Shell Says Nigeria Militant Attacks to Hurt Earnings

By Alexander Kwiatkowski and Fred Pals

Sept. 19 (Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest oil company, said the escalation in rebel attacks against its oil and gas facilities in Nigeria will hurt earnings from its local unit.

The Movement for the Emancipation of the Niger Delta, the main militant group in the region, intensified its ``oil war'' against foreign companies this week, attacking oil and gas production facilities owned by Shell and Chevron Corp. Nigeria's crude exports have declined more than 20 percent since 2006 when rebels began their campaign in earnest.

``Barrels produced in Nigeria aren't the most profitable,'' said Dirk Hoozemans, who helps manage the equivalent of $23.8 billion at Rotterdam-based Robeco. ``The impact on earnings will be relatively small.''

The latest spate of attacks began on Sept. 13 when Nigerian soldiers clashed with militants south of Port Harcourt, the hub of Nigeria's oil industry. The militants said troops launched an offensive against its positions and declared an ``oil war'' in the region, which produces almost all of Nigeria's crude.

`Deferred Earnings'


The raids ``will ultimately add up to increased equipment downtime, repair and remediation cost and deferred earnings,'' for the company's local unit, spokesman Rainer Winzenried said in an e-mailed statement today. Four Shell installations have been targeted since Sept. 13, he said, declining to say how much production has been lost.

Two people were killed in an attack on Shell's Alakiri flowstation and gas plant on Sept. 15, while the Greater Port Harcourt Swamp Line, Orubiri flowstation and Rumuekepe pipeline were also attacked, according to Shell's Winzenried.

MEND, as the group is known, has since claimed as many as six attacks on Shell oil pipelines and flowstations and two on facilities owned by Chevron Corp. MEND says it's fighting on behalf of the inhabitants of the Niger Delta, who have yet to share in the oil wealth of the region.

Shell's Nigerian joint venture ``is closely monitoring the situation and continues to take all necessary measures to ensure the safety of staff and contractors,'' he said. The company is ``concerned about the resultant damage to oil and gas facilities and possible environmental damage.''

Lost Production

Nigeria has lost 280,000 barrels daily of its crude output to attacks in the Niger Delta oil region since Sept 13., bringing shut output to about 1 million barrels a day, the state-run oil company said earlier this week. Crude exports have fallen 22 percent to 1.9 million barrels a day since the end of 2005 when the country was pumping about 2.5 million barrels a day, according to Bloomberg estimates.

``It is not the most pleasant environment to work in but Shell has to stay, given the enormous potential in resources,'' Hoozemans said, adding that offshore operations no longer are without risk following an attack by militants on Shell's Bonga platform in June.

The Shell Petroleum Development Company of Nigeria (SPDC) is the operator of the joint venture formed by the Nigerian National Petroleum Corporation (55%), Shell (30%), Total (10%) and Agip (5%) and is the country's biggest tax and royalty payer. In 2007, Shell-operated ventures in Nigeria produced an average of almost 934,000 barrels of oil equivalent a day with just over 700,000 coming from SPDC.

Shell took a $716 million charge in the fourth quarter last year because of Nigeria's onshore assets, including impairments and provisions arising from the funding and the security situation.

To contact the reporters on this story: Alexander Kwiatkowski in London at akwiatkowsk2@bloomberg.netFred Pals in Amsterdam at fpals@bloomberg.net