Majors Evacuate Nigeria Staff; Crude Output Slides

Dow Jones NewsWires Tuesday March 25, 3:00 AM By Selina Williams OF DOW JONES NEWSWIRES

LONDON (Dow Jones)--Nigeria's worst ethnic violence in years sent shock waves through global oil markets Monday as three supermajors suspended production at their facilities in the Niger Delta and withdrew staff on safety fears.

The Nigerian subsidiaries of Royal Dutch/Shell Group (RD), ChevronTexaco Corp. (CVX) and TotalFinaElf (TOT) have halted production totaling 817,500 barrels a day - close to 40% of Nigeria's output of some 2 million b/d - as violence between rival communities spirals out of control ahead of presidential elections on April 19.

Shell and Chevron have also declared a force majeure - a formal notification to customers that they might not be able to lift their contracted crude when scheduled - on Bonny, Forcados and Escravos crude grades.

"It's a grave situation and the long-term implications of this are yet to be considered," said a Chevron spokesman speaking by telephone from Nigeria.

The loss of crude from the fifth-largest oil supplier to the U.S. comes at a time when global oil markets nervously eye the prospect of a prolonged war in Iraq that could have a more significant impact on supplies than initially anticipated.

It also comes as U.S. commercially held petroleum stocks are close to rock-bottom levels after a strike in Venezuela and as U.S. refiners are keen to get their hands on the light sweet Nigerian crudes that are so good for refining into gasoline ahead of the summer driving season.

The shutdowns will cost the companies and the country dear in lost revenues.

At a price of around $25 a barrel Nigeria's lost oil output is worth more than $20 million a day. That is a hefty amount for a country that receives some 90% of its foreign exchange earnings from oil exports.

But the Organization of Petroleum Exporting Countries, which has pledged to meet any shortfall in global oil supplies, played down disruptions to output by Nigeria, an OPEC member.

Events such as those in Nigeria "have happened in many countries, many times...this is a temporary event," said OPEC President Abdullah al-Attiyah in comments to Cable News Network earlier Monday.

"Nigerian oil will come back to the market," al-Attiyah added.

Technical Problems May Stall Restart Of Wells

But a prolonged shutdown of Nigeria's oil wells could make it difficult to restart them as pressure drops and other technical measures need to be taken to restart output, said David Fyfe, oil supply analyst at the Paris-based International Energy Agency.

"The longer they're off, the lower the pressure drops and the more work they'll need to get them up and running again," Fyfe said.

For the moment, none of the companies know when their production will return.

Shell and Chevron have evacuated several hundred staff, both local and expatriate, out of the afflicted region in the northern and southern swamps in the western Niger Delta.

Expatriate staff had the option to go home when they were evacuated and several took the opportunity, said spokesmen from the oil companies. Other personnel were at the end of their rotation period and were due to leave anyway.

Further disruptions could occur as Nigeria's two most powerful oil workers unions, the National Union of Petroleum and Natural Gas Workers Union, or Nupeng, and the Petroleum and Natural Gas Senior Staff Association of Nigeria, or Pengassan, threatened to withdraw members, fearing for their safety.

"We have told them (the companies) to evacuate our members from that place until there is peace," Nupeng General Secretary Joseph Akinlaja told Dow Jones Newswires by telephone.

Pengassan General Secretary Kenneth Narebor said the union would be forced to withdraw members if the violence continued. The violence showed no signs of abating Monday.

Government troops have been trying to restore order in the region, but with little effect.

According to the Associated Press, Ijaw militant activist leader Dan Ekpebide repeated threats Monday to blow up six ChevronTexaco installations - along with three Shell and two TotalFinaElf facilities that have been captured by militants - unless the Nigerian military halts its crackdown and pulls out.

Clashes between the Ijaws, the largest ethnic group in the Niger Delta, and minority Itsekiris over recent weeks have left scores dead and dozens injured.

When asked if there would be more shut ins in other locations or if violence could spread to the eastern Niger Delta, a regional Shell official in the area's oil town Warri said: "We don't know - it's clearly beyond our control."

Some analysts suggested that additional output from fields in the eastern Niger Delta could be brought on line to cover for the loss.

But the Energy Information Administration in the U.S. scotched that idea in a report Monday, when it estimated the country has no spare capacity left.

The near-$9 freefall in global oil prices in recent days on expectations of a swift end to conflict in Iraq has been stalled in part by the troubles in Nigeria, dealers said.

"Nigeria's becoming the main focus today," said one broker at London's International Petroleum Exchange where European Brent crude futures are traded.

"The fear is it could last for a while, and everyone's nervous after Venezuela," he added.

At 1850 GMT, IPE front-month May Brent was up $1.68 at $26.03/bbl.

-By Selina Williams, Dow Jones Newswires; +44 207 842 9262; selina.williams@dowjones.com (Vincent Nwanma in Lagos contributed to this report.)