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Worker Security Costly in Nigeria Print

As violence rises, oil contractors are taking on more of the expense of ensuring safety.
By Dino Mahtani - Financial Times
September 25, 2006

LAGOS, Nigeria — Oil-servicing companies in Nigeria's violent delta region are having to shoulder rising security costs or consider walking away from essential engineering and drilling work with oil and gas multinationals.

Executives say the extra costs for companies that undertake exploration, drilling and engineering operations in the oil and gas industry could slow the completion of projects and affect production targets.

Security analysts say militant attacks on facilities in the world's eighth-largest oil exporter — which have shut down a quarter of Nigeria's output — followed by a wave of kidnappings of expatriate oil workers have intensified efforts by multinationals to shift the burden of risk to their service contractors.

"There is a trend among the multinationals to try and divest themselves of the risk," said Roger Brown, a director at Erinys International, a private security firm that recently opened for business in Nigeria. "And the bottom line for the contractors is that there are other places to do business with less risk."

Violence in the Niger Delta region has pushed up costs for all the companies operating there, including the multinational oil producers — which already spend millions of dollars on security — and the many servicing companies, from global giants such as Schlumberger Ltd. and Halliburton Co. to small specialist companies.

But now even the smaller servicing companies face increased annual costs of hundreds of thousands of dollars to pay for security.

Willbros Group Inc., a large engineering contractor that has worked for multinationals in Nigeria including Royal Dutch Shell, the country's largest oil producer, announced last month that it would divest its Nigerian interests. The company, which is based in Panama and managed from Houston, had abandoned some projects after nine of its expatriate workers were kidnapped and held for weeks by militants this year.

Willbros Group Chairman Mike Curran said hostilities meant that "commercial and operating risks" in Nigeria exceeded "acceptable risk levels."

Bilfinger Berger, a relatively small German construction contractor, also halted operations after one of its expatriate workers was kidnapped.

Fears of disruption to the industry were compounded last week when oil industry labor unions held a two-day strike in protest of the government's failure to improve security in the delta.

Nigeria's oil is produced mainly from onshore sites in the Niger Delta region, but multinationals are turning to more expensive deep-water projects to meet production targets partly because of the security threat in the delta's swamps and creeks, which often serve as militant hide-outs.

"The higher costs mean slower access to oil and gas reserves. They mean the industry as a whole is turning toward deep-water operations and ultimately more expensive oil," said one managing director of a major international servicing company in Nigeria.

Security analysts say the multinationals have been shrinking their overall security umbrella, which normally includes responsibility for evacuation procedures, calling for military support and threat assessments and placing more responsibility on their contractors.

Service-company executives say they are spending more on surveillance, remote sensing equipment and police protection to maintain their working relationship with the multinationals and keep insurance costs down.

But security analysts say there is often confusion between multinationals and contractors over who is responsible for what, leaving some service companies exposed. 

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