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Chapter Twenty-two

Shell-BP and the Nigerian Civil War

Phia Steyn[1]

Robin Law arrived in Nigeria for the first time in October 1966 and spent most of the civil war years in the country, leaving only toward mid-1969. He vividly remembers the second Biafran bombing raid on Lagos in October 1967 and recalls the identification he felt that day (and many others) with the Federal cause as he joined the crowds wanting to view the Biafran plane wreck. His myriad experiences of Nigeria in the late 1960s have generated a lifelong interest in the Nigerian civil war. This article should be read against this background, and seeks to integrate Robin Law's interests in the civil war, African business history, and the theory of economic determinism with my own research interests in the history of oil in Nigeria in general, and that of Shell Nigeria in particular.

* * *

Much has been written on oil and the Nigerian civil war. It was, after all, the resource that made an independent Biafra economically viable should their secession have succeeded. Oil politics dominated de St Jorre's “phoney war” phase that lasted from Biafra's declaration of independence on May 30, 1967 to the outbreak of actual fighting on July 6, 1967.[2] The immediate “casus belli” of the civil war, according to Kirk-Greene, was the belief by the Federal government that Shell-BP had made a token royalty payment to Biafra.[3] The civil war historiography pays the greatest attention to the royalty crisis of June / July 1967, and clearly loses interest in oil thereafter as issues such as the massive humanitarian crises, the actual progress of the war, and attempts at reconciliation come to dominate the narratives.[4] Only some specialist literature and economic analyses of the civil war pay attention to developments within the oil industry during the war years, although unpublished recent work by Genova has begun to draw attention to the role of multinational oil companies.[5] This article seeks to make a contribution to the civil war historiography and Nigerian oil historiography by focusing on the activities and loyalties of the Shell-BP Petroleum Development Company of Nigeria, Limited (hereafter Shell-BP)[6] during the civil war. By exploring the business history of the era, and the way in which a multinational enterprise reacted to an African political crisis, this article suggests that Shell-BP actions were motivated by their economic self-interests and that their very nature as a multinational enterprise enabled them to exploit the civil war period to their own advantage, which further strengthened their dominance of the Nigerian oil industry.

This research builds upon previous research into the history of oil exploration in colonial Nigeria, and Shell Nigeria and ethnic minorities in the Niger Delta.[7] It is based mainly on archival and contemporary sources which are supplemented with a number of key secondary sources, in particular Davis and Abiodun. The article is divided into three sections. Section 1 provides a brief history of Shell-BP in Nigeria and the state of the Nigerian oil industry by May 1967. Section 2 focuses on the loyalties of Shell-BP during the initial phases of the civil war, paying particular attention to attempts by the company to remain neutral during the royalty crisis of June / July 1967, and the shifting of the company's support to the federal cause after August 1967. Section 3, by contrast, pays attention to Shell-BP developments and expansion in the Mid-West as the company came to utilize the opportunities presented by the civil war to improve, expand and modernize their operations in Nigeria. This section closes by exploring Shell-BP's rehabilitation projects in the East and they way in which the company's operations were once again plunged into chaos by the successes of Von Rosen's air sorties into the Mid-Western region in the last six months of the civil war.

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Shell-BP started oil exploration in colonial Nigeria following the granting of an exclusive exploration licence over the whole of Nigeria in December 1936.[8] In the post- World War II period the 50 / 50 joint venture, operated mainly by Shell personnel, focussed their exploratory activities on the Eastern Region where pre-war activities discovered the most favorable oil-yielding structures. Extensive exploratory work followed from 1946 onward and oil of commercial quantity and quality was finally discovered in January 1956 at Oloibiri, situated 72 km west of Port Harcourt. This was followed by the discovery of oil at Afam shortly thereafter (40 km east of Port Harcourt). By 1958 Shell-BP had discovered oil in twelve areas, of which the Oloibiri, Afam, and Bomu oilfields were the most promising. Following the development of the necessary oil pipeline infrastructure to transport the oil to the joint venture's terminal at Port Harcourt, oil production started at Oloibiri in early 1956 at 3,000 barrels per day (bpd). The first shipment of Nigerian crude oil exports (8,500 tons of crude oil) arrived at Rotterdam on March 8, 1958.[9]

