Identifier
Created
Classification
Origin
06LAGOS430
2006-03-23 15:51:00
CONFIDENTIAL
Consulate Lagos
Cable title:  

SHELL CONTEMPLATES LONG TERM HOSTAGE SCENARIOS AND

Tags:  EPET ENERG ASEC EAID PTER NI 
pdf how-to read a cable
VZCZCXRO9476
PP RUEHPA
DE RUEHOS #0430/01 0821551
ZNY CCCCC ZZH
P 231551Z MAR 06
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 6842
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 7051
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUFOADA/JAC MOLESWORTH AFB UK PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000430 

SIPDIS

SIPDIS

STATE PASS DOE FOR GPERSON AND CGAY
TREASURY FOR ASEVERENS AND SRENENDER
COMMERCE FOR KBURRESS
STATE PASS TRANSPORTATION FOR MARAD
STATE PASS USTR FOR ASST USTR SLISER
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ

E.O. 12958: DECL: 03/22/2016
TAGS: EPET ENERG ASEC EAID PTER NI
SUBJECT: SHELL CONTEMPLATES LONG TERM HOSTAGE SCENARIOS AND
DIMINISHED NIGERIAN PRODUCTION

REF: A. 2005 LAGOS 1941

B. LAGOS 39

C. LAGOS 333

D. LAGOS 405

E. LAGOS 429

Classified By: Acting Pol/Econ Chief Shannon Ross for Reasons 1.4 (D &
E)

--------
Summary
--------

C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000430

SIPDIS

SIPDIS

STATE PASS DOE FOR GPERSON AND CGAY
TREASURY FOR ASEVERENS AND SRENENDER
COMMERCE FOR KBURRESS
STATE PASS TRANSPORTATION FOR MARAD
STATE PASS USTR FOR ASST USTR SLISER
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ

E.O. 12958: DECL: 03/22/2016
TAGS: EPET ENERG ASEC EAID PTER NI
SUBJECT: SHELL CONTEMPLATES LONG TERM HOSTAGE SCENARIOS AND
DIMINISHED NIGERIAN PRODUCTION

REF: A. 2005 LAGOS 1941

B. LAGOS 39

C. LAGOS 333

D. LAGOS 405

E. LAGOS 429

Classified By: Acting Pol/Econ Chief Shannon Ross for Reasons 1.4 (D &
E)

--------------
Summary
--------------


1. (C) A senior Shell executive assessed President
Obasanjo is coming to the realization the hostage situation
is symptomatic of larger Delta developmental problems; he
has underscored the need to accelerate Delta development
projects quickly. Shell management reiterated its view
there is no military solution to the current crisis, only a
long-term developmental solution. Shell is struggling to
keep the spotlight on the hostages after thirty-plus days
in captivity, and expressed concern we are reaching a
tipping point where they could be held for the long-term as
human shields. Shell explained three scenarios for their
oil production over the next year: in the best (and most
unlikely) case, Shell returns to full production within 70
days. In the middle scenario, Shell,s western operations
remain out of operation for the year, or perhaps until
after the 2007 elections. In a worst case scenario, the
Movement for the Emancipation of the Niger Delta (MEND)
attacks crude loading platforms (CLPs) at Shell,s Bonny
Island, and takes out CLPs at other major export
facilities, potentially reaching its target of shutting-in
an additional million barrels in March. A Shell security
official,s worst fear is MEND tapping a network of militias
to carry out operations throughout the Delta. Meanwhile,
Shell contractors are laying off staff and curtailing
drilling for new wells, auguring ill for Nigeria,s
aspirations to grow its oil production in coming years.

--------------
President Obasanjo: Taking Delta

Development More Seriously?
--------------


2. (C) Shell Executive Vice-President Ann Pickard
recounted some highlights from her September 17 meeting
with President Obasanjo, Minister of State for Petroleum
Daukoru, and Nigerian National Petroleum Corporation (NNPC)
Group Managing Director Kupolokun (Reftel D). She told us
the group had a "relaxed attitude" towards the hostage
crisis, and seemed confident it would end soon. Even while
President Obasanjo continued to call the militants
"criminals," she assessed he had experienced a significant
attitude change in coming to realize the hostage situation
is symptomatic of larger Delta developmental problems. He
spoke seriously about a longer-term developmental response
to the crisis, and told her Rivers State-style quick impact
projects would have be rolled out simultaneously in Delta
and Bayelsa States. (Note: The Rivers State project, still
under development, will be funded by the state, with
international oversight by USAID, DFID, and the World
Bank. End note.) Reacting to militant demands for the
withdrawal of the Nigerian military from the Niger Delta
and its replacement by militia members in carrying out
security functions, President Obasanjo told Pickard he
refused to hand the Nigerian military over to the
militants, but "they can join if they meet the
qualifications." Pickard asked about revenue losses for
the Nigerian state from current shut-in production, which
she estimates at a minimum of $7 billion USD a year. She
says the President appeared unconcerned, saying "the
hostages are more important." Pickard indicated the
President,s general attitude seemed to be that Nigeria,s
oil wasn't going anywhere, so why worry?


LAGOS 00000430 002 OF 004


-------------- --------------
Shell: No Military Solution to Crisis,
only Long-Term Development Will Solve Delta,s Ills
-------------- --------------


3. (C) Pickard firmly stated Shell management,s view that
there is no military response or military solution to the
current crisis, only a long-term developmental response
for the Delta. She asked if we had heard the contrary from
Shell employees, and indicated if we had, this did not
reflect Shell,s position.

