Alarm bells as Shell abandons oil pipeline repairs

Emerging reports say that Shell has resolved to abandon repair works on its damaged oil pipelines because of growing security concerns in the Niger Delta. The move has triggered alarm bells, dimming hopes of immediate return to targeted oil production levels.

Niger Delta Avengers (NDA) had claimed responsibility for most of the attacks on oil majors in the last one month leading to declarations of force majeure. The group says it aims to bring production by foreign oil companies in Nigeria to “zero.”

Blomberg quotes senior officials of the company as saying that Royal Dutch Shell Plc won’t attempt to repair a key pipeline in Nigeria for now after militants attacked it a second time last week.

Chief Financial Officer (CFO) Simon Henry said the company had to withdraw repair crews last week after a second attack against the 48-inch Forcados export pipeline that links onshore storage tanks with an offshore port.

“We cannot operate or repair if our people are threatened,” Henry said in an interview at Shell’s annual capital markets day.

Read also: Oil hits 2016 high amidst doubts of price stability

While the company previously said it planned to repair the facility, first attacked in February, this month, the CFO said that it was “not possible” at this time.

Shell’s resignation over the disabled pipeline suggests a new level of insecurity as a wave of violence hits the oil-rich Niger Delta, leaving production at its lowest level in nearly three decades.

In the past, energy companies were able to repair pipelines after attacks, barring a few exceptions deep into the region’s swamps and creeks. The attacks are more destructive than in the past, Henry said.

“There is clearly better organization and targeting,” according to the CFO.

In a related development, Shell says it could exit up to 10 countries under a previously announced plan to sell oil and gas assets over two years.

The Anglo-Dutch group said in a statement, that the expanded company expects to make higher cost savings than previously announced, following the recent huge takeover of rival BG Group.

It says it expects savings of $4.5 billion (4.0 billion euros) in two years’ time, $1.0 billion more than previously forecast.

Shell’s statement said, “We are announcing an increase in expected deal-related synergies, from the $3.5 billion set out in the prospectus, to $4.5 billion on a pre-tax basis in 2018, an increase of some 30 percent.”

Meanwhile owing to the takeover as well as low oil prices, Shell would be cutting at least 12,500 jobs over two years to the end of 2016.

 

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