Location: London
Author: Emmanuel Owusu-Darkwa
Date: Thursday, August 14, 2008
Fitch Ratings says international oil and gas players may be forced into spending additional unforeseen amounts on ensuring that their infrastructure assets are adequately protected as terrorist attacks become bolder, frequent and more severe.
BP plc ('AA+/Stable/F1+'), Royal Dutch Shell plc ('AA+/Stable/F1+'), Total SA ('AA/Stable/F1+') and OAO Gazprom ('BBB/Stable') have all had key infrastructure assets attacked and damaged in recent years, but thus far the credit impact has been negligible. "If such attacks continue to increase in frequency and intensity, operators will eventually reach a point where the present value of increased security costs of key production and transportation infrastructure will be lower than the present value of lost earnings." says Jeffrey Woodruff, a Senior Director in Fitch's Energy, Utilities & Regulation team. "The costs can go beyond the immediate monetary loss that results from the disruption following an attack. If off-takers begin to feel their source of supply from a particular project is continually threatened or vulnerable, they may seek to take their business elsewhere."
The 30.1 percent BP-owned and -operated Baku-Tiblisi-Ceyhan (BTC) pipeline has been shut down since last Tuesday, due to a now extinguished fire that Kurdish separatists claim they caused. According to Botas International Ltd (the operator of the Turkish section of BTC) the pipeline will be closed for at least two weeks, but potentially more. The 1,768km pipeline - the world's second longest - plays a key role in transporting oil from 34.1 percent BP-owned and -operated Azeri-Chirag-Gunashli (ACG) oil fields in the Caspian Sea through to Ceyhan, a port in Turkey, and onto world markets. Total production at the ACG fields could be cut by as much as 500,000 barrels of oil per day (bpd) (BP net share: approximately 170,000bpd), since alternative routes to western Europe, including railcar out of Baku and pipeline to the Georgian Port of Supsa, are not suitably placed to substitute for the 1mmbpd throughput capacity of the BTC. Fitch estimates that this will cost BP approximately USD300m for each quarter BTC is down, exclusive of transportation tariff income. This comes at a time when armed conflict in Georgia has broken out; meaning the Georgian stretch of the BTC pipeline could be subject to unintended (or intended) bombing.
BP is not the only company to experience such difficulties. Niger Delta militants attacked Shell's offshore Bonga field in June 2008, which caused a shutdown of the 220,000bpd floating vessel and contributed, along with the Nembe Creek pipeline (30 percent-owned by Shell) attack in late May 2008, to a Q208 Shell Nigerian output shut-in of 195,000bpd. This shut-in has since fallen to 178,000bpd, but following another attack on the Nembe Creek pipeline in July, an additional loss of 40,000bpd has been incurred. This is set to result in a Fitch-estimated cumulative cost of approximately USD350m for Q308. Since the start of FY08, Shell has called force majeure four times due to damage caused by rebel attacks, allowing the company to free itself from meeting some contract obligations - up until possibly September - for the export of crude from Nigeria's Bonny Crude Terminal. Nigeria is an important region for Shell, contributing to approximately five percent - eight percent of company revenues from both upstream and downstream operations.
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