Bloodletting over oil has Nigeria's petroleum industry reeling

OMADINO, Nigeria -- The sound of speedboats on the otherwise calm rain forest creek was enough to send villagers fleeing.

"They were afraid. They just ran away," said Gabriel Walter, 42, the only resident of Omadino who stayed to meet journalists and soldiers visiting the oil-rich swamps of Nigeria's volatile Niger Delta. Entire families fled into surrounding forests with laundry still hanging on the line and pots gurgling on cooking fires.

Walter would not say whether it was Nigerian security forces or ethnic militants that the townspeople feared. Both groups are known to go on killing rampages.

Nigeria's oil industry -- Africa's largest and the fifth-biggest source of U.S. oil imports -- is likewise concerned for its future. A yearlong spree of bloodletting has killed more than 1,000 people in the delta -- unrest comparable in scale to Chechnya and Colombia.

The growing insecurity in Nigeria's most lucrative industry comes as oil prices briefly hit a record intraday trading high Tuesday of $44.24 a barrel on the New York Mercantile Exchange following a heightened U.S. terror alert and supply concerns in Russia and OPEC, of which Nigeria is a key member.

Major oil companies hope to double production in West Africa's Gulf of Guinea, estimated to hold up to 10 percent of the world's oil reserves. The United States, Europe and Asia are increasingly looking to the region's oil as an alternative to crude from the Middle East.

Yet residents of Nigeria's southern oil-producing delta complain their elected leaders have failed to fight poverty in the region. Tensions over oil revenues have aggravated ethnic strife. Kidnappings and sabotage have escalated, forcing costly shutdowns by companies pumping crude.

The Nigerian subsidiary of San Ramon, Calif.-based ChevronTexaco Corp. is among the companies hit hardest by Nigeria's worsening oil-related violence, suffering an estimated $750 million in costs from sabotage to its wells, pipelines and other facilities since March 2003.

Sixteen months later, the company still can't restart production at pipeline pump stations and wells considered unusable or unsafe, resulting in production losses estimated at more than $1 billion.

Royal Dutch/Shell, Nigeria's largest oil operation, which produces half the 2.5 million barrels Nigeria exports daily, also is reeling.

A confidential 93-page security report commissioned by Shell in December 2003 and obtained by The Associated Press and other news organizations warns that mounting attacks by criminals and ethnic militants could force the oil giant to abandon its onshore operations in the delta by 2008.

Shell spokesman Simon Buerk rejects the possibility of a company pullout.

"We don't agree with that conclusion. We are committed to our operations in Nigeria," Buerk told the AP.

Other company officials concede, however, that the firm is increasingly turning its attention to offshore oil fields because it considers them safer from attack by bandits and activists.

Buerk declined to discuss the confidential report's other conclusions: that Shell "exacerbates conflict" in the way it gives cash and contracts to delta residents and offers "stay-at-home pay" to disgruntled youths.

Such "lack of transparency" encourages villagers to fight Shell -- and each other -- for a share of the oil money, the report's authors concluded.

Multinational companies encourage crime through "corruption in the contracting process and the payment of ransoms that make crime lucrative," the study warned, adding that Shell's "social license to operate is fast-eroding."

Indeed, delta residents, most of whom earn less than $1 a day despite the region's petroleum wealth, accuse oil companies of colluding with Nigeria's government to foment divisions between rival community groups in a strategy to deprive them of oil earnings.

Addressing such allegations, the Shell-commissioned report's authors say there is "no evidence" companies have these sinister motives. Yet the authors warn that some oil company employees do "engage in criminal activities" that deprive residents of benefits.

Oil companies are feeling the backlash from militants and other groups, which increasingly use sophisticated equipment to syphon oil from pipelines for resale to tankers bound for Europe, Asia and South America. Nigeria's government estimates the industry loses up to 300,000 barrels a day -- the equivalent of 15 percent of total exports.

Another growing concern for oil multinationals, company officials privately acknowledge, is the possibility of being blamed for killings, robberies or other abuses inflicted by Nigerian police and soldiers trying to control the restive delta.

Earlier this month, security forces raided five delta villages, leaving 15 people dead and ransacking and burning homes, according to witnesses and militants. The operation was part of an effort to combat attacks on multinational oil operations, the security forces said.

In March, a U.S. federal judge in San Francisco ruled that ChevronTexaco could be made to stand trial for civil damages in the United States on allegations that its Nigerian subsidiary was linked to the deaths of nine people allegedly shot by soldiers during protests on an offshore oil platform in 1998. ChevronTexaco has denied any wrongdoing in the case.

Similar U.S. cases are pending against other oil concerns. A lawsuit brought by members of Nigeria's ethnic Ogoni tribe in New York accuses Shell of colluding with Nigeria's former military regime to cause the hanging of nine activists, including author and Nobel Peace Prize nominee Ken Saro-Wiwa, in November 1995. Shell contends it lobbied Nigeria's government to free the activists.

Many residents of the delta, increasingly awash with automatic weapons and rocket launchers, say they have given up hope of a peaceful resolution to the conflicts between armed gangs, soldiers and oil companies.

One group led by Alhaji Dokubo Asari, a self-styled warlord in the jungle creeks near the oil city of Port Harcourt, openly challenges President Olusegun Obasanjo's government in what activists call an "armed struggle" for territory and crude.

"If we had guns, we wouldn't be running," said Walter, the resident remaining in Omadino after all his fellow villagers had fled.