Oil

by Tom Bower

  Lo van Wachem’s ragged bequest was inherited in 1993 by Cor Herkströter. The very qualities of Herkströter that attracted praise in Holland led to criticism of him in London and New York as a socially inept, cumbersome introvert whose disdain for financial markets was matched by a conviction that he was God. Content that Shell produced more oil than Exxon and enjoyed a bigger turnover, Herkströter did not initially feel impelled to close a more important gap. By limiting the influence of accountants and advocates of commercial calculations, Shell earned less per barrel of oil than Exxon. Although Shell’s capitalization was $30 billion more than Exxon’s, the world’s biggest oil company had earned lower profits than its rival since 1981. Complications and compromises had reduced the company’s competitiveness and increased costs. For nearly 20 years, to avoid making unpleasant business-related decisions, Shell had chosen to follow a path of consensus. Emollience was particularly favored by the Dutch. Although Dutch shareholders owned only 10 percent of the stock, and over 50 percent was owned by shareholders in the US and Britain, the Dutch directors disproportionately dominated the company, encouraging its fragmentation between different cultures — Dutch, British and American — and also between the different departments — upstream, downstream and chemicals. To his credit, by May 1994 Herkströter, unlike his more conservative Dutch directors, recognized Shell’s sickness. Calling together 50 executives to review the company’s financial performance, Herkströter concluded that Shell had become “bureaucratic, inward-looking, complacent, self-satisfied, arrogant… technocentric and insufficiently entrepreneurial,” all of which was stifling efficiency and the search for new oil. The same sclerosis undermined his authority when Greenpeace boarded the Brent Spar.

  “People realize this is wrong,” explained Peter Melchett, Greenpeace’s executive director. “It is immoral. It is treating the sea as a dustbin.” Greenpeace’s accusation had aroused public antagonism against Big Oil. All the oil majors were linked with Shell as untrustworthy, environmental spoilers. Across Germany, Shell’s gas stations were boycotted. In Holland, managers reported that a similar boycott was crippling their operation. The decentralized company had never anticipated that a decision in one country could trigger violent protests in another. Even though the directors knew that Melchett lacked any evidence to undermine Fay’s honest explanation that the platform’s tanks had been cleaned in 1991, the oil executive’s humiliation on BBC television had echoed across Europe. Like his fellow directors, Herkströter was destabilized by accusations of Shell’s dishonesty and by angry disagreements between the company’s managers. In particular, Herkströter was stunned when Shell staff in Germany leaked material to the media to embarrass the company’s senior executives in Holland.

  In the House of Commons, British prime minister John Major, unaware of Shell’s internal warfare, solidly defended the corporation. As he spoke, Herkströter and his fellow directors, shaken by the boycott and the demand by European politicians, especially Helmut Kohl, Germany’s chancellor, that Shell abandon its plans, collapsed. Just after Major’s public justification of the disposal of Brent Spar, Shell’s board in The Hague capitulated. “They caved in under pressure,” complained Michael Heseltine, the secretary of state for trade and industry, outraged after Fay telephoned and ordered the British government to cease interfering in his company’s business.

  The platform was towed to Erfjord, near Stavanger, and dismantling started in July 1995. Melchett was invited to inspect the contents of the tanks, and was shown to have been mistaken. “I apologize to you and your colleagues over this,” he said publicly after negotiations. “It was an honest mistake,” said Paul Horsman, the leader of Greenpeace’s campaign. Although Shell was vindicated, Herkströter did not recover from the stumble. Shell’s directors were exposed as weak — one even said, “Greenpeace did a wonderful job” — while Greenpeace, refusing to concede the high ground, invented a more serious campaign to recover its credibility.

