Untangling Aiteo, SPDC Oil Theft Saga

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Business/ ENERGY

For a while, insinuations that certain oil companies operating in Nigeria engage in underhand activities in the process of carrying out their businesses had been rife. Emmanuel Addeh writes that the latest dust raised by Aiteo E&P’s accusation that Shell Petroleum Development Company (SPDC) wilfully carried out unfair dealings against it, has again brought the matter to the fore, highlighting that the indigenous oil concern appears to have a strong case against the international oil giant

It started like the usual rumours, mostly unsubstantiated, of how the oil sector is exceptionally dirty, but since documents surfaced about how SPDC allegedly short-changed some local oil firms, it has almost taken the form of a scandal.The bone of contention is that between 2016 and 2018, SPDC putting to use a metering device not approved by the Department of Petroleum Resources (DPR) short-changed local operators, Aiteo, being the hardest hit, to the tune of millions of barrels of crude oil.

While there’s a discrepancy between the quantity the DPR has asked SPDC to return to Aiteo and other local oil firms, what is clear is that, some barrels of crude oil were indeed missing during the period under review and the Nigerian unit of the Royal Dutch Shell has indeed agreed to return the missing commodity.

Failed Efforts at Resolution

The efforts to resolve the matter involving Aiteo and SPDC by the DPR has been encumbered with many back and forth movements, stretching into a couple of years.

In one of the letters written to SPDC by DPR, the regulatory agency, over the issue, titled “Re: Crude Theft/Loss Allocation Methodology”, signed by U.K Ndanusa on behalf of the DPR Director, Mr. Sarki Auwalu, the agency while recalling all previous correspondences and minutes of meetings on the subject, noted that after a thorough review, it was time to situate the controversy in proper context.

It stated that in an effort to regularise as well as determine the suitability or otherwise of the 2 X 12” Coriolis flow meter (the controversial device) installed by SPDC at the inlet of the NCTL line into the Bonny Terminal for Custody Transfer Measurement and Allocation Purposes, decided to check all the available records within its disposal alongside the additional submission by SPDC representatives. On its findings, it concluded that the NCTL facility was installed by SPDC as a temporary arrangement pending the completion of the permanent Lease Automatic Custody Transfer (LACT) unit.

The DPR insisted that the meter was calibrated and successfully proved in the presence of DPR representatives, but that no approval was granted by the department for its application.

“SPDC was made to understand that the existing regulations in 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 allocation to NCTL injectors from June 2016 to June 2017 while the density measured by the meter were used to arrive at the produced water/net production that were allocated to the NCTL injectors between the June 2016 to May 2017.

“In view of the above and the need to ensure that no party among the Bonny producers is short-changed, you are required to note the following: Our 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 determination for dynamic measurement as prescribed in the DPR guideline is the auto sampling system with mixer device installed upstream,” the regulator stressed.

It added that the water allocation to NCTL injectors, which was based on the density measurements of the meter was not acceptable to DPR, demanding that SPDC adjusts its water allocations to the twin injectors in line with the DPR approved methodologies.

“Consequently, and in addition to the above, a sanction is hereby imposed against your company with penalty of N250,000 for violation of Section 2(d) of the Mineral Oil Safety Regulation and the provisions of Section 51 of the Petroleum Act; 1969.

“Also, you are kindly advised to ensure timely completion and commissioning of the LACT unit being installed at the inlet manifold of the NCTL line to enable us conclude action on the Coriolis meter,” the DPR said in the memo.

In another official communication, signed by M. Alaku, titled, “Allocation 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,” the DPR demanded that SPDC should return the missing crude amounting to over 2 million barrels to the affected local oil companies including Aiteo, Eroton, Newcross and Belema Oil.

Accordingly, the department resolves as follows: “Our earlier rejection of water allocation with the Coriolis Meter as communicated in the referenced letter stands. Therefore, SPDC shall implement the refund of the understated 2,081,678 barrels of oil, from the SPDC JV: 1,317,829 barrels; TEPNG JV: 571,438 barrels; NDPR: 107,744 barrels and WSPOL: 84,668 barrels.

“This shall be in in favour of Aiteo JV: 1,022,029 barrels; Belemaoil JV: 39,374 barrels; Eroton N: 643,245 barrels and Newcross JV: 377,030 barrels. The refund shall be conducted within 10 months effective from September 2020.

“DPR is unable to accept SPDC’s proposal described in (ii) above due to the following: The suspended Coriolis meter was not approved for custody transfer allocation purposes as DPR procedure guidelines do not have provision for temporary metering or use of non LACT systems for custody transfer measurements,” it stated

The DPR insisted that the allocations that SPDC sought to amend were conducted in line with its approved methodologies which use terminal fiscalised volumes as the basis for allocating crude oil losses.

