Factory

Factory

The cost of everything that can go wrong in a destabilized country rich in oil

Is a Bubble Really a Bubble?

Richard Meier, Brooklyn Bound

Eight People in 800 Square Feet

Greddy Seller, Petty Buyer, Nasty Flippers, Thats Entertainment

By Chris Johnson

By Jaso Patrick

By Tony Jetson

By Edward Lewis

Money Discovers India’s Boho Paradise

By Somsgi Fando

THE FAC TO RY

NOV. 2 0 1 1

CONTENT FEATURES 62

Cover Story

The Risk Premium

by Paula Pfieffer

Russell Spell thought he knew what he was getting into when he signed on with a Houston company to build a pipeline in Nigeria, where corruption and violence are commonplace and the safety of workers cannot be guaranteed.

But he never imagined he would become a hostage—literally—to America’s dependence on foreign oil.

98 Eight People in 800 Square Feet

by Tony Jetson

Tony Jetsen’s take of fitting into a large world of business in the booming city of New York and being the only person who gets what he is going through until he finds his job is similar to that of his life.

114 Money Discovers India’s Boho Paradise

by Somsgi Fando

Somsgi Fando embraces Indian culture while running a Fortune 500 company.

His struggles with culture and his family are nothing like that of his struggle with greed and deception and the world of business men and women.

On the cover

The Risk Premium The story of America’s dependence on foreign oil, and the victums that are often caught in the cross fire.

PHOTGRAPHY COURTESY OF STOCK.XCHNG STYLING BY CORTNEY NELSON

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Departments

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Sections

P31 The Press Room

P38 The Break Room

P96 The garner files

by Tara Brink

by Tara Brink

by Christ Billy

Winter escape

New York’s best

While guided tours are helpful, they aren’t required

Grab your suit and your board and make a trip to the beach for some sun and sun for a week

Hollywood’s James Garner has had plenty of adventures on and off

P36 The War Room

P42 The Board Room

P103 Lesson time

What does your Representative think?

by Kay Nelson

byJeff Jonesy

The hard truth

Clutch or crutch

Sometimes an escape is what it truly take to see the light

Is this just the latest fad?

A trip with a two wheel friend

What would you do to get the economy moving forward? Do you have a plan? And if so, what is it?

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the

press room

A trip with a two wheel friend

by Tara Brink

While guided tours are helpful, they aren’t required.

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the

war room

REPUBLICAN

DEMOCRAT

WHAT DOES YOUR REPRESENTATIVE THINK?

“What would you do to get the economy moving forward? Do you have a plan? And, if so, what is it?�

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The hard truth

the

board room

by Kay Nelson

Sometimes an escape is what it truly takes to see the light.

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the

break room

Winter escapes

by Tara Brink

Grab your suit and your board and make a trip to the beach for some sun and fun for a week

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Oil THE RISK PREMIUM

Russell Spell thought he knew what he was getting into when he signed on with a Houston company to build a pipeline in Nigeria, where corruption and violence are commonplace and the safety of workers cannot be guaranteed. But he never imagined he would become a hostage—literally—to America’s dependence on foreign oil.

by Paula Pfieffer

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THE COST OF EVERYTHING THAT CAN GO WRONG IN A DESTABILIZED COUNTRY RICH IN OIL—GETS FIGURED INTO THE PRICE OF EVERY BARREL. THE COST OF DOING BUSINESS IN THIS DANGEROUS WORLD—A COST ALL OF US PAY AT THE GAS PUMP

I

n the early morning of February 18, 2006, Russell Spell was sleeping on a barge off the Nigerian coast when he awoke to the sound of gunfire. A longtime employee of Willbros Group, an international oil and gas contractor, Spell supervised workers laying an offshore pipeline for Shell.

His shift was noon to midnight, so he was still in his bunk when he heard the sound of bullets exploding into metal, a commotion so loud it seemed as if a helicopter was landing inside his cabin. The day had dawned placid and sweet, the barge an offshore oasis from the fetid air and roiling gas flares visible on the coast at Shell’s Forcados export terminal. Spell had no idea he was about to become a pawn in the increasingly violent war for control of the world’s diminishing petroleum resources.