  In 1995, the jewel in Shell’s crown was Nigeria. Signed in 1958, Shell’s original deal with the country was hugely profitable. The corporation paid the Nigerian government $2 for each barrel, regardless of the world price, until it reached $100. Thereafter, the royalty was $2.50. Beyond that minimal amount, Shell pocketed the remainder. War and corruption had eroded that windfall over the years. Historically there was no reason why 240 ethnic groups, Christian and Muslim, could exist within a single nation of 140 million people. Oil underpinned the artificial unity that had been constructed by the British colonial government, and keeping that fragile coalition together was the central government’s priority. Any threat of secession was unacceptable, especially that declared in 1967 by General Ojukwu, the leader of the oil-rich eastern region of Biafra. Knowing that the country would disintegrate without oil, the government in Lagos launched a war to crush the rebels. Over three years, Biafra and Shell’s operation were devastated. The recovery after 1970 had been sporadic. The new income created a mirage of universal wealth. If oil sold at $25 a barrel, each Nigerian citizen would benefit, although by only 50 cents per week at most. But even those profits were wasted by the government on white-elephant projects, including an outdated steel mill purchased from Russia. Simultaneously, the new wealth sucked in imports and destroyed local jobs. To alleviate the social upheaval, Shell built hospitals, schools and social centers. Contrary to advice, Shell’s local country chairmen refused to consult aid agencies and nongovernmental organizations about these projects. Rashly, Shell’s executives assumed that the government would provide teachers, doctors and nurses.

  By 1992 Shell’s 5,000 Nigerian staff, 20,000 contractors and 270 expatriate staff had rebuilt most of the wells, replaced equipment destroyed during the war and sought to compensate for losses. But, in the rush for oil, Shell applied standards that would have been unacceptable in Europe or America. Toxic gas was flared from the wells, and oil spills, seeping across farmland and rivers, remained untreated. Nevertheless, only one million barrels of oil a day, half of Nigeria’s capacity, was produced, and even that was affected by corruption. Every year the company’s auditors arrived from Europe to unearth endemic corruption among the company’s local employees. Systematically, some of Shell’s Nigeria managers gave contracts to friends and received backhanders, or paid inflated invoices and pocketed the cash. The auditors found hefty sums paid for “travel expenses” to politicians and government officials and their families. Usually the same expenses were also paid by the government, and the officials kept the difference. At the top level, vast sums of money received from Shell in royalties and taxes were diverted by Nigeria’s politicians and officials to private offshore bank accounts. Brian Lavers, Shell’s country chairman until 1991, had been under pressure to pay bribes to government officials and local chiefs. To avoid participating in any illegal activity, Shell’s board agreed to pay middlemen, farmers and tribal chiefs as “consultants” and for “services” to build social amenities including schools, roads and cinemas. Beyond Lavers’s control, these were constructed for inflated prices, allowing Shell’s local managers and their friends to steal considerable sums of money. Despite his equally fierce opposition to the Nigerian government’s corruption, Philip Watts, Lavers’s successor, had no alternative but to reluctantly agree under pressure in 1991 to expand Shell’s operation in the country. The company increased the number of rigs searching for oil from seven to 22, agreed to pay higher royalties and, critically, agreed in return for a bonus to increase the country’s officially registered oil reserves from 16 billion barrels to 25 billion barrels. “I arrived in this job,” said Watts, “absolutely determined to make a difference on issues I felt strongly about. You’re talking to someone who was in the eye of the storm.”

  Bureaucracy, inflation, aging equipment, pollution and soaring taxes amid general lawlessness were just part of Watts’s inheritance. Watts, a seismologist, had worked in Borneo, the Gulf of Mexico, the North Sea and Holland before arriving in Nigeria. Intelligent and opinion
ated, he was intolerant of those he disdained, not least the local criminals. Oil had turned Nigeria into a magnet for villainy. In the Niger Delta, 40,000 square miles of swamps and creeks where the Niger flows into the Atlantic, gangs of Ogoni tribesmen were systematically drilling into Shell’s pipelines to divert up to 80,000 barrels of oil every day into barges moored on the creeks. The cargoes were sold to untraceable tankers, chartered by European traders, anchored in the delta or offshore and resold to uninquisitive refineries, especially in nearby Ghana. The European traders could also be the victims. Lured by a succession of telephone calls, a Glencore representative arrived in Nigeria carrying a suitcase filled with several million dollars in cash to buy oil. After the suitcase was handed over, the “sellers” disappeared. If that misfortune gave Watts wry amusement, the Ogoni gangs’ activities caused headaches. Explosions while siphoning oil caused numerous deaths, and the thefts from pipelines caused spillage across farmland and in rivers. The environmental damage placed Shell under pressure to pay compensation to farmers, which in turn encouraged some of them to sabotage pipes in order to claim compensation. Attempts by Watts to crack down on corruption, theft and sabotage endangered Shell’s employees. Increasingly, they could only work if protected by armed militias. Continued civil unrest forced many oil wells to close down. There were 2,470 security officers employed to protect the operational staff. Although Shell’s directors in Holland condemned the use of guns as “intolerable,” the nature of the corruption in Nigeria left no alternative.

