19 March 2019

Nigeria: Erosion of Business Environment May Affect Our Nigerian Operations - Shell

Abuja — The Royal Dutch oil firm, Shell, has said its operations in Nigeria's oil industry could face adverse impacts if the business environment in Nigeria deteriorates.

Shell which has considerable interests in Nigeria's oil industry and operates mostly through its Nigerian arms - Shell Petroleum Development Company of Nigeria Limited (SPDC) and Shell Nigeria Exploration and Production Company (SNEPCo), recently had to contend with issues about its operations in Nigeria including legal proceedings on its past transactions as well as recent claims by Nigerian government that it has backlogs of tax to pay for its operations in the country.

In addition, the federal government also slammed some other international oil companies (IOCs) similar tax claims charges.

But in its 2018 report obtained recently, Shell stated that: "A further erosion of the business and operating environment in Nigeria could have a material adverse effect on us," adding that: "In our Nigerian operations, we face various risks and adverse conditions."

The company listed the operational challenges it faces to include security issues surrounding the safety of its workers; host communities and operations; sabotage and theft; as well as ability to enforce existing contractual rights.

Litigation; limited infrastructure; potential legislation that could increase its taxes or costs of operations; the effect of lower oil and gas prices on the government budget; and regional instability created by militant activities, were also listed as parts of the challenges the company face.

It explained in the report obtained by THISDAY that: "Any of these risks or adverse conditions could have a material adverse effect on our earnings, cash flows and financial condition.

"Violations of anti-bribery, tax-evasion and anti-money laundering laws carry fines and expose us and/or our employees to criminal sanctions, civil suits and ancillary consequences (such as debarment and the revocation of licences)."

Referring to potential litigations pertaining SNEPCo's interests in a controversial oil block - Oil Prospecting Lease 245, the company stated that it could have adverse effects on its operations as well.

"Shell and its joint ventures and associates in the past have been fined for violations of the US Foreign Corrupt Practices Act.

"Any violation of ant bribery, tax-evasion or anti-money laundering laws, including those potential violations associated with Shell Nigeria Exploration and Production Company Limited's (SNEPCO's) investment in Nigerian oil block OPL 245 and the 2011 settlement of litigation pertaining to that block, could have a material adverse effect on our earnings, cash flows and financial condition.

"In our Nigerian operations, we face various risks and adverse conditions which could have a material adverse effect on our operational performance, earnings, cash flows and financial condition."

It however indicated that: "There are limitations to the extent to which we can mitigate these risks. We carry out regular portfolio assessments to remain a competitive player in Nigeria for the long term.

"We support the Nigerian government's efforts to improve the efficiency, functionality and domestic benefits of Nigeria's oil and gas industry, and we monitor legislative developments.

"We monitor the security situation and liaise with host communities, governmental and nongovernmental organisations to help promote peace and safe operations."

On oil spills which it noted that 90 per cent of its occurrence in its operations in 2018 were due to illegal activities perpetrated by parties, the company said it had initiated an integrated approach against the menace.

"We continue to provide transparency of spills management and reporting, along with our deployment of oil-spill response capability and technology. We execute a maintenance strategy to support sustainable equipment reliability and have implemented a multi-year programme to reduce routine flaring of associated gas.

"Most oil spills in the Niger Delta region of Nigeria continue to be caused by crude oil theft or sabotage of oil and gas production facilities, as well as illegal oil refining, including the distribution of illegally refined products.

"In 2018, close to 90 per cent of the number of oil spills of more than 100 kilograms from the Shell Petroleum Development Company of Nigeria Limited (SPDC) joint venture facilities was due to illegal activities by third parties. However, there are instances where spills occur due to operational reasons," it explained.

According to the report, irrespective of the cause of the spill, SPDC cleans up and remediates areas impacted by spills originating from its facilities.

"In the case of operational spills, SPDC also pays compensation to people and communities impacted by the spills. Once clean-up and remediation work are completed, the work is inspected and, if satisfactory, approved and certified by Nigerian regulators.

"To reduce the number of operational spills, SPDC is focused on implementing its ongoing work programme to appraise, maintain and replace key sections of pipelines and flow lines.

"Over the last seven years, approximately 1,300 kilometres of pipelines and flow lines have been replaced. This is managed through a pipeline and flow line integrity management system that proactively manages pipeline integrity, puts barriers in place where necessary, and recommends when and where pipeline sections should be replaced to prevent failures," the company's report added.

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