SHELL WORRIES ABOUT CHINESE IN NIGERIA; CLAIMS

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E.O. 12958: DECL: 02/22/2018
TAGS: ENRG EPET PGOV PREL NI CH
SUBJECT: SHELL WORRIES ABOUT CHINESE IN NIGERIA; CLAIMS
NATIONALIZATION IS POSSIBLE

REF: 07LAGOS 000749

Classified By: Deputy Chief of Mission Lisa Piascik for reasons 1.4 (B)
and (D)

This cable contains business proprietary information


1. (C) Summary. Shell's Vice President for Africa Ann
Pickard met with the Ambassador on February 20. She admitted
that the company badly miscalculated the new Nigerian
administration and is playing catch up to ExxonMobil and
Chevron. She claims new Nigerian petroleum legislation could
lead to the nationalization of the industry and called the
presidential special advisor drafting related legislation
"dangerous." Pickard believes that President Yar'Adua's
upcoming trip to Beijing may be a prelude to increased
Chinese participation in Nigerian oil operations. Shell sees
the Chinese as a serious threat in Nigeria. The security in
the western Niger Delta remains a problem with the east
relatively quiet she noted. Local Niger Delta governors are
a mixed bag and none are truly pushing socio-economic
advancement. Shell's opinion that Nigeria is the next
Venezuela is clearly a result of its unique operating profile
and it is not a view widely shared in the industry. End
Summary.

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Shell Scrambles to Adjust to New Administration
-------------- --


2. (C) During an introductory meeting with the Ambassador on
February 20, Shell's Executive Vice President for Africa, Ann
Pickard, reviewed the myriad of challenges the company faces
in Nigeria. Pickard opened the conversation by admitting
that Shell had badly misjudged how the new administration
would govern the petroleum sector and the company is
struggling to adapt to the new decision making process. In
past administrations, Shell enjoyed direct access to the
President and was able to safely brush aside senior petroleum
regulators and Nigerian National Petroleum Corporation (NNPC)
officials. ExxonMobil and Chevron, with considerably less
production in the country and therefore less access to the
President, learned to work the opaque Nigerian bureaucracy.
With President Yar'Adua not inclined to make direct decisions
in petroleum matters (or even meet with the oil companies)
Shell is scrambling to maintain influence in the new
administration. (Note: Chevron has made more headway than
others without having direct access to the President. End
Note.) As an example, Pickard recalled that both Shell and
ExxonMobil were approached under the Obasanjo administration
with requests to build power plants, with only Presidential
assurances that they would be paid. ExxonMobil wisely
demurred, but Shell agreed. However, payments from the GON
have not materialized and the company finds itself out USD 2
billion for plant and gas costs with no recourse to the
President.

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Oil's Role in the President's Trip to China
--------------


3. (C) On the President, Pickard to the Ambassador that she
was worried that the Chinese would use Yar'Adua's upcoming
trip to announce major oil deals. She speculated the Chinese
may offer debt financing for NNPC to bridge its cash call
shortfall. (Note: The cash call deficit is estimated at USD
5.4 billion for 2007 and 2008. End Note.) According to her,
the Chinese are trying to reach Yar'Adua through his wife and
daughter by plying them with bribes. Pickard said that
Minister of State for Energy (Petroleum) Odein Ajumogobia had

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been former Rivers State governor Peter Odili's bagman,
delivering ill-gotten cash to offshore accounts in China;
consequently he maintains a close relationship with Chinese
officials. (Note: He was recently in China to set up the
Presidential trip. End Note.) Pickard termed the Chinese a
"very serious threat to Shell" in Nigeria. Chinese efforts
are ultimately directed at securing known good oil blocks
outside of the regular bid process. She believes that
Chinese interests are behind the dispute over oil block OPL
245; Shell is taking Nigeria to court over the issue under
the auspices of the Dutch-Nigerian Bilateral Investment
Treaty (reftel). Both Pickard and the Ambassador recalled
the new Chinese cultural center in Port Harcourt and Pickard
noted the increasing role of Chinese workers on oil rigs and
seismic survey crews as they are the only people not
intimidated by the security situation in the Delta region.
Pickard anticipates increased Chinese participation in
oilfield service operations in Nigeria as Western contractors
leave the Niger Delta.

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Shell's View on Niger Delta Security and Politics
-------------- --------------


4. (C) Overall Pickard had mixed views of the security
situation in the Niger Delta and the effect state governors
are having on it. She termed the western Niger Delta "fairly
quiet" and attributed a recent break in the 40 inch pipe in
Forcados to inter-communal violence not directed at Shell.
However, attacks on oilfield service boats operating on Bonny
River are a growing problem and will impact offshore and deep
offshore production. Shell is running its contact boats in
convoys along Bonny River. While Shell's Forcados is
producing 180,000 barrels per day (bpd),the company still
has 170,000 bpd of production from Rivers State shut-in as
well as 150,000 bpd from its "EA" field that lies offshore of
Delta State.


5. (C) When asked about political progress in the region,
Pickard characterized Rivers State Governor Rotimi Amaechi as
"a waste of time" and "one of the bad guys" noting his close
connections to militant groups. She thought Delta State
Governor Emmanuel Uduaghan and Bayelsa State governor Timipre
Sylva were at least trying to maintain stability, but did not
see any of the governors as particularly interested in
socio-economic development, and added in the end they were
all corrupt, just at different levels.

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New Legislation Taking an Ominous Turn?
--------------


6. (C) Pickard alleged that the reorganization of the
Nigerian National Petroleum Corporation (NNPC) and
accompanying legislation could make Nigeria "another
Venezuela." When queried by the Ambassador if this view was
widely held as she had not her this from others, Pickard said
that the international oil companies were aligned "like she
had never see before." In her view, the person leading the
NNPC reorganization, Special Advisor on Energy Rilwanu
Lukman, is "dangerous" and may be closely tied to Chinese and
Russian interests. When queried about NNPC's finances,
Pickard acknowledged that Shell is in negotiations with NNPC
to loan the parastatal USD 2 billion in modified carry
agreements, term loans, and bridge financing to help meet the
cash call deficit. The negotiations are proceeding slowly as
NNPC is balking at Shell's demand for securitization. Shell
is also negotiating with NNPC over a planned reorganization
of company operations in Nigeria. When the Ambassador asked
about Shell's plans to lay off 3,000 employees in Nigeria,

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Pickard replied that she would settle for less than that
amount and hoped to reduce headcount through voluntary
resignations and targeted firings of known corrupt and
questionable employees.


7. (C) Comment: Despite assurances that the industry is in
general agreement with the view that Nigeria could be the
next Venezuela, neither Chevron nor ExxonMobil senior
executives have expressed that opinion in recent
conversations. Most oil block licenses allow for revocation
if the company fails to work the claim and Shell Petroleum
Development Company is unique among operators in the amount
of shut-in acreage. Consequently, it perceives itself as
vulnerable to having those oil blocks taken away. Pickard is
also an experienced political operator in oil and gas; she
knows that threats of Venezuela and China may resonate with
an American audience. Indeed, if Shell is really concerned
about nationalization, a USD 2 billion loan to NNPC is an odd
way of showing it. End Comment.


8. (U) This cable was cleared with Embassy Abuja
BLAIR