At independence in 1960 Nigeria possessed a modest oil industry in which Shell-BP produced 20,000 bpd. Despite a repressed world oil market due to overproduction in the early 1960s, the decade witnessed the Nigerian oil industry grow at a tremendous rate for both political and economic reasons. Politically, the proximity of the country to the major industrial markets and its location along the Atlantic seaboard on the “right” side of the Suez Canal made it a valuable oil source, especially in times of political instability in the Middle East that threatened the closure of the canal. Nigeria was also not yet a member of the Organisation of Petroleum Exporting Countries (OPEC), which was regarded favorably in Britain, since OPEC had started to challenge oil company domination from the mid-sixties. Economically, the low sulphur content of Nigerian crude, in comparison with the relatively high sulphur content of most major oil producers (with the exception of Libya, Algeria, and Indonesia) made Nigerian crude very popular with the Western markets.[10]

By April 1967 daily oil production had increased to 582,025 bpd of which 485,054 bpd (83.8 percent) were produced by Shell-BP, 56,367 bpd (9.7 percent) by Nigerian Gulf Oil, and 40,604 bpd (7 percent) by Safrap (Société Anonyme Française des Récherches et d'Exploration de Pétrole). At the time, only Nigerian Gulf had an offshore field in production which was situated on the Nigerian continental shelf in the Mid-Western State, while Tennessee Nigeria, Amoseas, and Mobil Nigeria were in the process of preparing their discoveries for production. Agip and Phillips were still involved in exploratory work. The country's first refinery was opened a year earlier in 1966 and was situated at Alese Eleme, close to Port Harcourt. This refinery was managed by BP personnel on behalf of the Nigerian Petroleum Refinery Company which was a joint venture between the federal government (55 percent), Shell (22,5 percent), and BP (22,5 percent).[11]

Due to successful exploratory and development work, Shell-BP activities had greatly expanded by 1967 and they were the most important multinational oil company involved in what was soon to become the Republic of Biafra. Their presence in the Eastern State was very extensive and included their operational headquarters which were moved to Port Harcourt from Owerri in 1961, their massive residential and industrial areas in Port Harcourt, and the Shell-BP oil terminal at Bonny. This terminal, which came into operation in 1961, was situated forty miles downstream from Port Harcourt at the mouth of Bonny River and, after dredging the bar across the mouth, was capable of handling 70,000-ton tankers. This was a vast improvement on the original 9,000-ton tanker limit that Port Harcourt had faced.[12] According to Abiodan, the development of Bonny was a consequence of Shell-BP’s desire that all their Nigerian crude oil should be exported from a single port.[13] This objective was facilitated by the development of Shell-BP's 140-mile-long Trans-Niger Pipeline, completed in 1965. The pipeline linked the Shell-BP oil fields in the Mid-Western State with Bonny terminal and allowed for the commencement of oil production and exports from their Eriemu, Kokori, Olomoro, Oweh, Ugheli, and Uzere East and West oil fields. By April 1967 the joint venture was producing 145,092 bpd (29.9 percent) in their Mid-Western oil fields and 339,962 bpd (70.1 percent) in the Eastern oil fields. Because of their extensive presence in the Eastern Province, Shell-BP depended heavily on Ibos who constituted 80 percent of their total Nigerian staff.[14]

Despite the looming political crisis in the East, Shell-BP continued with their exploration program in 1967 and drilled 111 wells (forty-one exploration, sixty-seven appraisal, and three development wells) by May 1967.[15] Their relationship with the federal government remained strong, especially after Shell-BP initiated negotiations with the Federal Ministry of Finance to implement Libyan changes to tax arrangements with oil companies in Nigeria. This resulted in the promulgation of the Petroleum Profits Tax (Amendment) Decree of 1967 that required oil companies to set a posted price for their Nigerian crude oil, and allowed for OPEC terms of tax assessment. The OPEC terms would be used to calculate petroleum profit taxes and royalties, and to change the status of royalties from tax offsets to current operational expenses.[16] According to Pearson, the way in which Shell-BP and the federal government handled the negotiations greatly offended the other oil companies who had hoped for a delay in the implementation of OPEC terms in Nigeria. Resentment of Shell-BP was so strong that for well over a year after early 1967, the monthly lunch meeting of the oil producers section of the Lagos Chamber of Commerce ceased to meet.[17]

