Oil Companies should face tougher questions

Oil companies operating in Nigeria are facing a far less certain future than the picture they present to investors. Questions over their own performance need to get much tougher if investors wish to avoid scandal and damaging losses at a later date. It should be remembered that the majority of the reserves which Shell 'lost' were in Nigeria. (See SDN's report 'Shell in Nigeria' with Christian Aid et al.)

In some cases conflict is providing a convenient excuse for a return to previous habits, to a lack of transparency which preceded the latest set of reforms announced in 2004. Shell is still producing its glossy 'People and the Environment Reports.'

Yet the independent evaluation has slipped from two pliant local NGOs in 2005, to no independent review at all in 2006. Unsurprisingly, Shell staff rated their performance in 2006 with development project at 92% functional.

At least Shell produces a report. Despite years of agitation over oil company performance, governance and transparency, Agip has never produced a credible public account of it community development work. The company treats media inquiries with disdain. At the very least investors in Agip and the Italian government should be asking why the company attracts so much attention from militant groups.

Oil servicing companies - and expatriate staff at all levels - are frequently scathing in private about the performance and attitude of the oil majors. Many of them appear to be voting with their feet, and there could be lasting implications for companies and for the desire of Nigeria to expand its production and reserves.

There are already some claims that oil majors are having difficulty finding servicing companies to conduct exploration, or even basic maintenance contracts. Those that are willing to operate are able to charge increasingly inflated prices that, with time, will be felt on the bottom line.

The tensions between oil companies and government are becoming obvious as disputes erupt over fields that have not been developed or, as in the case of Ogoni, show a questionable prospect of resuming operations.

June will prove to be a testing month for claims that things are improving. SPDC's Managing Director Basil Omiyi has claimed that Shell will resume production from the western Delta, that has been closed in for almost two years. The increasing conflict across the Niger Delta in May suggested this was unrealistic in any sustainable sense.

Instead, in May the fragility of oil operations was demonstrated twice. Agip lost almost 200,000 barrels of production (75%) in one night to attacks that seemed designed to prove that militants can shut down oil production of a company at will. Shortly after that, Shell lost more than 150,000 barrels of production over what seems to have been - at best - a poorly handled local dispute in the politically sensitive region of Ogoni.

Investors and the international community need to fully appreciate that the road - from the current level of intermittent instability to a collapse of security, with oil production falling to around 1 million barrels per day - is remarkably short.

Ironically, would only be at this point that a Nigerian government truly becomes dependent on local and international goodwill for its survival.