Special Report
The number of litigation on hanging over Shell Petroleum Development Company and its parent company, Royal Dutch Shell, many fear could threaten its operations in Nigeria, if not properly managed, writes Davidson Iriekpen
These are 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.
Since it commenced oil exploration in Nigeria 65 years ago, never has it witnessed a barrage of litigations and judgments against it as it has done in the last four years. The oil giant, locally and internationally, faces a litany of suits and compensations that threaten its existence in Nigeria.
Last Thursday, an Upper Area Court in Abuja presided over by Justice Gambo Garba issued a criminal summons against the oil major and seven of its top executives for stealing 16 million barrels of crude oil through the use of a fraudulent and unapproved metering system. The executives summoned are Chibueze Uduanochie, Simon Ruddy, Bashir Bello, Osagie Okunbor, Igo Weli, Toyin Olagunji and Captain Callium Finlayson.
According to the summons dated February 25, the respondents should be in court on March 2 to answer the charge levelled against them by the complainant. The suit, marked DC/CR/200/2021, was filed by the African Initiative Against Abuse of Public Trust.
According to the suit, the group alleged that as operators of the Bonny Terminal, Shell installed an unapproved metering system which it claimed was temporary and which it manipulated to deliberately understate the volume of crude oil that was injected into the terminal, thereby, short-changing the local oil companies, owners of the oil and the federal government the revenue due to them.
The oil companies include Belema Oil, Eroton, Aiteo, and Newcross.
Consequently, the group is seeking an order of court convicting the Shell Executives for the criminal acts of conspiracy, theft, and cheating which violate Sections 97, 287, and 323 of the Penal Code Law Cap 89 Law of Northern Nigeria, 1963.
In the court papers, the group alleged that the Department of Petroleum Resources (DPR) has investigated the allegations and indicted SPDC. It alleged that Shell admitted cheating the companies of about two million barrels and committed to refund the crude to the companies.
The group said they would press for the maximum punishment, six months in jail for conspiracy, five years for theft, and five years for cheating. Attached to the summons against top Shell executives is Shell’s letter admitting to using a non-sanctioned metering system and confirming the implementation of refund of crude oil from the Trans Niger Pipeline (TNP) to the Nembe Creek Trunk Line (NCTL), which proves there was alleged fraud by Shell, and other documents to support the facts of this case.
THISDAY gathered that after the oil major’s initial denial and pushback against the allegation, it 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.’
“We refer to your letter Ref: DMR/CTO/COA/COM/V.5/045 dated January 28, 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 the 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 December 14, 2020…,” the letter said.
Before the summons, sequel to the suit filed by Aiteo Eastern E&P Company Limited, a federal high court in Lagos had in January ordered the immediate blockage of its accounts operated in 20 banks over the alleged theft. The presiding judge of the court, 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 an interlocutory injunction, the banks were restrained in the interim from accepting, honouring, or giving effect to any mandate, cheque, or instructions presented by the defendants.
In its statement of claim, Aiteo asserted the defendants, 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 associated companies understated and retained crude oil volumes due to the detriment of Aiteo.
Aiteo averred that the defendants’ officials and agents were aware of the wrongful appropriation of the plaintiff’s crude oil but did nothing to prevent or stop it until the DPR issued directives. It 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 Aiteo.
“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 explained further.
According to the indigenous oil company, SPDC and its co-travellers used the Coriolis meter in bad faith to deceive Aiteo regarding the amount of crude oil volumes due to it. It 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, adding that it was a matter of national security.
Besides, the oil company claimed that the action by SPDC deprived Aiteo of refundable crude and adversely affected its business, insisting that contrary to the figures by the DPR, Aiteo’s experts concluded that 16,050,000 barrels were stolen. Therefore, Aiteo believes it is entitled to $1,275,975,000, a sum the company could have made it 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, Aiteo pointed out that if the DPR figures were used, then the 1,022,029 barrels would yield about $81.2 million, saying that because of the action of the defendants, it became impossible to meet its repayment obligations to financiers who provided it $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.
Before Aiteo approached the court, the DPR had ordered SPDC to refund 2,081,678 barrels of crude oil understated between 2016 and 2018. The DPR, in several official communications obtained by THISDAY, also sanctioned the International Oil Company (IOC) for the infraction, to which SPDC admitted to in another official letter to the DPR.
As part of the punishment for flouting the rules, Shell was directed to pay N250,000, agreeing to a 10-month compensation plan to reimburse its Joint Venture (JV) partners short-changed in the course of the infractions. The DPR accused the oil giant of cheating some of its JV indigenous oil concerns, including Aiteo, Belemaoil, Eroton, and Newcross, through an unapproved metering system used to misappropriate crude oil.
In one of the letters conveying the position of the DPR to SPDC, referenced DMR/CTO/COA/Com/V.3/102 and signed by U. K. Ndanusa, on behalf of the director of DPR, Sarki Auwalu, the agency quoted part of the regulation flouted by the company to include part 1, section 2(d) of the Mineral Oil Safety Regulation and the Provisions of Section 51 of the Petroleum Act 1969.
