…Agrees To Refund Over 2m Barrels Of Crude
…Accepts Infraction, Fine
BEVERLY HILLS, February 14, (THEWILL) – This is not the best of times for Nigeria’s leading oil firm, Shell Petroleum Development Company of Nigeria Limited (SPDC), a subsidiary of Royal Dutch Shell. Barely a week after a court in The Netherlands compelled it to compensate two Nigerian farmers for damages over 2004/2005 oil leaks, its alleged age-long game of cheating and exploiting technicalities in the production and evacuation of crude oil to allegedly short-change not only the Federal Government, but also local operators in the oil and gas business, is finally coming to an inglorious end.
The bubble appears to have burst at last, from all indications. And despite all justifications and defense, Shell has, officially, been fingered in a messy missing crude oil scandal that is capable of further tarnishing the corporate integrity of one of the biggest oil prospecting and exploration companies in Nigeria. The company has been indicted by local regulator, the Department of Petroleum Resources, DPR, for stealing 2,081,678 barrels of oil between June 2016 and July 2018 through unapproved metering system, which it used to misappropriate crude and shortchange local operators.
Unfortunately for Shell, concerted efforts, as usual, to cover up the “scandalous mess” through technical explanations were flatly rejected by the DPR, which insisted on the return of the crude and imposed a fine on the oil giant.
After its initial denial and push back against the allegation, Shell itself admitted to the theft in a letter to the DPR dated February 8, 2021, CAPTIONED: “RE; REALLOCATION OF BONNY TERMINAL GROSS VOLUME FROM JUNE 2016 TO JULY 2018 BASED ON COMPARISON OF METERED GROSS VOLUME BETWEEN CORIOLIS METER AND LACT UNIT INSTALLED ON THE NTCL.
The letter exclusively obtained by THEWILL, read: “We refer to your letter Ref: DMR/CTO/COA/COM/V.5/045 dated 28 January 2021 in respect of the above subject.
“We note your directives as contained in the above-referenced letter and wish to confirm that The Shell Petroleum Development Company of Nigeria Limited (SPDC) will implement the refund of the 2, 081, 678 barrels of crude oil from the Trans Niger Pipeline (TNP) injectors (SPDC, TEPNG, NDPR and WSPOL) to the Nembe Crude Trunk Line (NTCL) injectors (Aiteo, Belemaoil, Eroton and Newcross) over the period from end of January 2021 till November 2021 in accordance with schedule III as contained in the Department of Petroleum Resources (DPR) letter Ref: DMR/CTO/COA/COM/V.5/230 dated 14th December, 2020….”
Busting The Oil Thieves
Apparently, the DPR has woken up from a very deep slumber and many years of being docile. Repeated calls for real action to prevent further revenue loss to Nigeria from the activities of oil thieves, spanning many decades, could no longer be ignored. The country had, for long, become a major victim of crude oil theft by ‘smart industry players’, illegal bunkerers and other operators, who under-declare actual allocations by manipulating technical devices and equipment to their advantage due to the laxity in enforcement of regulations leading to loss of millions of dollars in oil revenue every year.
Exposing the Stealing Method
Rising to the defense of his Agency, Director/Chief Executive Officer of DPR, Mr. Sarki Auwalu, opened a can of worms as he revealed that most of the crude oil thefts actually occur from land terminals.
“I will like to use this opportunity to give a brief on how we will account for hydrocarbon in this nation. I think that will provide a better view for this committee as well as Nigerians. The process starts well because every crude oil comes from well, and you cannot drill a well without knowing the capacity of that well to produce,” Auwalu told the House of Representatives Adhoc Committee on Oil Theft recently.
“Most of the thefts are coming from land terminals because the land producers have to use pipelines to transport the crude into the terminals for export. In the process, you have a lot of third party interference; small volumes that account for the larger volume are being taken and they are being stolen.”
Aside this, big oil companies also use unauthorised equipment and devices to steal crude oil from Nigeria and even shortchange local operators as the allocation measurement always arrived at with such unauthorised equipment always fall below the actual crude taken out of the country.
