US embassy cable - 03ABUJA1338

C O N F I D E N T I A L SECTION 01 OF 02 ABUJA 001338 
 
SIPDIS 
 
 
E.O. 12958: DECL: 08/06/2013 
TAGS: EPET, PINS, ASEC, PGOV, NI 
SUBJECT: NIGERIA: RESTARTING OIL PRODUCTION IN WARRI 
 
REF: ABUJA 1333 
 
 
Classified by Charge d'Affaires, a.i. Dawn M. Liberi; reasons 
1.5 (b) and (d). 
 
 
1.(C) Summary:  Into its fifth month, the crisis in Warri 
probably has cost the Government of Nigeria several hundred 
million U.S. dollars in lost revenue and continues to 
truncate the country's oil production by almost 20 percent. 
Despite this serious diminution and likely eager to return to 
full production, the companies have indicated that they may 
be willing to wait for the GON to take the difficult but 
necessary steps to establish control over the area.  End 
summary. 
 
 
2.(C) After the March 2003 outbreak of violence around 
Warri, Chevron and Shell ceased production both on-shore and 
off-shore in the area.  This cut over 800,000 barrels per day 
(bpd) or roughly 40 percent of Nigeria's production.  In 
mid-April, both companies resumed offshore production, 
reducing the loss to 15-20 percent.  To date,  on-shore 
facilities remain closed.  Company security officers deem the 
environment not secure enough to resume operations. 
 
 
3.(C) Over the past month, Delta State Governor Ibori has 
traveled throughout this part of his state visiting closed 
oil installations and talking with community leaders and 
armed militants of the Federated Niger Delta Ijaw Communities 
(FNDIC).  After his tour to dulcify the area, Ibori claimed 
the environment was safe enough for the companies to return 
and resume production.  He will likely renew that claim once 
the current round of fighting subsides.  In a mid-July 
meeting, Ibori had told the CRO that he is confident the 
local communities (and by inference, the Ijaw militants) will 
allow the companies to resume operations with the protection 
of federal troops. 
 
 
4. (C) Ibori's efforts notwithstanding, the companies insist 
that armed federal security personnel be stationed at the 
reopened oil installations in sufficient strength to deter or 
repel attacks by armed militants.  However, the militants 
like their new found autonomy and are opposed to  any troop 
deployments.  A confrontation is likely should the military 
deploy more aggressively.  This probability leads some 
company security officials to call for a well-planned 
military sweep through the area.  (Note: see reftel report of 
President Obasanjo's August 6 warning of a possible imminent 
security operation.  End Note.) 
 
 
SHELL'S FALSE START 
------------------- 
 
 
5.(C) According to Shell's Coordinator for Security Mike 
Achu, Shell attempted to reopen one flow station -- Jones 
Creek, in Warri North LGA -- on/about July 25 but ceased 
after only a few days.  Achu claims that the deployment of 
some 30 Nigerian army troops to the flow station -- essential 
for the security of Shell staff at the facility  -- had not 
been fully coordinated with military headquarters in Abuja 
and the local army commander pulled them back to barracks in 
Effurun.  Another industry source claims that Shell had 
attempted to negotiate with the  militants through the peace 
efforts of Delta Governor Ibori.  The FNDIC is willing to 
allow the flow station to reopen but, as noted previously, it 
is against soldiers deployed in areas it claims to control -- 
a detail which spelled the doom of the  attempted restart of 
the facility. 
 
 
CHEVRON SEES A SILVER LINING 
---------------------------- 
 
 
6.(C) During a July 30 meeting at Chevron's Headquarters, CRO 
and ECONOFF asked the company's senior coordinator for 
security, Hamish MacDonald, for an assessment of Warri. 
MacDonald characterized the ongoing stalemate between the 
Ijaw militants and the GON as an opportunity for Chevron to 
change its approach to security and community relations.  A 
cycle of extortion had been allowed to develop, fed by oil 
company efforts to win the support of local communities 
through assistance, generous hiring of locals and even 
outright payoffs. This must stop, declared Hamish; rule of 
law must be established in its place.  He pointed to the 
deployment of a large-scale military force to pacify the area 
now controlled by Ijaw militants as the first step in this 
strategy.  Only after the area is secured by federal 
government forces should Chevron resume production. 
Anything less would leave the company vulnerable to 
extortion attempts. 
 
 
7.(C) MacDonald claimed that Chevron is prepared to take the 
tough decision of foregoing opportunities to restart 
production in the near-term in favor of waiting for a durable 
resolution of the security crisis.  Noting that the GON is 
absorbing the far greater cost of the reduction (as the GON 
would normally receive an estimated 80 percent of the 
revenue) Chevron hopes that Shell will join forces to press 
the GON to assume its responsibility as security provider for 
the oil producing areas. 
 
 
Confusing Signals from a Confused Government 
-------------------------------------------- 
 
 
8.(C) Thanks largely to efforts by Shell to publicly 
highlight the large-scale theft of oil, President Obasanjo 
and his security team have paid increased attention to this 
loss of oil.  The GON's recent intense focus on oil theft, 
may have overshadowed the more serious security threat 
presented by inter-ethnic conflict in Warri.  Some observers 
suggest this reflects general confusion over how to proceed 
or the GON's lack of good intelligence on the militancy 
threat now facing it.  The Presidency has yet to produce a 
comprehensive strategy for dealing with the Warri security 
crisis that would bring the oil in that region back on line. 
Instead, the President appears to be directing a military 
deployment to confront the armed militants in the Warri 
swamps. (see reftel)  MacDonald, who attended the Chevron 
MD's July 16 meeting with President Obasanjo, claims that the 
President has committed $50-100 million in NNPC "matching 
funds" for the purchase of river boats and other equipment 
needed by the Army and Navy to take carry out an operation in 
Warri.  (Note: According to industry sources, the cost of 
this $100 million worth of military procurement will 
ultimately be borne by NNPC, Shell and Chevron in accordance 
with their joint venture capital funding formula. End note) 
 
 
Comment 
------- 
 
 
9.(C) The renewed fighting in the Warri LGAs has sidelined 
attempts to negotiate the companies' resumption of operations 
in the area, but these efforts will resume with the next lull 
in the fighting.  Shell and Chevron have largely resisted 
this federal and Delta State government pressure to return to 
the Warri swamps.  Citing adverse security conditions, they 
have also declared "force majeure," releasing them of 
production commitments under joint venture agreements with 
the GON.  The companies seem able to absorb the lost proceeds 
of Warri oil production.  However, we doubt the GON can 
afford this luxury.  The companies may resist a restoration 
of the status quo ante and insist that the GON establish its 
writ throughout the region before the companies deploy their 
human and material resources. 
10.(C) The companies are right to place responsibility for 
security squarely on the federal government's doorstep.  The 
GON must tackle what amounts to a very expensive and public 
usurpation of its authority in the Warri area.  This will 
likely require a policy action by the GON.  Once the 
immediate security challenge is handled, the GON cannot 
return to its posture of sustained neglect of the Delta.  A 
lasting solution will require a major GON commitment of 
security and social resources.  Anything less will allow the 
Warri crisis to worsen and spread to other areas of the Niger 
Delta, where would-be-militants are keenly watching the 
efforts of the FNDIC in Warri.  In the long-run, both 
Nigerian and U.S. strategic interests would suffer. 
LIBERI