VZCZCXRO9476
PP RUEHPA
DE RUEHOS #0430/01 0821551
ZNY CCCCC ZZH
P 231551Z MAR 06
FM AMCONSUL LAGOS
TO RUEHC/SECSTATE WASHDC PRIORITY 6842
INFO RUEHZK/ECOWAS COLLECTIVE PRIORITY
RUEHUJA/AMEMBASSY ABUJA PRIORITY 7051
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEAIIA/CIA WASHINGTON DC PRIORITY
RHEFDIA/DIA WASHINGTON DC PRIORITY
RUFOADA/JAC MOLESWORTH AFB UK PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 04 LAGOS 000430 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS DOE FOR GPERSON AND CGAY 
TREASURY FOR ASEVERENS AND SRENENDER 
COMMERCE FOR KBURRESS 
STATE PASS TRANSPORTATION FOR MARAD 
STATE PASS USTR FOR ASST USTR SLISER 
STATE PASS USAID FOR GWEYNAND AND SLAWAETZ 
 
E.O. 12958: DECL: 03/22/2016 
TAGS: EPET ENERG ASEC EAID PTER NI
SUBJECT: SHELL CONTEMPLATES LONG TERM HOSTAGE SCENARIOS AND 
DIMINISHED NIGERIAN PRODUCTION 
 
REF: A. 2005 LAGOS 1941 
     ¶B. LAGOS 39 
     ¶C. LAGOS 333 
     ¶D. LAGOS 405 
     ¶E. LAGOS 429 
 
Classified By: Acting Pol/Econ Chief Shannon Ross for Reasons 1.4 (D & 
E) 
 
-------- 
Summary 
-------- 
 
¶1.  (C)  A senior Shell executive assessed President 
Obasanjo is coming to the realization the hostage situation 
is symptomatic of larger Delta developmental problems; he 
has underscored the need to accelerate Delta development 
projects quickly.  Shell management reiterated its view 
there is no military solution to the current crisis, only a 
long-term developmental solution.  Shell is struggling to 
keep the spotlight on the hostages after thirty-plus days 
in captivity, and expressed concern we are reaching a 
tipping point where they could be held for the long-term as 
human shields.  Shell explained three scenarios for their 
oil production over the next year: in the best (and most 
unlikely) case, Shell returns to full production within 70 
days.  In the middle scenario, Shell,s western operations 
remain out of operation for the year, or perhaps until 
after the 2007 elections.  In a worst case scenario, the 
Movement for the Emancipation of the Niger Delta (MEND) 
attacks crude loading platforms (CLPs) at Shell,s Bonny 
Island, and takes out CLPs at other major export 
facilities, potentially reaching its target of shutting-in 
an additional million barrels in March.  A Shell security 
official,s worst fear is MEND tapping a network of militias 
to carry out operations throughout the Delta.  Meanwhile, 
Shell contractors are laying off staff and curtailing 
drilling for new wells, auguring ill for Nigeria,s 
aspirations to grow its oil production in coming years. 
 
---------------------------------- 
President Obasanjo: Taking Delta 
Development More Seriously? 
---------------------------------- 
 
