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    Royal Dutch Shell, Chevron Corporation: Is It Time To Leave Nigeria?


    Royal Dutch Shell plc (ADR) (NYSE:RDS.A), Chevron, and other energy companies are losing hope in the Nigerian government as the safety conditions of the country are not showing signs of improvement. Although on Saturday, the Niger Delta Avengers (NDA) agreed on a ceasefire, the emergence of other militant groups along with low probability of a deal between the officials and the groups anytime soon has raised doubt about the country’s oil and gas sector recovery.

    Negotiation, Finally…
    Late last week, the Avengers finally agreed to engage in dialogues with the Nigerian officials. The group said: “We are going to support any collective/negotiation team emerging from the Chief (Dr.) Papa Edwin Kiagbodo Clark Niger Delta elders and genuine stakeholders conference to engage with the federal government of Nigeria, representatives from the home countries of all multinational Oil Corporations and neutral international mediators.”

    The Delta Avengers plan to talk on “short, medium and long term” energy sector framework along with how to de-escalate the conflicts in the southern region of the Delta. The group has advised its “elders and genuine stakeholders” to treat the negotiations with care as they believe peace talks are like “driving a vehicle like that of a truck laden with fire.”

    While on the one hand, the group has agreed to observe cessation of hostilities, on the other hand, it has also warned the government of any military act. The Avengers said they would retaliate if the government or security forces “arrest, intimidate, invade and harass” locals especially from Ijaw communities and suspected members of the group.

    Oil Companies: Time to Decide
    The Avengers made their first ever attack on energy companies in February, when they exploded Shell’s Forcados export terminal and under-water pipeline; since then, the group has blown up a number of pipeline and facilities in the region. The group wants energy companies to give a greater share of crude oil sales to the locals.

    The attacks are prevalent at a time when energy companies are roiled in a commodity market downturn. The weak commodity prices have dented the financial position of oil and gas companies by lowering their earnings and worsening their liquidity position.

    Avengers’ attacks on Shell, Chevron Corporation (NYSE:CVX), and other energy companies’ facilities aggravated the situation. The explosions did not only affect the companies’ oil and gas production, but also increased their repair and maintenance cost.

    As oil prices have crashed more than 50% over the past two years, many energy companies have resorted to capital and operating cuts. Oil and gas companies plan to continue to keep their costs low in future, as the commodity market is not expected to recover, at least in the short-run. Now the energy giants need to decide whether they should continue operating in Nigeria or leave the Delta to strengthen their asset portfolio.

    NDA: Angry with Buhari?
    The recent attacks have not just affected the international energy companies adversely; they have taken a toll on the country’s production and sales revenue as well. Crude oil sale contribute 70% to Nigeria’s total revenue and 90% to foreign exchange. However, the recent attacks on energy majors’ oil and gas facilities have not only reduced Nigerian crude output by millions of barrels of crude oil; they have also adversely affected the country’s export revenue. Algeria has now taken over Nigeria as the biggest crude oil exporter in the region.

    According to news sources, the militant attacks have resulted in more than 700,000 barrels per day (bpd) of outages in the past six months. This is the highest production outage since 2009.

    Are These the Final Talks?
    The southern region of the Niger Delta is one of the most productive regions of the country; however, according to the militant group, foreign companies and the Nigerian government, under the leadership of President Muhammadu Buhari, have completely overlooked the residents. According to the NDA, while the international oil and gas companies have lived like kings in the country, the locals have suffered lack of basic amenities, including education, clean water, and health facilities.

    While the NDA believes it is working for the benefit of the locals, the attacks have adversely impacted the country’s financial position. Already the country is struggling to overcome weak commodity prices, political and economic tensions, and Boko Haram militants.

    In June, Nigerian Petroleum Minister Emmanuel Ibe Kachikwu announced that a ceasefire has been reached between the two parties; however, even after that, the group continued to attack energy companies. Thus, although recent talks have ignited hopes that the safety conditions in the country would improve, there is still much uncertainty in the region.

    NDA: Not the Only Problem
    Though the NDA has claimed most of the militant attacks over the past six months, recently a number of groups have also started attacks on foreign energy companies’ facilities. Earlier this month, a new militant group called the Niger Delta Green Justice Mandate (NDGJM) exploded natural gas pipeline in the southern swamps lands. Another group, Revolution Alliance, also attacked Shell’s pipeline recently.

    Thus, as it is difficult for Nigerian officials to fully control the militants, it is possible that the energy companies might leave the delta soon. Amid a deteriorating cash flow position, the companies are not prepared to afford additional repair costs.
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