NIGERIA: RESTARTING OIL PRODUCTION IN WARRI

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001338

SIPDIS


E.O. 12958: DECL: 08/06/2013
TAGS: EPET PINS ASEC PGOV NI
SUBJECT: NIGERIA: RESTARTING OIL PRODUCTION IN WARRI

REF: ABUJA 1333


Classified by Charge d'Affaires, a.i. Dawn M. Liberi; reasons
1.5 (b) and (d).


1.(C) Summary: Into its fifth month, the crisis in Warri
probably has cost the Government of Nigeria several hundred
million U.S. dollars in lost revenue and continues to
truncate the country's oil production by almost 20 percent.
Despite this serious diminution and likely eager to return to
full production, the companies have indicated that they may
be willing to wait for the GON to take the difficult but
necessary steps to establish control over the area. End
summary.


2.(C) After the March 2003 outbreak of violence around
Warri, Chevron and Shell ceased production both on-shore and
off-shore in the area. This cut over 800,000 barrels per day
(bpd) or roughly 40 percent of Nigeria's production. In
mid-April, both companies resumed offshore production,
reducing the loss to 15-20 percent. To date, on-shore
facilities remain closed. Company security officers deem the
environment not secure enough to resume operations.


3.(C) Over the past month, Delta State Governor Ibori has
traveled throughout this part of his state visiting closed
oil installations and talking with community leaders and
armed militants of the Federated Niger Delta Ijaw Communities
(FNDIC). After his tour to dulcify the area, Ibori claimed
the environment was safe enough for the companies to return
and resume production. He will likely renew that claim once
the current round of fighting subsides. In a mid-July
meeting, Ibori had told the CRO that he is confident the
local communities (and by inference, the Ijaw militants) will
allow the companies to resume operations with the protection
of federal troops.



4. (C) Ibori's efforts notwithstanding, the companies insist
that armed federal security personnel be stationed at the
reopened oil installations in sufficient strength to deter or
repel attacks by armed militants. However, the militants
like their new found autonomy and are opposed to any troop
deployments. A confrontation is likely should the military
deploy more aggressively. This probability leads some
company security officials to call for a well-planned
military sweep through the area. (Note: see reftel report of
President Obasanjo's August 6 warning of a possible imminent
security operation. End Note.)


SHELL'S FALSE START
--------------


5.(C) According to Shell's Coordinator for Security Mike
Achu, Shell attempted to reopen one flow station -- Jones
Creek, in Warri North LGA -- on/about July 25 but ceased
after only a few days. Achu claims that the deployment of
some 30 Nigerian army troops to the flow station -- essential
for the security of Shell staff at the facility -- had not
been fully coordinated with military headquarters in Abuja
and the local army commander pulled them back to barracks in
Effurun. Another industry source claims that Shell had
attempted to negotiate with the militants through the peace
efforts of Delta Governor Ibori. The FNDIC is willing to
allow the flow station to reopen but, as noted previously, it
is against soldiers deployed in areas it claims to control --
a detail which spelled the doom of the attempted restart of
the facility.


CHEVRON SEES A SILVER LINING
--------------


6.(C) During a July 30 meeting at Chevron's Headquarters, CRO
and ECONOFF asked the company's senior coordinator for
security, Hamish MacDonald, for an assessment of Warri.
MacDonald characterized the ongoing stalemate between the
Ijaw militants and the GON as an opportunity for Chevron to
change its approach to security and community relations. A
cycle of extortion had been allowed to develop, fed by oil
company efforts to win the support of local communities
through assistance, generous hiring of locals and even
outright payoffs. This must stop, declared Hamish; rule of
law must be established in its place. He pointed to the
deployment of a large-scale military force to pacify the area
now controlled by Ijaw militants as the first step in this
strategy. Only after the area is secured by federal
government forces should Chevron resume production.
Anything less would leave the company vulnerable to
extortion attempts.


7.(C) MacDonald claimed that Chevron is prepared to take the
tough decision of foregoing opportunities to restart
production in the near-term in favor of waiting for a durable
resolution of the security crisis. Noting that the GON is
absorbing the far greater cost of the reduction (as the GON
would normally receive an estimated 80 percent of the
revenue) Chevron hopes that Shell will join forces to press
the GON to assume its responsibility as security provider for
the oil producing areas.


Confusing Signals from a Confused Government
--------------


8.(C) Thanks largely to efforts by Shell to publicly
highlight the large-scale theft of oil, President Obasanjo
and his security team have paid increased attention to this
loss of oil. The GON's recent intense focus on oil theft,
may have overshadowed the more serious security threat
presented by inter-ethnic conflict in Warri. Some observers
suggest this reflects general confusion over how to proceed
or the GON's lack of good intelligence on the militancy
threat now facing it. The Presidency has yet to produce a
comprehensive strategy for dealing with the Warri security
crisis that would bring the oil in that region back on line.
Instead, the President appears to be directing a military
deployment to confront the armed militants in the Warri
swamps. (see reftel) MacDonald, who attended the Chevron
MD's July 16 meeting with President Obasanjo, claims that the
President has committed $50-100 million in NNPC "matching
funds" for the purchase of river boats and other equipment
needed by the Army and Navy to take carry out an operation in
Warri. (Note: According to industry sources, the cost of
this $100 million worth of military procurement will
ultimately be borne by NNPC, Shell and Chevron in accordance
with their joint venture capital funding formula. End note)


Comment
--------------


9.(C) The renewed fighting in the Warri LGAs has sidelined
attempts to negotiate the companies' resumption of operations
in the area, but these efforts will resume with the next lull
in the fighting. Shell and Chevron have largely resisted
this federal and Delta State government pressure to return to
the Warri swamps. Citing adverse security conditions, they
have also declared "force majeure," releasing them of
production commitments under joint venture agreements with
the GON. The companies seem able to absorb the lost proceeds
of Warri oil production. However, we doubt the GON can
afford this luxury. The companies may resist a restoration
of the status quo ante and insist that the GON establish its
writ throughout the region before the companies deploy their
human and material resources.
10.(C) The companies are right to place responsibility for
security squarely on the federal government's doorstep. The
GON must tackle what amounts to a very expensive and public
usurpation of its authority in the Warri area. This will
likely require a policy action by the GON. Once the
immediate security challenge is handled, the GON cannot
return to its posture of sustained neglect of the Delta. A
lasting solution will require a major GON commitment of
security and social resources. Anything less will allow the
Warri crisis to worsen and spread to other areas of the Niger
Delta, where would-be-militants are keenly watching the
efforts of the FNDIC in Warri. In the long-run, both
Nigerian and U.S. strategic interests would suffer.
LIBERI