--------------
Thirty-Plus Days In: How Do We Avoid Tipping
into a Long-Term Hostage Scenario?
--------------


4. (C) Pickard and her staff indicated they are
desperately trying to keep the spotlight on the hostages
after thirty-plus days. West African Security Manager
Colgate voiced concern we are reaching a tipping point
where the hostages could be held for the long-tem,
potentially through next year,s elections, as human
shields. Colgate warned, "the longer the hostages are
held, the longer they will be held." Colgate stated Shell
is struggling to avoid a scenario in which hostages in
Nigeria, as in Columbia, are routinely held for lengthy
periods, even years.

-------------- --------------
Shell,s Production Scenarios: Staring into an Opaque Future
-------------- --------------


5. (C) Pickard laid out three possible scenarios for the
general security situation and Shell,s production for the
next 6-12 months. While she indicated Shell has not done a
formal scenario planning exercise, these are the general
scenarios she and her staff use when making their plans.

--In the best case, Shell would find the security situation
in Warri improving immediately, and could return the
Forcados crude loading platform (CLP) and export terminal,
and the SeaEagle to full production within 70 days.

--In the middle scenario, Shell,s western operations will
remain out of operation for the rest of the year,
potentially until or beyond Nigeria,s 2007 elections.

--In the worst case scenario, MEND would continue to attack
production facilities, taking out vulnerable CLPs at Shell,
s Bonny Island, and moving on to other major export
facilities including Chevron,s Escravos and ExxonMobil,s
Eket. Shell agreed with our assessment that MEND could not
hit their March target of shutting in an additional 1
million bpd without targeting additional major oil
companies (Reftel C).

Pickard refused to put any possible numbers on the
likelihood of one scenario over another, except to indicate
both she and her staff assessed the rosy scenario as
"unrealistic," and they would be "more than lucky" if the
situation unfolded in that manner.

-------------- --------------
Pickard: Bonga Security is the GON,s Responsibility
Bonga not highly Vulnerable
-------------- --------------


6. (C) When asked about security for mega-project
Floating, Production, Storage and Offloading vessel (FPSO)
Bonga, she emphasized FPSO security "is the government's
responsibility." She did not assess Bonga as vulnerable,
stating FPSOs were built to be secure. (Note: Per reftel
E, Pickard,s assessment differs significantly from that of
her Bonga Operations Manager. End note.) She would not
speculate as to Bonga,s greatest vulnerabilities, saying

LAGOS 00000430 003 OF 004


Shell would not share this information. On the security
front Pickard emphasized, "things need to happen away from
us," underscoring that security arrangements should involve
perimeter security located well away from vulnerable oil
infrastructure.

-------------- -
Shell,s Fear: MEND to Tap Militia Alliances
to Move Freely Around the Delta
-------------- -


7. (C) Security Manager Colgate stated that his worst
fear is MEND tapping a network of highly localized but
mobilized militia groups outside of its own operational
area, to move freely throughout the Delta. He stated MEND
has figured out it does not need to stay long in an area to
carry out an operation if it knows the infrastructure. He
assessed MEND,s only remaining constraints were logistical
"ensuring it had enough fuel to move around the Delta," and
its ability to evade security forces, for which it has a
proven track record. On the political front, Colgate
opined President Obasanjo had learned a tough lesson last
year when he flew militant leader Asari to Abuja for
discussions, and inadvertently conferring increased
legitimacy on him. Colgate does not believe Obasanjo is in
a hurry to go down that road again.

-------------- --------------
Struggles on the Contractor Front: Staff Laid Off, Rigs
Abandoned, Plans to Grow Nigeria,s Oil Awry
-------------- --------------


8. (C) After Shell,s declaration and subsequent extension
of force majeure on December 21 and January 13, (reftels A
and B),Pickard told us Shell,s contractors are laying off
staff. (Note: Under force majeure, payments to contractors
are suspended. End note.) Contractors' equipment largely
lies abandoned in the field, subject to vandalism and
theft. Pickard noted contractors have curtailed drilling
new wells, which will have a significant impact on Nigeria,s
aspirations to increase production in the next couple of
years. (Note: Industry sources tell us Shell,s contractors
have ceased operating six out of seven drilling rigs it had
under contract. End note.) Finally, Pickard indicated
Shell is struggling with how to manage its message to its
staff and staff morale when it cannot protect them
adequately.

--------------
Nigerian Crude: Still a Factor in
International Crude Markets
--------------


9. (SBU) When asked whether Nigerian crude production had
been "discounted" from international markets as suggested
by some energy analysts, Pickard responded that she did not
see how 2 million-plus barrels could be discounted from the
world market. While not claiming to be an energy market
expert, her reports indicate about $2 USD of current crude
prices were attributable to instability in the Delta and
Nigeria,s current shut-in production.

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


10. (C) Pickard,s queries about Shell employees who might
be failing to tow the corporate line on the desirability of
a military solution to the current crisis, taken together with
the Bonga Operation Manager's frustration at his inability
to deploy assets to protect his staff (reftel E) point to
an organization experiencing serious internal friction
regarding its path forward. While senior Shell management
clearly recognizes the legal peril for Shell in western
courts were it to authorize the use of weapons by Shell
personnel, and will doubtless prevent Shell funds from

LAGOS 00000430 004 OF 004


being used to purchase such equipment, mid-level management
appears in crisis, believing it can not provide minimal life
and safety guarantees to its employees. Regardless, Shell
appears united in refusing to return the Forcados export
terminal and the SeaEagle to operation until the security
situation improves significantly. We see no signs this
will occur soon.


11. (U) This cable was cleared by Embassy Abuja.
HOWE