¶2.  (C)  Shell Executive Vice-President Ann Pickard 
recounted some highlights from her September 17 meeting 
with President Obasanjo, Minister of State for Petroleum 
Daukoru, and Nigerian National Petroleum Corporation (NNPC) 
Group Managing Director Kupolokun (Reftel D).  She told us 
the group had a "relaxed attitude" towards the hostage 
crisis, and seemed confident it would end soon.  Even while 
President Obasanjo continued to call the militants 
"criminals," she assessed he had experienced a significant 
attitude change in coming to realize the hostage situation 
is symptomatic of larger Delta developmental problems.  He 
spoke seriously about a longer-term developmental response 
to the crisis, and told her Rivers State-style quick impact 
projects would have be rolled out simultaneously in Delta 
and Bayelsa States.  (Note: The Rivers State project, still 
under development, will be funded by the state, with 
international oversight by USAID, DFID, and the World 
Bank.  End note.)  Reacting to militant demands for the 
withdrawal of the Nigerian military from the Niger Delta 
and its replacement by militia members in carrying out 
security functions, President Obasanjo told Pickard he 
refused to hand the Nigerian military over to the 
militants, but "they can join if they meet the 
qualifications."  Pickard asked about revenue losses for 
the Nigerian state from current shut-in production, which 
she estimates at a minimum of $7 billion USD a year.  She 
says the President appeared unconcerned, saying "the 
hostages are more important."  Pickard indicated the 
President,s general attitude seemed to be that Nigeria,s 
oil wasn't going anywhere, so why worry? 
 
 
LAGOS 00000430  002 OF 004 
 
 
--------------------------------------------- ------- 
Shell: No Military Solution to Crisis, 
only Long-Term Development Will Solve Delta,s Ills 
--------------------------------------------- ------- 
 
¶3.  (C)  Pickard firmly stated Shell management,s view that 
there is no military response or military solution to the 
current crisis, only a long-term developmental response 
for the Delta.  She asked if we had heard the contrary from 
Shell employees, and indicated if we had, this did not 
reflect Shell,s position. 
 
--------------------------------------------- 
Thirty-Plus Days In: How Do We Avoid Tipping 
into a Long-Term Hostage Scenario? 
--------------------------------------------- 
 
¶4.  (C)  Pickard and her staff indicated they are 
desperately trying to keep the spotlight on the hostages 
after thirty-plus days.  West African Security Manager 
Colgate voiced concern we are reaching a tipping point 
where the hostages could be held for the long-tem, 
potentially through next year,s elections, as human 
shields.  Colgate warned, "the longer the hostages are 
held, the longer they will be held."  Colgate stated Shell 
is struggling to avoid a scenario in which hostages in 
Nigeria, as in Columbia, are routinely held for lengthy 
periods, even years. 
 
--------------------------------------------- -------------- 
Shell,s Production Scenarios: Staring into an Opaque Future 
--------------------------------------------- -------------- 
 
¶5.  (C)  Pickard laid out three possible scenarios for the 
general security situation and Shell,s production for the 
next 6-12 months.  While she indicated Shell has not done a 
formal scenario planning exercise, these are the general 
scenarios she and her staff use when making their plans. 
 
--In the best case, Shell would find the security situation 
in Warri improving immediately, and could return the 
Forcados crude loading platform (CLP) and export terminal, 
and the SeaEagle to full production within 70 days. 
 
--In the middle scenario, Shell,s western operations will 
remain out of operation for the rest of the year, 
potentially until or beyond Nigeria,s 2007 elections. 
 
--In the worst case scenario, MEND would continue to attack 
production facilities, taking out vulnerable CLPs at Shell, 
s Bonny Island, and moving on to other major export 
facilities including Chevron,s Escravos and ExxonMobil,s 
Eket.  Shell agreed with our assessment that MEND could not 
hit their March target of shutting in an additional 1 
million bpd without targeting additional major oil 
companies (Reftel C). 
 
Pickard refused to put any possible numbers on the 
likelihood of one scenario over another, except to indicate 
both she and her staff assessed the rosy scenario as 
"unrealistic," and they would be "more than lucky" if the 
situation unfolded in that manner. 
 
--------------------------------------------- ------- 
Pickard: Bonga Security is the GON,s Responsibility 
Bonga not highly Vulnerable 
--------------------------------------------- ------- 
 
¶6.  (C)  When asked about security for mega-project 
Floating, Production, Storage and Offloading vessel (FPSO) 
Bonga, she emphasized FPSO security "is the government's 
responsibility."  She did not assess Bonga as vulnerable, 
stating FPSOs were built to be secure.  (Note: Per reftel 
E, Pickard,s assessment differs significantly from that of 
her Bonga Operations Manager.  End note.)  She would not 
speculate as to Bonga,s greatest vulnerabilities, saying 
 
LAGOS 00000430  003 OF 004 
 
 
Shell would not share this information.  On the security 
front Pickard emphasized, "things need to happen away from 
us," underscoring that security arrangements should involve 
perimeter security located well away from vulnerable oil 
infrastructure. 
 