Spell, then 41, was pale and impish, a small, shy man with a wry sense of humor who still had the broad shoulders and bowed arms of the welder he had been for much of his adult life. Born and raised in the East Texas oil field town of Silsbee, he didn’t want for much and generally took what came his way with equanimity. By 2006, he had worked in Nigeria for almost a decade. He knew the country posed its share of dangers to foreign workers, but he left the worry about kidnappings, robberies, and killings to his company and to his wife, Regina. Spell did not, for instance, pay much mind to State Department travel 64

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advisories, like the one that, just a day before the attack on his barge, warned American citizens to stay away. “The lack of law and order in Nigeria poses considerable risks to travelers,” it said.

“Violent crime committed by ordinary criminals, as well as by persons in police and military uniforms, can occur throughout the country.”

Spell knew the people of the Niger Delta were desperately poor, while corrupt officials lived like Saudi princes.

year. It was enough to buy his family a brick house on a cul-de-sac within walking distance of Lake Conroe. His front door had a leaded-glass window that sparkled with rainbows in the afternoon sun; his living room featured a big-screen TV. Spell had never finished college, but his kids were in gifted-and-talented programs at good schools. His wife didn’t have to work.

He never asked himself whether the job was worth the risk because the answer seemed self-evident.

Now, as the gunfire drew closer, Spell jumped out of his berth and ran to the door of his tiny cabin to look outside. He saw a motorboat full of men shooting as they approached the port side of the barge; shots came from starboard as well. Spell thought about running, but there wasn’t any place to run to.

The attackers were swarming aboard, shooting all the while. “Get into cover!”

It was John Hudspith, the Brit who was the security coordinator on the barge.

He was racing toward the bridge, trying to organize an armed response.

Footsteps pounded on the deck below, and someone—not someone from Willbros—screamed orders. Spell could hear the continuous rat-a-tat-tat of automatic weapons. Looking down the walkway, he saw powerfully built

BECAUSE WE ARE NOW RUNNING OUT OF GAS AND OIL, WE MUST PREPARE QUICKLY FOR A THIRD CHANGE, TO STRICT CONSERVATION AND TO THE USE OF COAL AND PERMANENT RENEWABLE ENERGY SOURCES, LIKE SOLAR POWER. JIMMY CARTER

He knew the air and water were poisoned because multinational oil companies had exploited the region’s rich reserves for many years without a care. He understood that certain palms were generously greased for what he called “community relations.” But he had never had any trouble personally.

He liked the Nigerian people and loved the routine and camaraderie of being offshore with longtime friends. And working in Nigeria was steady; you weren’t shut down for weather, like in the Gulf of Mexico. Spell was scheduled for three months on and one month off and made good money—$80,000 a

men dressed in camouflage vests, ammunition belts draped around their necks and shoulders. Black stocking masks covered their faces. They were coming toward him, firing into doors that wouldn’t give way to swift kicks.

Spell backed into the cabin, slamming the wooden door behind him. He and his roommate, a baby-faced 23-year-old from Mississippi named Cody Oswalt, locked the door and hoped for the best.

“What do we do?” Oswalt cried. “Man, I don’t know,” Spell told him dryly. “But I hope we win.” They held their breath, pinned to the wall, while the men stormed past. Where were the security

guards Willbros kept on the payroll?

Spell wondered. Supposedly, Willbros had three security boats and Shell had two—both armed with .50-caliber machine guns. What happened to them?

Why hadn’t anyone sounded an alarm?

WB 318 was Willbros’ largest and most profitable barge. Both Willbros and Shell paid handsomely for protection against surprises like this.

Suddenly the attackers came back.

