Shell wont attempt to fix bombed pipeline

Royal Dutch Shell Plc said it won’t attempt to repair a key pipeline in Nigeria for now after militants attacked it a second time last week, the latest sign of alarm among foreign oil companies in the African nation.

Chief Financial Officer Simon Henry said the company had to withdraw repair crews last week after a second attack against the 48-inch Forcados export pipeline that links onshore storage tanks with an offshore port.

“We cannot operate or repair if our people are threatened,” Henry said in an interview at Shell’s annual capital markets day. While the company previously said it planned to repair the facility, first attacked in February, this month, the CFO said that it was “not possible” at this time.

Shell’s resignation over the disabled pipeline suggests a new level of insecurity as a wave of violence hits the oil-rich Niger Delta, leaving production at its lowest level in nearly three decades. In the past, energy companies were able to repair pipelines after attacks, barring a few exceptions deep into the region’s swamps and creeks. The attacks are more destructive than in the past, Henry said.

“There is clearly better organization and targeting,” according to the CFO.

The militants, which back in 2009 were loosely grouped around the Movement for the Emancipation of the Niger Delta, now call themselves the Niger Delta Avengers. They claim to represent the people of the oil-rich region, portraying themselves as freedom fighters rather than rent seekers.

The Avengers aim to bring production by foreign oil companies in Nigeria to “zero,” according to a statement on a recently created website. The site’s authenticity couldn’t be verified by Bloomberg News.

Brent for August settlement rose 62 cents to $51.17 a barrel on the London-based ICE Futures Europe exchange. Prices on Mondayclosed at the highest since Oct. 9.

The resurgent conflict in Africa’s largest economy has a long history, interweaving corruption and poverty with regional rivalries and presidential politics, but at its core is money.Sign Up

Between 2006 and 2009, when the oil-rich region was rocked by similar campaign of violence, the then president, Umaru Musa Yar’Adua, came up with a controversial solution: He offered a pardon and monthly stipends to fighters willing to disarm. After his death in 2010, former President Goodluck Jonathan doubled down on the strategy, awarding security contracts worth millions of dollars to rebel leaders, who went from blowing up pipelines to protecting them.

Thousands of fighters accepted the presidential amnesty, joining new private security companies formed by their leaders and enjoying monthly payments from the government. The revolt, which at its worst point had sunk oil production by about a third to 1.65 million barrels a day, quickly ended.

President Muhammadu Buhari, a 73-year old former general elected last year on an anti-corruption platform, ended all pipeline security contracts and reduced the monthly stipends. In a wave of attacks this month, the militants responded by blowing up key pipelines, cutting oil output to a 27-year low of 1.4 million barrels a day.

The Forcados, Brass River and Bonny Light export terminals in Nigeria are under force majeure, a legal term that allows companies to walk away from export commitments after several attacks. The Escravos terminal is delaying shipments after attacks against facilities operated by Chevron Corp., while a force majeure for Quao Iboe was lifted last week after Exxon Mobil Corp. carried out repairs.

The militants — perhaps building on the knowledge of their operations won through their security contracts — are striking firms including Shell Plc, Eni SpA and Chevron where it really hurts: key oil-gathering hubs that knock down thousands of barrels of production at once as well as difficult-to-repair underwater pipelines.

While the government has promised to quell the insurgency through military force, Shell said a more comprehensive solution was needed.

“The issue can not be resolved through security only,” Henry said.