--------------------------------------------- - 
Shell,s Fear: MEND to Tap Militia Alliances 
to Move Freely Around the Delta 
--------------------------------------------- - 
 
¶7.  (C)  Security Manager Colgate stated that his worst 
fear is MEND tapping a network of highly localized but 
mobilized militia groups outside of its own operational 
area, to move freely throughout the Delta.  He stated MEND 
has figured out it does not need to stay long in an area to 
carry out an operation if it knows the infrastructure.  He 
assessed MEND,s only remaining constraints were logistical 
"ensuring it had enough fuel to move around the Delta," and 
its ability to evade security forces, for which it has a 
proven track record.  On the political front, Colgate 
opined President Obasanjo had learned a tough lesson last 
year when he flew militant leader Asari to Abuja for 
discussions, and inadvertently conferring increased 
legitimacy on him.  Colgate does not believe Obasanjo is in 
a hurry to go down that road again. 
 
--------------------------------------------- ----------- 
Struggles on the Contractor Front: Staff Laid Off, Rigs 
Abandoned, Plans to Grow Nigeria,s Oil Awry 
--------------------------------------------- ----------- 
 
¶8.  (C)  After Shell,s declaration and subsequent extension 
of force majeure on December 21 and January 13, (reftels A 
and B), Pickard told us Shell,s contractors are laying off 
staff.  (Note: Under force majeure, payments to contractors 
are suspended.  End note.)  Contractors' equipment largely 
lies abandoned in the field, subject to vandalism and 
theft.  Pickard noted contractors have curtailed drilling 
new wells, which will have a significant impact on Nigeria,s 
aspirations to increase production in the next couple of 
years.  (Note: Industry sources tell us Shell,s contractors 
have ceased operating six out of seven drilling rigs it had 
under contract.  End note.)  Finally, Pickard indicated 
Shell is struggling with how to manage its message to its 
staff and staff morale when it cannot protect them 
adequately. 
 
----------------------------------- 
Nigerian Crude: Still a Factor in 
International Crude Markets 
------------------------------------ 
 
¶9.  (SBU)  When asked whether Nigerian crude production had 
been "discounted" from international markets as suggested 
by some energy analysts, Pickard responded that she did not 
see how 2 million-plus barrels could be discounted from the 
world market.  While not claiming to be an energy market 
expert, her reports indicate about $2 USD of current crude 
prices were attributable to instability in the Delta and 
Nigeria,s current shut-in production. 
 
-------- 
Comment 
-------- 
 
¶10.  (C)  Pickard,s queries about Shell employees who might 
be failing to tow the corporate line on the desirability of 
a military solution to the current crisis, taken together with 
the Bonga Operation Manager's frustration at his inability 
to deploy assets to protect his staff (reftel E) point to 
an organization experiencing serious internal friction 
regarding its path forward.  While senior Shell management 
clearly recognizes the legal peril for Shell in western 
courts were it to authorize the use of weapons by Shell 
personnel, and will doubtless prevent Shell funds from 
 
LAGOS 00000430  004 OF 004 
 
 
being used to purchase such equipment, mid-level management 
appears in crisis, believing it can not provide minimal life 
and safety guarantees to its employees.  Regardless, Shell 
appears united in refusing to return the Forcados export 
terminal and the SeaEagle to operation until the security 
situation improves significantly.  We see no signs this 
will occur soon. 
 
¶11.  (U)  This cable was cleared by Embassy Abuja. 
HOWE