  “There’s a staggering skimming of government funds paid straight into Swiss bank accounts,” Watts exploded. Since each Shell “country” was self-financing for expansion, Watts’s ambitions were frustrated by the government’s refusal to pay Nigeria’s share of the bill. Most of the $7 billion received every year by the government in taxes and royalties simply disappeared. Hundreds of millions of dollars that the government was contractually obliged to contribute to develop new reserves had been deposited in Swiss bank accounts by corrupt officials. A succession of ministers, Watts discovered, had “not only stolen the eggs but refused to even feed the goose.” In the face of wholesale corruption, even Nigeria’s banks refused Shell’s requests for loans and overdrafts. Watts’s predicament was complicated in December 1993 by a military coup led by General Sani Abacha and the slump of Nigerian oil prices to $12. The new dictator repressed striking protestors and arrested the trade unions’ leaders in the oilfields, but failed to address Shell’s complaints. Exasperated, Watts threatened the minister of finance and the governor of the central bank. “If we can’t pay wages or finance our development,” he warned, “I’ll make sure it’ll be in the press. Even my driver will be protesting in the street.” Talking tough appealed to Watts, although the corporation’s conflict of interests — eagerness for more oil, collaboration with corrupt rulers, disregard for tribal sensitivities and discounting the social damage caused by the oil spillages — could not be disguised during an international protest.

  In 1990, Ken Saro-Wiwa, a 49-year-old writer and poet, launched a campaign outside Nigeria on behalf of the Ogoni tribe, who inhabited 1.3 percent of the oil-rich delta and produced 1.5 percent of Nigeria’s oil. After 30 years of oil production the Ogonis’ farmland, water and air were polluted by oil spillages and the “acid rain” produced from the gas flaring above their crops and villages. In compensation, they received little income from the oil royalties. With Shell’s knowledge, central government ministers refused to remit even the agreed 1 percent of the revenue to the locality, and national politicians never visited the region. Until he extended his campaign against the Nigerian government to America and Europe, Saro-Wiwa’s efforts had been fruitless. But the crusade and his encouragement of an armed uprising in the delta altered Shell’s relationship with the government. The Biafran experience had taught the company that any interference with oil revenues, or any demand for secession, would be squashed.

  To protect Shell’s oilfields, Watts felt justified in appealing to the government for protection from constant vandalism. “We’re not a bottomless pit of money,” he explained. Although the uprising was wrecking Shell’s operations in Ogoniland, only 3 percent of the company’s worldwide production was threatened. During 1993, as the disturbances increased, Watts requested the support of 1,400 armed policemen, in return for which he would provide logistics and welfare. At the company’s expense, “mobile police” armed with AK-47 rifles, some of whose uniforms bore Shell’s insignia, were dispatched as an “oilfield protection force” to the delta. As reports of death and destruction in Ogoni villages reached Europe and America, Shell was accused of financing “kill-and-go mobs” to brutally suppress the uprising. Amid chaotic scenes, Shell withdrew its staff and stopped pumping oil. The Ogonis would claim that on December 1, 1993, Watts thanked the inspector general of the police for his cooperation “in helping to preserve the security of our operation.” His gratitude was premature.

  Beyond Nigeria, Saro-Wiwa’s description of the delta’s desolation and the Nigerian government’s oppression of the Ogonis aroused fierce protests. Shell was urged to exploit its financial influence and persuade the government to cease the violence and grant the Ogonis independence. Herkströter, supported by younger directors including Mark Moody-Stuart, the British heir apparent, resisted those demands. “We have to work with the government,” the directors agreed. “We don’t have a mandate to interfere.” Recalling the outrage during the 1960s about American multinationals including ITT and United Fruit directly interfering in South American affairs, Shell’s directors declared, “We don’t get involved in politics.” In arguments with representatives of the relief agencies, Moody-Stuart insisted, “Even if the government steals money, we cannot do anything about it. We are guests in the country and cannot intervene.”