The federal government also attached a supplementary caveat to Shell-BP's new tax agreement insisting that participants in the joint venture must undertake not to give any assistance or encouragement to a secessionist movement in any part of the republic. The agreement further stipulated that, should a demand be made for tax and royalty payments by an authority other than the federal government, then the monies due would be paid into a suspense account and the recipient would be decided by arbitration.[18] The federal government was not alone in making preparations to deal with potential problems with the oil industry in the East should the political situation worsen. By the time the new tax agreement was signed on April 26, 1967, Lt.-Col. (later Gen.) Odumegwu Ojukwu had already declared the Revenue Collection Edict, which stated that from April 1 all federal taxes collected in the East would be paid into the treasury of the Eastern Region. Shortly thereafter he declared the Registration of Companies and Businesses Edict, which required all companies, firms, and individuals involved in business with the Eastern Region to register with the Eastern government.[19] The manoeuvring by both Maj.-Gen. (later Gen.) Yakubu Gowon's federal government and Ojukwu's Eastern Regional government in the months leading up to the secession of the Eastern Region further complicated Shell-BP's position after May 30, 1967 and precluded any easy way out of their predicament.

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The secession of the Eastern Region from the Nigerian federation and the declaration of the Republic of Biafra on May 30, 1967 placed all the multinational oil companies active in the country in a difficult position, and especially Shell-BP and Safrap who were both involved in oil production in what was now Biafra. At that stage, Shell-BP produced 89.3 percent of oil in the East and Safrap 10.7 percent (from their Obagi oilfield). Nigerian Gulf's oil production, on the other hand, was relatively unaffected by the secession because their Okan oilfield was situated offshore in the Mid-Western State.[20]

On May 31, 1967 J. D. F. Jones wrote in the Financial Times that “oil was at the centre of the dispute”[21] and it very quickly involved the multinational oil companies that produced and exported the oil. Shell-BP's reaction to Biafra's secession was ambivalent and the company attempted to continue with its activities as though nothing had happened. That was, after all, how the company had approached many of the political problems that preceded Biafra's declaration of independence. However, this pretence of normality did not last long and Stanley Gray, Shell-BP's managing director, complained to the British Commonwealth Office that both the federal government and Biafra were attempting to “involve Shell-BP more closely in the dispute.”[22] At stake were both the next instalment of oil royalties and taxes, totalling about £7 million, that the company was due to pay out in the third week of July, and the prospective recognition of Biafra by the oil companies. Ojukwu was particularly anxious to get some sort of official recognition for an independent Biafra and warned Gray on June 8 that the company would now need to regard Biafra as an independent state. It was exactly that recognition, which would be implied if Shell-BP were to make royalty payments to Biafra, that the company tried to postpone for as long as possible.[23]

Despite Shell-BP's pretence that it was business as usual, federal reactions to Eastern Regional secession greatly impacted on the company's oil-related activities. Particularly problematic was the ban on navigation in Eastern coastal waters. On June 1 Gowon declared a twelve-mile-wide federal prohibited zone in Eastern waters, and from June 12 the Nigerian Navy started their blockade of Port Harcourt and Calabar under the supervision of Commander Wey. Much to the surprise of most observers, the navy proved very adept at enforcing the blockade. Though the ban did not initially include oil exports, it did mean that the oil industry had to make alternative arrangements to secure equipment and provisions for their activities and staff. According to UK governmental estimates, the company could only continue their work as normal for a few months if the blockade continued and thereafter would have to consider drastically reducing their activities.[24] By June 14 the federal government had also refused the company funds at Port Harcourt to pay their predominantly Ibo labor force, and had demanded the immediate payment of harbor dues in Lagos. In the end Shell-BP had to make duplicate payments for harbor dues (totalling £413,800) to the Nigerian Ports Authority in order to continue oil export shipments for as long as possible. This and other attempts by Shell-BP to appease the Gowon government soon proved inadequate as the royalty issue escalated well beyond Shell-BP's ability to exercise some measure of control over the situation.[25]