Spell heard them dragging one of his co-workers as they approached, beating him and demanding the whereabouts of the Americans. At Spell’s door, they stopped. “Open up! Open up!” They pounded on the door and kicked at it with their boots. Finally, someone fired an automatic weapon at the door handle, and four or five men pushed inside. They kicked Spell in the ribs and stomped on his stomach, cursing him and screaming for him to get up and out of his cabin.

O

swalt got the same treatment.

In the melee, someone knocked Spell’s glasses off his face, and he didn’t have time to recover them before his attackers hoisted him up and shoved him down the walkway, toward the deck and some waiting boats. When Spell hesitated on a stairway, someone hit him in the back of the head with the butt of a rifle, and he tumbled down the rest of the way. Another attacker crowed that they had the Americans.

They were loading barge workers into boats—nine men in all. Spell was shoved in with three other men, a knife at his back. One of the captors pushed him to the floor. “We are going to barbecue you,” one of the men taunted.

Finally, Shell’s Nigerian military protectors appeared in a boat with a

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crew firing shots that widely missed their targets. The captors began to fire back, and for five or so minutes, Spell felt the concussion of the bullets pounding his ears as they whizzed by.

Glancing around, he spied a crate of ammo and found himself grateful that the kidnappers’ speedboats were easily outrunning the security forces.

They traveled from the open sea into the Forcados River, which was glazed with patches of oil. The river narrowed; the speedboat motor dropped to a purr.

The boatmen went left, then right, then north, then south, following the thinning tributaries that spread like tiny branches below the jungle canopy.

The captors removed their masks and showed Spell the charms that they believed kept bullets from penetrating their bodies. The men were Ijaws, members of Nigeria’s fourth-largest ethnic group, who are known for their fishing prowess and maintain an almost

number of hostages that

mystical have been taken mastery in Nigeria since of these 2008 waters and the mangrove swamps surrounding them.

After about an hour and a half, Spell caught sight of red cloths tied to some mangrove trees. His captors jumped out and pushed the boat toward a tiny compound, splashing themselves with water. Spell started wading toward shore. One of the men pointed his automatic weapon and called him back. Anointing Spell with water, he explained: The Ijaws took their power from the water; Spell needed purification before he could be among them. The old world vanished, and the new one closed in: heavy, warm air; putrid water; leafy mangrove trees sinking their long, witchy fingers into the shore; angry masked men and their guns. Russell Spell had no idea where he was; all he knew was that he could, quite possibly, be lost for the rest of his days. Swould easily recognize the men who appear in a YouTube video titled “The Countdown.” Dated January 2008, nearly two years after their capture, it is a recruiting tool, a slide show set to a rousing Nigerian pop beat and displaying a number of photos of buff, heavily armed men in T-shirts and camouflage gear pointing menacing fingers at the camera and riding in speedboats as they proudly brandish their automatic weapons. They claim to belong to a group called MEND, 65

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the Movement for the Emancipation of the Niger Delta. In many photos the members wear stocking masks; in others, they have painted their faces and bodies white, partly in honor of ancient traditions and partly because they know it frightens oil field workers.

In other pictures MEND members show their ostensible handiwork: pipelines and oil fields exploding in flames. The video notes correctly that Nigeria is second to Iraq as the most unstable oil producer in the world. Words on the screen declare that since 1995, when the government executed Ken SaroWiwa, an author and environmentalist who became a national hero for battling to end government corruption, the Niger Delta has become “hell on earth,” a land devastated by industrial pollution and increasingly violent protests, followed by equally violent government retributions—which many in the delta believe to be wholeheartedly supported by the oil companies that operate here.

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available. Americans are less aware, Members of MEND were the very however, that there is another reason people who kidnapped Russell Spell why the price of oil has blown past $100 and eight co-workers and have since a barrel and gasoline is approaching claimed responsibility for still more $4 a gallon: The countries around the kidnappings and acts of sabotage. globe where oil remains available in That same year—MEND’s first in abundance are increasingly dangerous operation—the organization and similar places to operate, with groups kidnapped 128 corrupt governments foreign nationals, shut that are indifferent to the down 25 percent of welfare of their citizens, Nigeria’s oil production, 2.5 million in turn inspiring the and helped drive crude feet of pipe have proliferation of guerrilla oil prices close to $80 been destroyed groups like MEND. The cost a barrel, according to since 2008 of drilling in these venues— the Norwegian-based of attracting and protecting international security workers, of losing work time consultants Bergen Risk due to sabotage, of paying Solutions.