Shell Nigeria Has Case to Answer
In a letter to SPDC, dated 9th February, 2018, and titled, RE: CRUDE THEFT/LOSS ALLOCATION METHODOLOGY, copy of which was obtained by THEWILL, the DPR had warned of the need to ensure that “no party among the Bonny producers (SPDC, TNP, NCTL and other trunk Line Injectors) is short changed,” thus requesting Shell, to, among other things, note that DPR’s participation in the calibration and/ or testing of the meter was not an approval to use and apply the equipment for intended purposes. Maintaining that in its efforts to regularise as well as determine the suitability or otherwise of the 2×12” Coriolis Flow Meter installed by SPDC at the inlet of the NCTL line into Bonny Terminal for Custody Transfer Measurement and Allocation Purposes, DPR, in the letter signed by U.K. Ndanusa for the Director of Petroleum Resources, said it had reviewed all the available records within its disposal alongside the additional submission by Shell’s representatives which include Datasheet/Specification sheet of the meter.
The DPR listed the findings from its review to include the fact that:
• The NCTL facility was installed by SPDC as a temporary arrangement pending the completion of the permanent LACT unit.
• The meter was calibrated and successfully proved in the presence of DPR representatives but no approval was granted by the Department for its application.
• SPDC was made to understand that the existing Regulations/DPR approved Guidelines do not have provision for temporary metering arrangement for custody transfer measurement
• Gross volumes obtained from the meter were used by SPDC for Gross Crude Oil Production Allowance to NCTL injectors from June 2016 to May 2017.
Restating the need to ensure that no party among the Bonny producers is short changed, DPR took the opportunity to draw the attention of SPDC to some salient facts, namely that:
• Its participation in the calibration and/or testing of the meter was not an approval to use and apply the equipment for intended purpose.
• The approved method of BS&W determination for dynamic measurement as prescribed in the DPR guideline is the Auto sampling system with mixer device installed upstream. The water allocation to NCTL injectors, which was based on the density measurements of the meter as described (c) above are not acceptable to DPR.
“You will therefore be required to adjust water allocations to the injectors in line with the DPR approved methodologies as contained in our letters Ref: DMR/CTO/COA/COM/V2/045 dated 23rd December 2015 and Ref: DMR/CTO/COA/COM/V.2/154 dated 21st March 2017,” DPR added with emphasis.
“The Gross volume allocations as described in (d) above may be considered by the Department. However, the extent of the consideration is subject to the outcome of a comparison between previous Gross measurements by the meter and that of the permanent LACT after commissioning. This is to enable us further verify the accuracy of the Coriolis meter using the LACT Unit in addition to the calibration and proving described in (b) above.”
Crossing The Engagement Limit
From all indications, SPDC went beyond the limits of engagement with the DPR as exhibited in its failure to obey the directives given whilst also defending what were obviously clear infractions. But the regulatory agency would have none of such again and was bold enough to stick to its guns.
Another recent letter dated 28 January, 2021 from the DPR to the Managing Director, SPDC, and titled, RE: REALLOCATION OF BONNY TERMINAL GROSS VOLUME FROM JUNE 2016 TO JULY 2018 BASED ON COMPARISON OF METERED GROSS VOLUME BETWEEN THE CORIOLIS METER AND LACT UNIT INSTALLED ON THE NCTL, referred to an earlier defense put forward by Shell. The letter, also obtained by THEWILL, read in part: “Your letter Ref: SPDC -COM -2021-0016L dated January 14, 2021 on the above subject refers.
“Please be informed that we are unable to accept your request for further engagement on the matter due to your failure to implement the refund of 2,081,678 barrels of oil from TNP injectors (SPDC, TEPNG, NDPR and WSPOL) to NCTL injectors (AITEO, BELEMAOIL, EROTON and NEWCROSS) as directed by the Department.
“As you are aware, the refund volume is a function of production reallocation (for June 2016 to May 2017) in order to effect correction for the initial water allocation to NCTL injectors with Coriolis meter (by SPDC), which was REJECTED by DPR, vide our letter, Ref: DMR/CTO/COA/COM/V.3/102 and dated 9TH FEBRUARY 2018, because it was contrary to statutory requirements.
“Accordingly, you are directed to note the following:
1. Ensure total compliance with the directives communicated to you via our letter, Ref: DMR/CTO/COA/COM/V.5/230 dated 14th December 2020.
“Your December 2020 Schedule 1B for Bonny Terminal Network and the resultant stock certificates issued to the affected companies are UNACCEPTABLE. You are to therefore, with immediate effect, adjust the schedule 1B and re-issue the stock certificates to the relevant TNP and NCTL injectors, to reflect the production adjustments for the month.