It maintained that accepting SPDC’s request will provide grounds for other companies that recently installed LACT units, to request for a review of their earlier allocations which were equally penalised for noncompliant measurements, failure of which will mean that only SPDC and/or TNP injectors are singled out by the department

“Kindly note that, in the spirit of reconciliation, the department has recognised the gross allocation to NCTL injectors between June 2016 and June 2017. This is to avoid maximum penalty for allocating crude Oil to NCTL injectors with an unapproved Coriolis meter,” the letter stated.

SPDC Agrees to Refund Understated Crude

In its response dated February 8, signed by SPDC’s Business Relations and JV Excellence Manager, Steve Okwuosah, and addressed to the DPR, the oil giant agreed to return the missing barrels to the four local companies within the scheduled time.

While thanking the DPR, which had earlier stated that it wasn’t ready to embark on further engagement on the matter if SPDC did not reimburse the indigenous oil firms, the oil giant acknowledged the patience of the regulator during the period the matter lasted.

“We refer to your letter ref; OMR/CTO/COA/COM/V.5/04S 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 2,061,678 barrels of crude oil from the Trans Niger Pipeline (TNP) injectors.

“(Through) SPDC, TEPNG, NDPR and WSPOL to the Nembe Creek Trunk Line (NCTL) injectors (to) Aiteo, Belemaoil, Eroton and Newcross over the period from end of January 2021 and November 2021 in accordance with schedule as contained in the DPR letter Ref: DMR/CTO/COA/COM/V.5/230 dated 14th December, 2020.

“We thank the DPR for its patience in mediating on this matter. Please accept assurances of our highest regards,” the company said.

Aiteo Goes to Court

Perhaps, dissatisfied with the settlement terms, Aiteo Eastern E&P Company Limited has dragged SPDC and four of its sister companies before a Federal High Court sitting in Lagos, over the alleged theft of what Aiteo said are over 16 million barrels of crude oil.

In its statement of claim, Aiteo stated that the defendants, that is, SPDC and its sister companies had a deliberate corporate policy to unjustly enrich themselves at the expense of the plaintiff and other local oil companies. It affirmed that with the use of a wrong metering system, SPDC and the four other associated companies understated and retained crude oil volumes due to the company to the detriment of Aiteo .

Aiteo averred that the officials and agents of the defendants were aware of the wrongful appropriation of the plaintiff’s crude oil but did nothing to prevent or stop it until directives were issued by DPR.

The local oil company argued that the only means by which the defendants could conveniently appropriate the plaintiff’s crude oil illegally was to understate the crude oil volume belonging to it.

“The monetary benefit obtained by the defendants were also retained by the said defendants. The defendants continued to use the understated oil volumes and proceeds for their personal use. The defendants were unjustly enriched by the use of the unapproved meter and continue to unjustly enrich themselves.

Their actions were without any concern, consideration, and or regard for the detrimental effect same had and would have had on the plaintiff,” Aiteo said.

According to the indigenous oil company, SPDC and its co-travellers made use of the Coriolis meter in bad faith and was meant to deceive Aiteo regarding the amount of crude oil volumes due to it.

The company maintained that the Coriolis meter has poor zero stability which affects flow meter accuracy, cannot be used for fluids with lower density and sensitive to external vibration interference, among others, adding that it was also a matter of national security.

It claimed that the action by SPDC deprived Aiteo of refundable crude and has affected its business negatively, insisting that contrary to the figures by DPR, Aiteo experts have concluded that 16,050,000 barrels were stolen.

According to the company, it is entitled to the sum of $1,275,975,000, being the amount it would have sold the over 16 million barrels of crude oil at the rate of $79.50 per barrel being the prevailing price in July 2018.

Alternatively, it added that if DPR figures are used, then the 1,022,029 barrels would yield about $81.2 million, saying that because of the “fraudulent” action of the defendants, it became practically impossibile to meet its repayment obligations to its financiers, who provided it with the sum of $1,488,000,000 to acquire assets.

“The plaintiff further states that the fraudulent and or wrongful act by the defendants impacted negatively on both the production level and the revenue available to it for debt servicing and operation.

“Furthermore, the constant theft and larceny of the plaintiff’s crude by the 1st defendant and the intentional act to understate and deprive the plaintiff of its crude as observed by DPR negatively impacted on the plaintiff’s ability to properly service the loans and interests thereon,” Aiteo averred.

