There were more indications last week that the security, economic, and political situation in Nigeria continues to deteriorate. As more than 300 oil industry employees have been kidnapped in the last three years, foreign oil workers must travel by air or in military convoys, adding greatly to costs and reducing efficiency. In an effort to cut costs in 2008 Shell eliminated 1200 oil-worker jobs in the country and is likely to cut more this year. Shell, BP, and Total all suffered losses last quarter and the income of the other international oil companies operating in Nigeria was greatly reduced.

Nigeria, where oil production is already down about 500,000 b/d to about 1.9 million b/d due to militant attacks, is under an OPEC mandate to cut production by another 319,000 b/d.  The government will likely apply these cuts disproportionately to offshore production which is lightly taxed and highly profitable to the oil companies. Shell and Exxon have about $7 billion invested in developing the offshore fields and are seeking to recover their investments as quickly as possible. Government efforts to renegotiate offshore oil agreements are likely to further reduce foreign investment in the country.

The steep decline in oil prices has left the Nigerian government unable to pay its share of new investment. Last week Shell announced that it will lend Nigeria $3 billion in order to keep projects moving.

While militant attacks do not appear to have increased significantly in recent weeks, they continue and are starting to take a toll on the patience of the international oil companies who may be losing interest in their Nigerian operations.