Wielding the Big Stick
Based on the above-mentioned infractions, DPR, aside the request for total compliance with earlier directives given, wielded the big stick by placing a sanction against Shell, slamming a $250, 000 penalty on the company for violating what it described as Part 1, Section 2 (d) of the Mineral Oil Safety Regulation and the provisions of Section 51 of the Petroleum Act: 1969. Shell was also advised to ensure timely completion and commissioning of the LACT unit being installed at the inlet manifold of the NCTL line to enable DPR conclude action on the Coriolis meter.”
Shell is not new to scandals. According to a Financial Mail report in 2004, Shell executives in Nigeria were encouraged to overstate the company’s crude oil reserves in the country so as to justify increase in bonuses and benefit from tax breaks, a scandal that damaged its reputation and led to the firing of then chairman, Sir Philip Watts and Walter van de Vijver, head of exploration and production.
Quoting sources, the report said the group’s reporting systems there provided an incentive for overstating reserves. The Nigerian government offered tax breaks to companies that declared they had uncovered oil reserves – the higher the reserves, the higher the tax break. Shell allegedly overstated its oil and gas reserves in Nigeria by over 2 billion barrels and allegedly cheated the country and stakeholders.
Don’t Blame Shell – Source
However, a source at the accounting and hydrocarbon section of the production department of SPDC, who spoke on condition of anonymity, absolved the company of any blame. He told THEWILL that the company is always trying to comply with DPR’s regulations.
“I know there was a time during the tenure of Mutiu Sunmonu as Managing Director of the company when we had something similar to what you are talking about. That time, we had collaboration with a local operator and we discovered that instead of oil, they would spike water into the system, that is pumping water into our pipes to increase volume. It got so bad we had to do a joint meter proving to solve the problem. DPR, the local operator and Shell would jointly do meter proving together and at the end sign a document.”
ALSO READ: Niger Delta Communities Floor Shell At UK Supreme Court
Saboteurs Responsible for Loss – Shell Nigeria
Reacting to the development, the Media Relations Manager, Shell Nigeria, Bamidele Odugbesan, said there was no truth in the matter. He said what was being regarded as theft was the result of the activities of those he described as saboteurs in the supply chain.
“The report is laughable, it’s not true. The volume of oil said to have been stolen is just unimaginable, “Odugbesan told THEWILL, adding, “There is nothing to substantiate the report. Saboteurs are on the trunk line, from the point of injection to the terminal.”
ALSO READ: Dutch TV Documentary: Shell Denies Alleged Complicity of Staff in Vandalism
On the fine imposed on Shell by the DPR, Odugbesan said: “I’m not aware of any fine,” even as he maintained that Shell is also a beneficiary of the re-allocation of the missing volumes of oil, since, according to him, “Shell is also an injector.”
Local Operators Keep Mum
THEWILL sought to confirm the compliance of Shell to the DPR’s directives on compensation to the local operators that were shortchanged.
We contacted EROTON Exploration & Production Company Limited spokesman, Dele Aikhonbare, who said he had just been reassigned and is no longer in charge of External Relations. “Unfortunately, I’m no longer in the External Relations and I’m not officially authorised to speak on the matter. I know what the answer is but I’m not going to speak.” He directed this newspaper to the External and Governmental Relations Manager, Mercy Max Ebibai, who neither picked multiple phone calls nor responded to messages sent.
Attempts to reach AITEO on Thursday evening however proved abortive. Spokesperson for the company, Ndiana Matthews, was unreachable, as he did not pick calls.
Spokespersons for Belemaoil and Newcross were also unreachable.
House of Reps Tackles DPR
Alarmed at this development, the House of Representatives Adhoc Committee on Oil Theft, penultimate week, took the DPR up on the 329,420,319 barrels of crude oil alleged to be missing, wondering why the DPR could not account for the crude valued at over $20 billion between 2005 and 2012.
Though he did not mention any particular oil company, Chairman Committee, Peter Akpatason, who fired the warning shot during an investigative hearing organised by the committee, did not mince words in maintaining that DPR would have to account for the “missing oil.”
“The effects of crude oil theft cannot be over emphasised, and this has lasted for too long. As patriots, it is our collective responsibility to see to the end of this stealing. The Adhoc Committee has identified the key role DPR has as the agency of government in the sector, hence your re-invitation today to enable us work together and come up with a common front on ways to tackle this matter; if not completely put to an end to it, reduce it to its barest minimum,” Akpatason had stated.
“DPR is the agency of the government saddled with the responsibility of monitoring crude oil production and lifting. The Committee requested and obtained schedules of crude oil produced and lifting between 2005 to 2019. Forensic analysis of the data revealed a very wide margin between what was reported produced and what was lifted.”
