Royal Dutch Shell PLC (RDSB.LN) Friday warned that a series of oil facility attacks in Nigeria this week has substantially reduced its oil and natural gas production in the West African nation and will hurt earnings.
Shell said the attacks this week had killed a second worker, an employee of the Shell-operated consortium in Nigeria, which the company counts as one of its most important producing markets. Shell confirmed earlier this week that a station guard at one of its facilities was killed in an attack.
The Hague-based company said it was "concerned" about the damage to oil and natural gas facilities but didn't provide an estimate on the total amount of energy production that has been shut as a result.
The company, however, did say the damage will hurt earnings. "This will ultimately add up to increased equipment downtime, repair and remediation costs and deferred earnings for Nigeria and the joint-venture partners," the company said in a statement.
Shell shares traded down 3 pence at 1,536 pence at 0915 GMT Friday after initially trading higher. Shell won't say exactly how much production has been shut-in in this week's attacks, but Nigerian oil officials put the production loss at about 100,000 barrels a day. Some analysts said the Nigeria violence and its impact on Shell's earnings might be discounted for now because of other factors in the energy market, like oil-price volatility.
One London-based analyst said the financial impact on Shell might get "lost in the noise of everything else".
Nigeria's main militant group, the Movement for the Emancipation of the Niger Delta, has launched six attacks against Shell-operated oil and natural gas facilities since Sunday following heavy clashes between the group and security forces in the Niger Delta, the country's main oil-producing region.
Shell is the operator of the Shell Petroleum Development Co. consortium in Nigeria and has a 30% stake in the venture. France's Total SA (TOT) and Agip, a unit of Italian Eni SpA (E), have 10% and 5% stakes, respectively, while Nigeria's state-run oil company has a 55% stake in the consortium.
Shell reiterated it was evacuating some staff from production facilities.
Militants also targeted a Chevron Corp. (CVX) oil facility early this week although production wasn't affected.
MEND's clashes with the military have come less than a month after Nigerian President Umaru Yar'Adua reshuffled his military leaders.
Some political analysts believe Yar'Adua may be taking a more forceful approach to MEND and other militant and criminal groups which have had a freehand bombing energy infrastructure and kidnapping foreign oil workers for ransom in the past few years.But a tougher line could worsen tensions and problems for the government, foreign energy companies, and the region's people.
"A militarization of the conflict in the Delta may ironically lead to its internationalization with potentially negative consequences for foreign firms operating in the area," said Eurasia Group analyst Sebastian Spio-Garbrah.
MEND and militant groups see their activity, which has cost the government and companies billions of dollars in oil revenues and worsened environmental pollution, as retaliation for years of ineffective government that has failed to improve circumstances for millions of impoverished Nigerians in the delta despite the area's huge oil and gas resources.