Most American consumers understand ever higher insurance premiums, of that the invasion of Iraq has contributed making quasi-legal payoffs that are part of doing business, of providing to the skyrocketing cost of crude. It’s the war premium, what the market adds medical treatment for kidnap victims to the price of a barrel of oil because the like Spell, of defending lawsuits, in short, the cost of everything that can go crude that once flowed from Saddam wrong in a destabilized country rich in Hussein’s fields is now less dependably

oil—gets figured into the price of every barrel. The cost of doing business in this dangerous world—a cost all of us pay at the gas pump—is called the risk premium.

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o one likes to discuss oil’s risk premium very much, particularly in Texas, because the talk is believed to encourage violence and increase costs, not to mention scare off potential employees. In the big picture, the risk premium is a worldwide concern, but it also hits close to home, because what affects oil affects Texas.

The companies and the workers who bear the risk—financial in the case of the former, life and limb in the case of the latter— are disproportionately total amout of and other contractors have Texan. The experience of oil money that been killed while trying to Russell Spell and others goes to Nigera deliver toiletries or like him influences the packaged foods to employment practices and American soldiers. In oilbusiness decisions of producing countries like major Texas companies, Iraq, Venezuela, Mexico, Nigeria, and shapes the rulings of Texas courts, and those parts of the former Soviet Union affects the costs of Texas medicine. that have been corrupted by the In oil, as in war, the job of protecting Russian mob, American workers vital American interests has been similarly find themselves caught up in contracted out to private companies, resource wars. These countries may be whose employees can find themselves rich in oil and gas, but they are rent by in harm’s way. In war-torn Iraq, more than a thousand workers for Halliburton social inequities. American companies that undertake the exploration and exploitation of these resources can easily find themselves grappling with civil strife, growing antiAmericanism, the constraints and stark penalties of the Foreign Corrupt Practices Act (FCPA), and the potential for lawsuits from

10%

FINALLY, AS THE SHADOWS GREW LONG AND DARKNESS FELL, THE SOLDIERS LOADED THEIR CAPTIVES BACK ON THE BOATS AND PUSHED EVEN DEEPER INTO THE JUNGLE, NAVIGATING BY MOONLIGHT.

employees who find themselves unprotected in life-threatening situations. As long ago as 1998, in Cabinda, Angola, a four-car motorcade containing thirty employees of a major oil company was attacked near the local airport by a rocket-propelled grenade.

Today, radicals who once sabotaged pipelines in Colombia have moved on to Venezuela. Every such incident adds to the cost of producing oil. Not surprisingly, Exxon Mobil recently announced that it would spend $1 billion a year on exploration in safer, if less promising, locales like Germany, Greenland, and New Zealand.

The private security business has burgeoned as the threats grow. “It’s become a number one priority.

Companies have to protect their most precious commodity, which is personnel,” says security expert and former Bush confidant Joe Allbaugh, the CEO of the Allbaugh Company. Willbros at one time had a group that did nothing but repair damaged and sabotaged pipelines in Nigeria. The promotional materials for London-based Control Risks state, “If a client falls victim to an incident such as kidnap, extortion, illegal detention of employees, or product tampering, Control Risks will deploy consultants to advise on negotiation strategies and liaise with law enforcement, families, and the media. We have handled more than 1,400 such crises.” A company called Worldwide Employee Assistance Programs now offers treatment for oil 6 7 T HE FA CTORY

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WILLBROS GROUP OIL ROUTES

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number of hostages that have been taken in Nigeria since 2008

company kidnap victims suffering from posttraumatic stress disorder. Chevron has an in-house attorney who specializes in lawsuits brought by employees who have been kidnapped.