Shocking Revelations
According to Akpatason, “Between 2005 and 2012, DPR reported production of 1,746,621,167 barrels from four sampled oil terminals of Escravos, Bonny, Forcados and Bonga. Out of these production volumes, only 1,417,200,848 barrels were accounted for as having been lifted officially. A whopping volume of 329,420,319 barrels, valued at over $20 billion, could not be accounted for. The same trend of infractions were observed in the years 2016-2019. The committee through the analysis of submissions to it has raised issues requiring clarifications from DPR these issues ranges from unprocessed crude oil, suspected stolen/diverted crude oil, discrepancies in records, use of inappropriate devices and technologies for measurement and gauging despite huge budgetary provisions.”
A Major Challenge
A 2019 report by Nigeria Natural Resources Charter (NNRC) on crude oil theft in the cwountry revealed how International Oil Companies (IOCs) steal crude oil from Nigeria without the knowledge of the regulatory authorities. While listing various strategies being used in the theft to include small-scale pipeline tapping, bunkering and over lifting, the report also estimated that Nigeria lost a whopping N995.2 billion in revenue annually to crude oil theft over the past few years.
According to the report, “There are several categories of oil theft in existence; small-scale pipeline tapping, bunkering and over lifting. While all three types of theft are not mutually exclusive, they each have different sources, actors, markets, and revenue streams.
“They have seen increased cooperation on ground as profits soared with little deterrence from enforcement agencies. Several investigations have highlighted the complicity between state actors, oil companies and militant elements in all categories of theft.”
Giving more insight into over lifting as a serious form of crude oil theft in Nigeria’s oil industry, the report said: “It refers to the underestimating of the total number of barrels received at any point of the extraction process (but typically after it has been refined) in order to sell the remaining on the black market.
“Underestimation can happen because when oil is drilled and transported via pipelines it also contains sand and water. The sand and water inflate the volume being transported so the refined volume is never equal to the volume received at the refinery.
“Over lifting occurs at tank farms, refineries and distribution centres. Most of these are owned and operated by national and international oil companies.
“These sharp practices have been reportedly going on for a long time and a reason why many assume oil companies are complicit in oil theft.
“The complexity and secrecy behind over lifting makes it hard to track and measure, as the figures for the amount of crude drilled in reserves vary widely.
“Oil theft involves a number of participants working in a complex web of illicit transactions. The value chain is made up of on the ground and overseas operations, sales, financiers, logistics, and security.
“Underestimation can take place at each stage of the value chain from drilling, transportation, loading, and shipping; potentially creating a wide gap between records and reality.
“Companies also reported to use over lifting to avoid Petroleum Profits Tax by declaring less than actually produced. The NNPC often reports figures they are given by companies and does not independently verify the numbers to ensure compliance.”
Not the First Time for Big Oil
THEWILL recalls that in 2016, the Federal Government slammed a $407 million suit against Shell Nigeria and its allied Shell Western Supply and Trading Limited as part of an effort to recover what was lost in revenue through undeclared and under-declared lifting for oil between 2013 and 2014.
According to the NNRC report, “Data from Nigerian export records were reconciled with shipments of oil into the US including its bills of lading, oil vessels name used for the shipment, date of arrival at the destination ports and ports of origin.
“The comparison showed that the crude oil shipments declared to have been exported from Nigeria was less than what was declared to have been imported into the US, using the same shipment by the same vessel on the same bill of lading.”
Troubled Time for Big Oil
Only last December, THEWILL reported how Nigerian employees of the Anglo-Dutch oil company were accused of deliberate vandalisation of oil pipelines for personal gain, according to a documentary in the Netherlands. Dutch television documentary programme, Zembla, together with Dutch environmentalist organisation, Milieudefensie, according to Aljazeera, had reported that “Multiple witnesses declared that SPDC, a subsidiary of Shell, caused the oil leaks.”
“According to sources, Shell employees profit from these intentional oil leaks by pocketing money from clean up budgets.” the report also said in a statement summarising an 18-month investigation of various leaks between 2010 and the present day. It added that SPDC, along with the Dutch embassy in Nigeria, were quite aware of the accusations but had failed to address them.
Millions of litres of oil have leaked into the Niger Delta since Shell began oil extraction in 1958.
Shell, however, says that 95 percent of leaks are as a result of sabotage even as it denies responsibility for the leaks, which it blamed on local criminals and organised gangs.
About the Author
Olaolu OLUSINA is the Editor, THEWILL Newspaper.
