THE TIMES (UK): Shell ready to face the heat in the Niger Delta: SHELL is battening down hatches and bracing itself for a bruising confrontation next week. Nothing out of the ordinary for the oil multinational, which over the past 11 months has become accustomed to high-volume vituperation. This time, however, the venue is Nigeria, not the City of London, and the subject is jobs, not vanishing oil reserves.”: "The question is: do we (Shell) live by our business principles.” (ShellNews.net) 13 Nov 04
By Carl Mortished
November 13, 2004
The oil giant is wrestling with Nigerian politics as it risks labour unrest rather than rely on an improbable boost to government funds
SHELL is battening down hatches and bracing itself for a bruising confrontation next week. Nothing out of the ordinary for the oil multinational, which over the past 11 months has become accustomed to high-volume vituperation. This time, however, the venue is Nigeria, not the City of London, and the subject is jobs, not vanishing oil reserves.
More than a thousand Nigerians are to be laid off in a country where good jobs are as rare as honest politicians. Shell employs 5,000 directly, while 12,000 sub-contracted workers depend on it for a living.
Chris Finlayson, Shell’s chairman in Nigeria and head for the Africa region, is aware that the restructuring, ineptly labelled “Secure our Future”, might appeal to stock market analysts but is less easy to explain in the Niger Delta. “Oil is $50 a barrel, so (people ask) why are you cutting your costs at a time like this,” he said.
The unions wasted no time in engineering wildcat protests and walkouts, setting off fire alarms to force staff from buildings and giving the bum’s rush to two directors — who were carried from their offices and dumped on the pavement.
To make matters worse, Shell was negotiating layoffs just as the Nigerian Labour Congress (NLC) called a general strike in protest against rising fuel costs. The mass walkout is scheduled for Monday. Adams Oshiomole, the NLC chief, has promised to shut down the oil industry.
Shell points out that its dispute over jobs has nothing to do with the general strikers, who want the Government to reverse a 10-naira (4p) rise in the price of a litre of petrol.
Shell has applied for a court order restraining Nupeng and Pengassan, the two Shell staff unions, from further disruption. But in Nigeria all disputes become political affairs and, in this country, all matters political are, in the end, about oil.
Politics is at the root of Shell’s problems and, arguably, the cause of the layoffs. Mr Finlayson says that Shell is not reaping a $50 oil harvest. “We work on a fixed margin, so we don’t gain substantially from the increase in price,” he says. “All that increase in price goes to the Nigerian Government.”
The issue is not the money that comes out of the ground but the money that goes in — or the failure of the Nigerian Government to properly fund the oil industry. The foreign oil companies in the Delta all work through unincorporated joint ventures with Nigeria National Petroleum Corporation (NNPC), the state entity.
SPDC is the biggest oil producer but Shell, which operates the venture, speaks for only 30 per cent of the business. It is a curious arrangement in which the partners — including Total, with 10 per cent, and Agip, with 5 per cent — do not divvy up the profits but methodically share out the barrels.
SPDC pumps about a million barrels a day, its highest for ten years. Of that NNPC is allocated 550,000 barrels, Shell takes 300,000 barrels and Total and Agip the remainder. The partners are supposed to put dollars in as they take out barrels.
“We have these disconnected debates,” Mr Finlayson says. “The Government says, ‘Yes, I want the oil to keep flowing but I don’t want to pay more than this going in’.”
For years, the Government has cut its budget allocation to the oil industry and NNPC has run up substantial arrears in payments to its joint venture partners. The Shell venture is owed $319 million (£172 million). The federal budget was a struggle, agreed in May. Shell proposed a budget for SPDC of $2.7 billion but the Government agreed to $2.1 billion.
What suffers is investment, Mr Finlayson says. Shell is operating two drilling rigs instead of eight and an upgrading to the Bonny oil terminal is on go-slow. Running SPDC on a day-to-day basis costs about $1 billion, mainly in staff costs. Cut the budget from $2.7 billion to $2.1 billion and you slash investment levels by more than a third. Or, you lay off workers.
The Government has promised to boost spending to $2.7 billion next year but Shell seems determined to cut its cost base to mirror realities.
Shell’s history in Nigeria is evidence of the funding problem. Output peaked in 1974 at more than 1.3 million bpd but by the mid-1980s it was in freefall, plummeting by about half.
Throughout the 1990s, when the Sani Abacha regime was using NNPC as a private bank account, output was stuck between 700,000 and 800,000 bpd, crippled by Opec quotas and government corruption.
Mr Finlayson reckons the elected Obasanjo regime is serious about restoring investment and Shell is targeting production of 1.3 million bpd within four to five years. Shell wants to invest up to $9 billion at SPDC, NLNG, the liquefied gas business and SNEPCO, the offshore oil operation. The latter is the key to growth, promising 200,000 extra bpd over the next two years. These barrels will fall outside Opec quotas.
“Those are the assurances we have been given,” Mr Finlayson says. “It is essential. If you invest $3 billion it is not credible if you cannot produce flat out.”
Meanwhile, the politics continue. There are cost overruns at Bonga, Shell’s offshore platform. A Nigerian Senate committee suggests impropriety in the award of the contract to Amec, which Shell denies.
What is Shell doing about corruption? “I am confident it has not been wiped out,” Mr Finlayson says. “We have fired 50 people over the last two years for corruption. The question is: do we (Shell) live by our business principles.”
By example, he mentions a helicopter hangar structure that has been sitting in a customs shed for six months because officials have classified it as an illegal furniture import.
“We know perfectly well that if we did things that we are not willing to do we could get it released,” he said. “Unless you break the culture all the way from top to bottom you cannot change the country.”