieves an estimated $7 billion a year.

In an unusually critical public statement on Thursday, Shell Nigeria head Mutiu Sunmonu said the “massive and growing problem of oil theft and illegal refining in the Niger Delta…has reached unprecedented levels.”

His open letter, published on Shell’s website, said the size of the problem indicated “a well-financed and highly organized criminal enterprise” that uses “influence, corruption and violence to protect [its] interests.”

Recently Shell has begun lobbying foreign governments to investigate middlemen, refiners and foreign ships that might be peddling its stolen crude. Shell has sought help from the Netherlands, British and European Union governments to investigate—and if needed prosecute—those abroad benefiting from the trade, said diplomats and people involved in Shell’s efforts.

“It needs, as [Nigerian] President Goodluck Jonathan has asked, for international collaboration to tackle the issue,” Shell’s Chief Executive Peter Voser said in a March interview. Mr. Voser wouldn’t elaborate; otherwise, he says, “you let the cat out of the bag.”

Screen Shot 2013-04-12 at 16.11.46Together, thieves drain an estimated 60,000 barrels of oil a day from Shell’s local joint-venture, according to company estimates. Volumes of oil stolen from Shell and other oil companies in Nigeria have reached a total of 150,000 barrels a day, or 7.5% of the country’s crude-oil production, Shell says, citing a United Nations figure. It estimates the illicit trade is bigger than the combined gross domestic product of West Africa’s Togo and Sierra Leone.

To prevent illegal tapping and potential spills from its pipelines, some foreign oil companies are shutting them down. Last month, Italy’s Eni SpA ENI.MI -1.16% shut production from all its four onshore blocks, saying 60% of their output was being stolen. Shell’s Nigerian unit plans to shut one pipeline this month to remove illegal tapping points. Oil thieves here also hit Chevron Corp., CVX -1.15% according to leaked diplomatic cables; the company declined to comment on its response to oil theft in Nigeria.

Widespread theft of the African nation’s oil comes at a pivotal point for the industry. Rising energy production in the U.S. is helping to slake global appetite for Nigerian crude, just as a spate of hostage takings and militant attacks compound concerns about investment risks in the country’s Niger Delta.

The bunkering of Nigerian crude has spawned a shadow industry of its own. It starts with local thieves drilling plugs into pipelines and pumping the oil onto barges. Some of the oil is then processed at rudimentary refineries and sold to fuel distributors that own tanker trucks and filling stations.

The size of the theft, industry experts say, requires resources far beyond the reach of Nigeria’s young and unemployed. Oil moved on ocean barges requires at least the tacit approval of some of Nigeria’s army and navy and the former militants paid to guard pipelines, say analysts and industry executives.

Nigerian government officials acknowledge that tackling oil theft requires taking on the powerful people and organizations who promote and protect the illegal activities.

“Obviously, bunkering cannot happen without a certain level of official collusion,” presidential spokesman Ken Saro-Wiwa Jr. said in an interview last year. “Like any large scale crime anywhere in the world there is an element of collusion on both ends of the line.”

Nigeria’s energy wealth contrasts with its citizen’s deep and widespread poverty. Africa’s most populous country has become synonymous with the “oil curse,” where foreign dollars flow into government-backed projects but neglect investment in other industries that would broaden business activity and create jobs beyond energy.

During a helicopter flyover organized by Shell over the 70,000 square kilometer Niger Delta, evidence of the thefts included a burned tanker that had caught fire loading crude from a Shell pipeline.

That is the sort of tanker Mr. Mandi is helping to fill. On a recent afternoon, he and his team were pouring drums of diesel made out of stolen oil into jerrycans as customers waited in their cars for the product.

For the church-going Mr. Mandi, stealing oil in his eyes is his way to stay on the straight and narrow.

“What do you want me to do,” he asks, “take a gun and rob people?”

In addition to his being a pipeline welder, he trained as a diver to maintain or repair oil pipelines. But his six-year job search proved fruitless, and included a spurned application from Shell, he says. Shell declined to comment on individual cases but said of 6,000 employees in Nigeria, about 90% are locals.

Mr. Mandi says he now operates a lucrative and illegal bunkering outfit that allows him to earn some $1,200 a month, about 21 times the average wage.

The income doesn’t come without costs. Mr. Mandi says he pays military personnel for protection and even Shell employees, who lower the pressure on pipelines so they won’t explode when they’re punctured.

Jurgen Janzen, a Shell pipelines asset manager, says such assistance would be unlikely because pressure levels are closely monitored.

A spokesman for the army’s Joint Task Force said “insinuations [of corruption against its members] will always come from those on the wrong side of the law in order to cast aspersions on our operatives.” He pointed to “myriad vessels and barges” that were “arrested in 2012 and even in this year” carrying stolen oil.

Shell has commissioned a security study that it hopes will help the Nigerian Navy get the technical assistance it needs to inspect and stop tankers that are heading out of the country with its stolen oil, according to people familiar with the matter.

“We will provide whatever assistance is appropriate for us to give, but that it is the role of the Nigerian law enforcement authorities to prevent criminality and bring those who commit it to justice,” Shell said in a statement.

—Selina Williams and Sarah Kent in London, Drew Hinshaw in Accra, Ghana, and Jon Kamp in Boston contributed to this article.

Write to Benoît Faucon at [email protected]

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