Financial Times: Oil groups face rise in threats to security: “Shell has faced terrorist threats in Kuwait, Iraq, Saudi Arabia and Pakistan this year. One of its chartered vessels was hijacked in Somalia.”: Wednesday 5 October 2005

By Jimmy Burns and Thomas Catan in London

Published: October 5 2005

* Shell warning on risks from terrorism and corruption

* 'It is very uncomfortable to produce oil with guns'

International terrorism, corruption and local activism are threatening oil operations in many countries, one of the sector's senior security advisers has warned.

Ian McCredie, head of Global Security Services at Shell International, said the growing risks had forced Royal Dutch Shell to make its own security arrangements in "hostile environments", covering many of the most important areas in which it operates. He pointed to 14 oil producing regions where local security forces were judged to be "largely ineffective".

Oil companies face growing security risks as they move into more unstable parts of the world in search of resources. Company managers must deal with kidnappings and guerrilla movements in Latin America and Africa, as well as the threat of terrorist attacks in the Middle East. The Russian government's break-up of Yukos has also raised the risk of expropriation for foreign companies operating in the country.

The risks have led to a booming industry in private security companies, many employing former soldiers from western countries, to protect oil production in places where local security forces are seen as inadequate.

Shell has faced terrorist threats in Kuwait, Iraq, Saudi Arabia and Pakistan this year. One of its chartered vessels was hijacked in Somalia.

Mr McCredie, speaking at a conference on political risk organised by the Royal Institute of International Affairs in London, said separatist rebels in Nigeria had stepped up attacks in the oil-rich Niger Delta.

He said the Nigerian government was struggling to keep on top of the security situation, with between 50 and 70 Shell employees kidnapped in Nigeria over the past year and an estimated $1bn (£531m) a year of oil revenues being diverted to the rebels or corrupt officials.

Mr McCredie told the conference: "To stamp out corruption you need strong leadership which is not there . .. It is a very uncomfortable situation to produce oil with guns and we don't like it."

Last month, Chevron was forced temporarily to shut down a pumping station in Nigeria and Shell had to evacuate staff from three oil and gas facilities because of local militias.

Shell highlighted the difficulties of operating under tight security. Mr McCredie said: "If you surround yourself with razor wire, you are asking for trouble. Globally things don't look too bad but there are areas that are coming unstuck through no fault of our own." In Russia, Shell was having to boost its IT security because of the threat of industrial espionage from local oil concerns and the activities of corrupt officials. Shell is making a push into Russia, where it is the largest single foreign investor. Mr McCredie said political instability in Saudi Arabia was being fuelled by the unpopularity of the ruling Royal family. He also referred to the growing threat of piracy in the Malacca Straits, one of the most important shipping lines in the world. The security chief said Shell was having to step up security on tankers that used it.

Mr McCredie joined Shell as a vice-president with responsibility for security in September last year. He had worked for the UK Foreign Service since 1976 in security and intelligence.

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