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A Worrying New Trend For Oil Investors

Low oil prices are cutting into the balance sheets of oil companies all around the world. That presents difficult decisions for operators who must decide how to correct their falling revenues. New projects are being suspended or cancelled while assets are also sold off. Capital spending programs are shrinking and debt is rising. For the oil majors, dividend programs are safe for now, but that could change.

Meanwhile, another threat to international oil companies is emerging. In countries where firms are operating – countries that are woefully dependent on oil for their national economies – the business climate could be darkening.

The Niger Delta

Let’s take Nigeria as an example. The OPEC member is the largest oil producer in Africa, a feat that is only possible because of the massive investments from the largest oil companies in the world. Royal Dutch Shell (NYSE: RDS.A), Chevron (NYSE: CVX), ExxonMobil (NYSE:XOM), and Eni (NYSE: ENI) have all been operating in the Niger Delta for years.

Nigeria is not an easy place to do business. Corruption and theft are pervasive. Shell has consistently seen its pipelines attacked. In August, Shell declared “force majeure” on two key pipelines – its Trans Niger Pipeline (TNP) and the Nembe Creek Trunkline (NCTL) – after they suffered from sabotage. The two pipelines were temporarily shut down for repairs. That is just one small example of some of the challenges facing the…

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