Some of the lawyers to Aiteo include: Kemi Pinheiro, Mike Ozekhome, Yakubu Maikyau, Muiz Banire, Oladapo Olanipekun, Emeka Ozoani, all Senior Advocates of Nigeria (SAN).

Before Aiteo approached the court, DPR had ordered SPDC, a subsidiary of Royal Dutch Shell, to refund 2,081,678 barrels of crude oil understated between 2016 and 2018.

The DPR, in several official communications on the matter, obtained by THISDAY, also sanctioned the International Oil Company (IOC) for the infraction, to which SPDC has already admitted to in another official letter to the DPR.

As part of the punishment for flouting the rules between June and July of the years under review, Shell was directed to pay a sum of N250,000 while it also agreed to a 10-month compensation plan to reimburse its Joint Venture (JV) partners, who were short-changed in the course of the infractions.

The DPR accused the company of cheating some of its JV indigenous oil concerns, including Aiteo, Belemaoil, Eroton and Newcross, through an unapproved metering system, which it used to misappropriate crude oil.

Court Blocks 20 SPDC Bank Accounts

The presiding judge, Justice Oluremi Oguntoyibo, while giving the order in suit no FHC/L/CS/52/2021, held that she was making the order pending the hearing of the motion and determination of the motion on notice for interlocutory injunction filed before it by the indigenous company.

Justice Oguntoyibo further restrained SPDC and other defendants, including Royal Dutch Shell, Shell Western and Trading Company Limited, Shell International Trading and Shipping Company Limited as well as Shell Nigeria Exploration and Production Company Limited from withdrawing funds standing to their credit without first “ring-fencing” them to the value of the 16,050,000 barrels of crude oil.

According to the court, on no account must any transaction be carried out in the listed accounts without first “ring-fencing any cash, bonds, deposits, all forms of negotiable instruments to the value of $2.7 billion and paying all standing credits to the Shell companies up to the value into an interest yielding account in the name of the chief registrar of the court, who is to hold the funds in trust” pending the hearing of the motion.

The court further noted that pending the hearing and determination of the motion on notice for interlocutory injunction, the named banks were restrained in the interim from accepting, honouring or giving effect to any mandate , cheque or instructions presented by the defendants.

The certified true copy was signed by the Registrar of the Court, Mrs. Oluwakemi Obalaja.

The court noted that the breakdown of the total sum comprises $799 million being the amount claimed to have been paid by the plaintiff to the five defendants for the acquisition of the Nembe Creek Trunk Line (NCTL) pipelines and the assets, and $389,631,877.76 allegedly lost by the plaintiff arising from the leakages in the NCTL and the degraded conditions of the NCTL.

Furthermore, it listed $578,951,901.99 a as having been lost by the plaintiff arising from the crude theft/larceny in the NCTL, and $933,000,000 claimed as having been expended for the repairs of the pipelines and acquisition of the equipment including well-heads, generators and pumps as well as replacing the flow lines within the NCTL.

Before adjourning the case to February 24, Justice Oguntoyibo stated that, “Pending the hearing and determination of the motion on notice for interlocutory injunction, the respondent banks are directed to sequestrate and/or ring-fence any cash, bonds, deposits, all forms of negotiable instruments or chose(s) in the action due to or standing to the credit sum/value of the amounts stated in prayer 1,2,2 and/or 4 above.”

SPDC Responds

In a formal response to the issues on Friday, SPDC noted that the crude re-allocation programme between injectors into its JV’s Trans Niger Pipeline and injectors into Aiteo’s NCTL, was a normal industry practice.

The company explained that while the disputes are subject of ongoing litigation, it was working to secure an expeditious discharge of the freezing injunction which it said it believed was obtained by Aiteo without any valid basis.

“The crude theft/diversion allegation is also factually incorrect. This is a distinct issue that relates to the directive by the DPR to SPDC as operator of the Bonny Oil and Gas Terminal, an asset belonging to the SPDC JV, to implement a crude re-allocation programme between injectors into the SPDC JV’s Trans Niger Pipeline and injectors into the NCTL.

“Crude allocation review and re-allocation is a normal industry practice to re-allocate previous provisional allocated volumes under the directive and supervision of DPR, and this is not an exercise resulting from crude diversion, underreporting or theft at the terminal,” SPDC contended.

It argued that the industry practice was not peculiar to the SPDC-operated Bonny Oil and Gas Terminal alone and does not translate into any loss of volumes to the federal government.

SPDC maintained that crude oil production metering and allocation are subject to specific guidelines issued by the industry regulator, stressing that SPDC strictly adheres to these guidelines and that the implementation is regularly verified by the regulator.

Will the case be allowed to go the whole hog or will it be settled out of court like many others? Time will tell!