  In May 1994 Saro-Wiwa was arrested for inciting the murder of four chiefs and government officials who had been attacked by a crowd of Ogoni youths in a meeting hall and hacked to death. The price of Nigeria’s oil, said protestors in the electrified atmosphere, was blood. The promise by Abacha in July 1994 that the death penalty would be imposed on “anyone who interferes with the government’s efforts to revitalize the oil industry” chilled Saro-Wiwa’s supporters, especially the striking oil workers.

  Brian Anderson, who replaced Watts as the local Shell chairman in 1994, visited General Abacha. Like many Europeans, he had assumed that Saro-Wiwa would receive a short sentence. Nurtured by Shell’s straitjacketed culture, Anderson was immune to the nuances of the dictatorship, and his report to The Hague after his first conversation with the general did not raise any alarm. One year later, after a prejudiced trial, Saro-Wiwa was condemned to death. Only after the verdict and another visit to the general did Anderson realize his mistake. By then it was too late to influence Shell’s directors. Like a supertanker, they were impervious to shocks that required an immediate change of course. By then, Saro-Wiwa’s fate had become an international issue. Across America and Europe he was portrayed as the victim of Shell’s conduct, and the company was accused of polluting the Ogoni farmlands and of failing to protest against the rigged trial while financing the government’s destruction of the delta. President Clinton, Nelson Mandela and other international leaders protested to Abacha. The World Bank, church leaders, Greenpeace, Amnesty International, PEN, the International Writers’ Association and even members of the Royal Geographical Society demanded that Shell abandon its operations in Nigeria. The opprobrium spread across all of Big Oil. Accused of exploitation, corruption, environmental damage and murder, Shell was urged to intercede and prevent Saro-Wiwa’s execution.

  In The Hague, Cor Herkströter and his board maintained their composure. Shell men never flapped. Shell’s “Business Principles,” a set of guidelines committing the company to an apolitical role, had been adopted in 1976 and subsequently updated five times. According to those principles, Shell’s duty was to be decent but not evangelical. Multinationals should not interfere in
sovereign states. “We must be part of the furniture,” everyone agreed. “It’s ridiculous that we should intervene against a military dictatorship,” said one director, to approval. “If we left,” said another, “we would cut off Nigeria’s nose and our own. The French would replace us in a flash.” The company’s huge investment needed to be protected, not least because after years of frustration there was still hope that the Nigerian government would agree to build a plant to liquefy and ship the country’s vast deposits of natural gas in tankers as LNG (liquefied natural gas). Shell was the master of the complicated technology necessary to freeze natural gas to −160°C, at which temperature it became liquid gas, which could be shipped around the world. Six hundred cubic meters of natural gas could be condensed into one cubic meter of LNG. The profits would be huge. Only a minority of British directors understood that Shell’s investment in Nigeria was becoming disproportionate to the profits. The capital, they believed, could have been better spent elsewhere. That British minority believed that standing aside from Nigeria’s political battles had been a mistake, and that Shell should have taken more interest in the delta’s environment years earlier. Yet in the midst of the storm, changing course had become too difficult. There was no alternative but to support the wrong decision. “I never doubted that Shell would stay the course,” said Watts. “We resiled from protest,” observed a Dutch director. “Shell should not be blamed for an unjust government.” “Shell doesn’t get involved in politics,” announced a spokesman. Questions were referred to the British, Dutch and American governments, which equally failed to make any forceful protest and opposed sanctions, although Nigeria exported 40 percent of its oil to the US. At the very last moment Shell and the three governments did protest to General Abacha, but on November 10, 1995, Ken Saro-Wiwa and his eight fellow defendants were executed. Greenpeace blamed Shell’s silence for the deaths. “It is not for commercial organisations like Shell,” replied a company spokesman, “to interfere in the legal process of a sovereign state such as Nigeria.”