Because oil is often found in remote places, contractors have always had to construct entire cities—with roads and airports and sewage treatment plants—in order to keep their people comfortable. Now compounds and job sites also have to be secure, which means the cost of 68

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construction and protection has gone up.

Workers must be ferried to and from job sites in armored vehicles with (hopefully) trained guards.

The complexities of the Federal Corrupt Practices Act can also ensnare oil companies.

The rule of thumb is that bribes to smooth the way for operations do not bring the FCPA into play, but companies that pay to win or extend contracts can end up as defendants in a major lawsuit or criminal prosecution, with legal

fees that start at $3 million.

As an executive for one major contractor told me, a pipeline that might take two months and cost $60 million to build in the U.S. would take at least six to eight months and cost a minimum of $150 million in Nigeria.

“Your imagination isn’t big enough to figure out how

60% GDP has since risen as of 2008

2.5 million

feet of pipe have been destroyed since 2008

10% total amout of oil money that goes to Nigera

Nigerians can separate you from your money,” he said.

Still, the delta’s sweet, cheaply refinable crude is a siren song to Big Oil, especially because it can be shipped easily to markets in Western Europe. Nigeria pumps more than two million barrels a day, worth about $84 billion a year. It provides a

crucial 14 percent of American imports.

That is pretty much the extent of the good news.

Nigeria is the poster child for high-risk oil exploration and production, a living testament to the so-called oil curse. This holds that countries rich in oil wealth tend to have stunted economic growth—agriculture 69

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and industry wither and corruption thrives—because all the focus is on one incredibly lucrative business.

“Everything is extracted and nothing is produced,” explains University of Houston history professor Kairn Klieman, who offers the only course in the U.S. on Africa and oil. “The political culture is, ‘I don’t have to produce.’ ” According to Bergen Risk Solutions, oil accounts for 90 percent of Nigeria’s export earnings and fully 80 percent of the government’s revenues—but somehow 85 percent of the money ends up in the hands of 1 percent of the population. Twice the size of California, with an estimated 148 million people, Nigeria is the most populous country in Africa and eighth in the world, but 70 percent of its people live on less than $1 a day. It is one of the most corrupt countries on earth, rated 2.2 out of a best possible score of 10 on Transparency International’s 2007 Corruption Perception GDP has since Index. An risen as of estimated $400 2008 billion has been lost to corruption since the country gained independence from Britain, in 1960, and 14,000 people have been killed in violent outbreaks since military rule supposedly ended, in 1999.

In other words, oil and oil field service companies must operate in a tinderbox

60%

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The government enjoys an enviable split with its multinational oil partners— taking anywhere from 50 to 80 percent of the revenues—but public services are few to nonexistent; the government functions primarily to enrich the officials who collect money from the foreigners who come to extract oil. A former governor of Delta State, James Ibori, managed to accrue his own jet, his own Mercedes Maybach, and some pricey London real estate. Not only do foreign companies have to pay bribes to import

THE ONIL COMPANIES ARE NOT THE ENEMY, IT IS THE GOVERNMENT. THE COMPANIES GOT IN THE MIDDLE.

in which the Nigerian government is located in the north and the oil is located in the south; the wealth is shipped north, while the people who live in the south get virtually nothing.

There, millions of desperately poor people live in primitive villages with no electricity or running water. In the urban wasteland that is Lagos, Nigeria’s largest city, they live under the freeways in shanties, their cook fires coating the air with a sticky brownish haze. If you blow your nose in the polluted air, your mucus will be black.

