Shell producing from unlicensed oil blocks — Investigation

Shell Petroleum Development Company, the Nigerian subsidiary of Royal Dutch Shell, is producing from some of the five shallow water offshore oil blocks more than four years after the leases had expired.

A source at the company, who pleaded anonymity, due to the sensitivity of the issue, said though the oil major held interest in six shallow water offshore leases, five of them had expired since November 30, 2008 and the Federal Government had yet to renew them.

However,Read more

he said this had not stopped Shell from producing from some of the affected fields owing to a 2008 court order that the status quo should be maintained.

The oil major, in its 2009 annual report, said the parties involved were pursuing a negotiated resolution, stating that “production from one of the leases – the Sea Eagle FPSO (EA licence) restarted on July 2, 2009, following the shutdown as a result of security incidents in 2006.”

Also, in its 2012 annual report released in April, Royal Dutch Shell confirmed that it had been negotiating with the Federal Government since then over the expired leases but no resolution had yet been reached.

Despite that, it confirmed that production had continued in parts of the affected fields.

Shell said production continued throughout 2012 in the EA field, located in one of the disputed leases. The EA produces 115,000 barrels of oil per day.

The report stated, “SPDC also holds an interest in six shallow water offshore leases, of which five expired on November 30, 2008. However, SPDC satisfied all the requirements of the Nigerian Petroleum Act to be entitled to an extension.

“Currently, the status quo is maintained following a court order issued on November 26, 2008. SPDC is pursuing a negotiated solution with the Federal Government of Nigeria. Production from the EA field, in one of the disputed leases, continued throughout 2012.”

Industry analysts opined that the delay in passing the Petroleum Industry Bill might have contributed to the inability of the parties in dispute to reach a resolution.

They stated that though Shell had, in its 2009 Annual Report, emphasised that it was entitled to an extension under the Nigerian Petroleum Act, the PIB, when passed into law, would have subsumed the former.

The 2012 report said Shell-share production in Nigeria was approximately 365,000 barrels of oil equivalent per day that year compared with approximately 385,000 boe/d in 2011.

Insecurity, crude oil theft and flooding in the Niger Delta were significant challenges in 2012, it said.

The company said, “An erosion of the business and operating environment in Nigeria would adversely impact Shell. We face various risks in our Nigerian operations. These risks include security issues surrounding the safety of our people, host communities, and operations; our ability to enforce existing contractual rights; limited infrastructure; and potential legislation that could increase our taxes or costs of operation.”

Despite all of that, Shell’s Chief Executive Officer, Mr. Peter Voser, said the company’s future opportunities would continue to include Nigeria.

“Our future opportunities include the Arctic, Iraq, Kazakhstan, Nigeria, and heavy oil, where we believe large reserves positions could potentially become available, with the pace of development driven by market and local operating conditions,” he said.

Voser, however, lamented that if the PIB became law, Shell’s existing and future activities would be adversely affected in the country.

“The Nigerian government is contemplating new legislation to govern the petroleum industry, which, if passed into law, will likely have a significant adverse impact on Shell’s existing and future activities in that country,” he said.

Ironically, Shell recently shut down the Nembe Creek Trunkline in order to remove crude oil theft connections and investigate suspected oil theft leaks.

The production of about 150,000 barrels of oil per day was halted due the shutdown. And SPDC consequently declared force majeure on Bonny Light export.We’re concerned that the NCTL has been targeted by crude oil thieves repeatedly since we installed the new line in 2010 at a cost of $1.1bn,” said Managing Director of SPDC & Country Chair, Shell Nigeria, Mr.  Mutiu Sunmonu.

The 97km NCTL has been closed several times as a result of crude oil theft leaks and fires between December 2011 and May 2012.

An official of Shell, who did not want to be named due to the sensitivity of the issue, said he could  not ascertain the level the oil major’s negotiation with the Federal Government had gone.

He added that the issue would require him to dig deeper into available facts before responding.