NIGERIA: SHELL PETROLEUM DEVELOPMENT CORPORATION

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 000217 SIPDIS SIPDIS DOE FOR GPERSON, CGAY TREASURY FOR ASEVERENS, SRENENDER, DFIELDS COMMERCE FOR KBURRESS STATE PASS USTR FOR ASST USTR FLISER STATE PASS TRANSPORTATION FOR MARAD STATE PASS OPIC FOR ZHAN AND MSTUCKART STATE PASS TDA FOR NCABOT STATE PASS EXIM FOR JRICHTER STATE PASS USAID FOR GWEYNAND AND SLAWAETZ E.O. 12958: DECL: 01/26/2016 TAGS: EPET ENERG ASEC PTER NI SUBJECT: NIGERIA: SHELL PETROLEUM DEVELOPMENT CORPORATION BANKRUPT REF: LAGOS 60 ABUJA 00000217 001.2 OF 002 Classified By: Ambassador John Campbell for Reasons 1.4 (B,D) ¶1. (C) Shell Managing Director Ann Pickard telephoned the Ambassador on February 2 to report that the Shell Petroleum Development Corporation (SPDC) is bankrupt because of the failure of the Nigerian National Petroleum Corporation (NNPC) to pay arrears that Shell believes it is owed from their joint venture arrangements. (Note: SPDC is the joint venture between Shell and NNPC which is the largest private sector oil and gas producer in Nigeria. However, it has been plagued by shut-in production amounting to almost 500,000 barrels per day since January 2006. End Note) Pickard said that Shell has traced the flow of some USD 2 billion from the Central Bank to the NNPC over the past few days; it is clear the funding is available to NNPC, if the political will is there, to settle with SPDC. However, Pickard cautioned, current NNPC arrears to Shell are running at such a high rate that even if the current arrears are retired, SPDC will again risk bankruptcy by April. She and senior Shell management from The Hague anticipate seeing President Obasanjo on February 7. However, if no payments toward the arrears owed SPDC are received by February 5, SPDC will begin an orderly shutdown, starting first with large projects and concluding with laying off employees by the end of the fourth week. "This is brinksmanship," Pickard said. ¶2. (C) Pickard also commented on the Government of Nigeria's (GON) transfer of an oil block from Shell to a Nigerian company, Malabu, owned by Dauzia Loya Etete, despite Shell having already made substantial investments in it (see Reftel). She estimated that the worth of the block was USD 2-4 billion. Etete, she continued, is said to be close to President Obasanjo, supported the President against Vice President Atiku, and plays a major role in "neutralizing" former Chief of State Ibrahim Babangida. She said that Shell will fight the transfer of the oil block in the Nigeria courts, a process that will last beyond the April elections when the current "politics" of the transfer will no longer apply. (Note: A press account from 2003 posted on Forbes.com suggests that Eteke, former Minister of Petroleum during the military regime of General Sani Abacha, awarded the license on the block to Malabu, a company he set up for that purpose. The article goes on to say that Malabu, in 1999, offered a Shell subsidiary 40 percent of the profits in exchange for bearing the cost of exploration and production in the block. Etete claimed that Vice President Atiku demanded a stake in the venture as a condition for not revoking Malabu's license. Nevertheless, in July 2001, the GON revoked the block, and later invited new bids, which Shell won. Eteke filed suit, alleging that the bid round was improperly conducted. End Note.) ¶3. (C) Comment: As Pickard said, Shell, NNPC and the Federal Government are involved in brinksmanship. Should SPDC begin a phased shutdown, it will be immediately obvious in the Delta. The irony is that it will have been caused by SPDC's difficulties with NNPC and the GON rather than by the activities of the Movement for the Emancipation of the Niger Delta (MEND) or the other militias that have threatened to shut down Nigeria?s oil/gas industry. However, we suspect that something will be cobbled together next week to prevent SPDC?s shutdown. ABUJA 00000217 002.2 OF 002 ¶4. (C) Pickard's assessment of Etete tracks with Mission's own. He was Minister of Petroleum during the Abacha regime and, subsequently, fled the country. On the run for several years, he is said to be under indictment in France for money laundering. After the GON seized one of his oil blocks and basically put Malabu out of business, Etete is said to have come to an "understanding" with President Obasanjo. In return for his support of third-term efforts, he was to be rewarded with a resuscitated business. While he did make several noteworthy comments during the third-term debate, as far as post is aware, he has yet to return to Nigeria.End comment. ¶5. (U) CG Lagos contributed to, and cleared, this message. CAMPBELL