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NIGERIAN MILITARY ARE OFTEN SEEN AS PIRATES OR VANDALS

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workers (most of the locals are too uneducated to be trained), but they must also pay bribes to get out of the airport, to get into their hotel, to bring equipment into the country, to appease local landowners, and much, much more. American companies face even bigger problems: If the bribes violate the FCPA, American companies will find federal investigators at their door. The difference between common thieves and groups like MEND is one of sophistication and ambition. Once, oil companies paid small bribes—a

“suggested list for Christmas gifts” from one local potentate featured a cow, fifty yams, four cartons of wine, beer, and Maltina (Nigeria’s premier malt drink), along with 250,000 nairas (a little more than $2,000). A kidnapping used to be a low-key fundraiser in which a small ransom would be paid—maybe just a few hundred dollars—and the employee would be back at the compound in time for dinner. A Nigerian Web site, Oyibosonline.com, which hasn’t quite come to grips with the current explosion of violence, offers nine T-shirts printed with kidnapping slogans, including one that says “Kidnapping, Nigeria’s fastest growing industry.”

But old-fashioned kidnappers are now competing with political activists whose demands are more enterprising and more expensive. Militants need money for their cause; they get it not just from kidnapping and bunkering (stealing and selling local oil on the black market) but from sympathetic Nigerian émigrés; likewise, their weapons come from around the world. This increases the danger for workers like Russell Spell: Politically motivated groups like MEND declare they have “nothing left to lose” and that their goals are “to totally destroy the ability of the Nigerian government to export oil,” to regain

control of the country’s oil wealth, and to restore basic human rights in the delta. With easy access to the Internet, they have learned from groups like Al Qaeda that it is entirely plausible to demand that “all oil companies must leave the delta region or face their destruction.”

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pell’s job description, then, was to build pipelines in the midst of an undeclared civil war. “The oil companies are not the enemy,” Justus Wariya, an Ijaw who now lives in Houston and supports human rights for the delta, told me. “It is the government. The companies got in the middle.” What Spell, and perhaps Willbros, didn’t realize was that safety in Nigeria had become a mirage—for oil companies, for oil service companies, for all foreign workers, and, of course, for the country’s abundant supply of oil.

As a University of Houston oil historian, Joseph Pratt, told me, “In a sense, we’ve all been kidnapped by Nigeria.”

MEND took nine hostages from the Willbros rig—one Filipino, two Thais, two Egyptians, three Americans, and one Englishman. Along with the others, Spell was marched to a palm grove and ordered to sit on some crude wooden benches. He looked around and saw a few tin-roofed concrete buildings riddled with bullet holes. A screen door, cut in half by machine-gun fire, had been sheared off its hinges. The place looked as if it had been under assault more than once.

A man who appeared to be in charge—well built, late forties, in combat gear—viewed them with fury.

“Why are you here?” he demanded.

To Spell, this seemed a rhetorical question, but in fact it wasn’t. The man turned on his heel, stormed into one of the buildings, and came back out carrying a newspaper. Didn’t they know about Dark February? MEND’s warnings had been all over the news.

Spell scanned the front page of the Nigerian paper as his captors began to take photos of their hostages to release to the international media. The proclamation of “Dark February” came from the newly formed Movement for the Emancipation of the Niger Delta; violence, their leaders declared, would escalate in the area, and for that reason all foreign oil companies should

sabotaged, and, wherever evacuate their employees necessary, hostages shall by midnight, February be taken, this time to ply 17. MEND’s leaders 1.5 billion a poisonous jagged edged stated that they had Nigerian sword through the heart chosen armed resistance government fine for polluting Ijaw of Nigerian oil policies, 50 because of Shell’s refusal waters years of environmental to pay the Nigerian desecration, psychological government a $1.5 desolation, economic billion fine for polluting disenfranchisement and Ijaw fishing waters. social depression that has been our MEND also wanted the government redeeming franchise so far.” to release two prominent Ijaw leaders Spell had never heard of MEND. He from prison. Their recent attacks on had never heard of Dark February, nor oil facilities and a previous kidnapping did he know that Shell had evacuated in January were, they claimed, 330 of its own employees from the direct retaliation for air strikes in the region. Access to newspapers and TV delta by the Nigerian military. More news on the barge was limited. But violence was to come: “Administrative managers on the barge were in direct edifices, oil installations, vessels, Shell had gotten word. and production machinery shall be

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T HE FA CTORY

NOV. 2011