In another memo from the DPR, dated July 8, 2020, the agency recalled its earlier rejection of the unapproved Coriolis meter, directing SPDC to begin the process of reimbursing Aiteo of 1,022,029 barrels, Belema Oil’s 39,374, Eroton’s 643,245, and Newcross’ 377,030 barrels of stolen crude. After its initial denial and pushback against the allegation, Shell, in a letter to the DPR dated February 8, 2021, agreed to the reimbursement
In the letter 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,’ and signed by the Business Relations and JV Excellence Manager, Steve Okwuosah, the oil major pledged to implement the refund of the barrels in batches.
The SPDC stated: “We refer to your letter Ref: DMR/CTO/COA/COM/V.5/045 dated January 28, 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 December 14, 2020….”
While the IOC is confronted with local litigation, it also has other lawsuits to contend with internationally. On January 29, 2021, after 13 years of legal tussle, an appeal court in the Netherlands ruled that Shell was responsible for oil pipeline leaks in three communities in the Niger Delta. The court ordered Shell to pay unspecified damages to four Nigerian farmers likely to run into millions of dollars in compensations.
The case, brought in 2008 by farmers and a campaign group, Friends of the Earth, is sought reparations for lost income from contaminated land and waterways in the region. In its judgment, the court held, “Shell Nigeria is sentenced to compensate farmers for damages…Shell Nigeria should have shut down oil supplies on the day of the spill in the cases in Goi.”
As if that was not enough, on February 12, 2021, a ruling of the United Kingdom’s Supreme Court paved the way for a group of 42,500 Nigerian farmers and fishermen to sue the IOC in English courts after years of oil spills in the Niger Delta contaminated land and groundwater. In a major decision bound to have far-reaching implications for multinationals’ operations in their host countries, senior judges said UK-domiciled Shell, one of the world’s biggest energy companies, did have a common law duty of care, in the latest case to test whether multinationals can be held to account for the acts of overseas subsidiaries.
The ruling came almost two years after a seminal ruling by the Supreme Court in a case involving a mining company, Vedanta. The judgment allowed nearly 2,000 Zambian villagers to sue Vedanta in England for alleged pollution in Africa. That move was seen as a victory for rural communities seeking to hold parent companies accountable for environmental disasters. Vedanta ultimately settled out of court in January.
Nigeria’s Ogale and Bille communities of Rivers State had alleged that their lives and health suffered because repeated oil spills contaminated their lands, swamps, groundwater, and waterways. They were offered no adequate cleaning or remediation. Represented by a law firm, Leigh Day, the communities argued that Shell owed them a duty of care either because, it had significant control of and was responsible for its subsidiary SPDC.
Shell countered that the court had no jurisdiction to entertain their claims. It was wrong.
“(The ruling) also represents a watershed moment in the accountability of multinational companies. Increasingly impoverished communities are seeking to hold powerful corporate actors to account and this judgment will significantly increase their ability to do so,” Daniel Leader, partner at Leigh Day, said.
After the landmark decision, a Shell spokesman insisted the decision was disappointing, saying, “Regardless of the cause of a spill, SPDC cleans up and remediates. It also works hard to prevent these sabotage spills, by using technology, increasing surveillance and by promoting alternative livelihoods for those who might damage pipes and equipment.”
The oil giant has blamed sabotage for oil spills. In its annual report published last March, SPDC, which produces around one million barrels of oil per day, saw crude oil spills caused by theft or pipeline sabotage surge by 41 percent in 2019. Shell CEO, Ben van Beurden, said last week that the firm would take “another hard look at its onshore oil operations” in the West African country.
In 2015, Shell agreed to pay out £55 million ($83.4 million) to the Bodo community in Nigeria as compensation for two oil spills, the largest ever out-of-court settlement Nigerian oil spills. Perhaps the biggest litigation ever embarked upon by the oil company was the seeking to set aside a N17 billion judgment given against it on January 11, 2019.
The case, which the Supreme Court decided twice, 2019 and 2020, is over a 1970 oil spill in Ejama-Ebubu in Tai Eleme Local Government Area of Rivers State. In the last judgment delivered in December 2020, a five-man panel of the Supreme Court in a unanimous ruling dismissed Shell’s application for lacking merit. Justice Centus Nweze, who wrote the lead ruling in the case marked SC/731/2017, which Justice Samuel Osuji read, agreed with the respondents that Shell’s application was an invitation to the court to overrule itself.
The same court had, in a ruling on January 11, 2019, dismissed the appeal by Shell against an earlier decision of the Court of Appeal on a June 14, 2010 judgment of the Federal High Court, which awarded damages against the oil company in an oil spill in the community. Even though Shell still contends the judgment sum put at N184 billion, the community’s lawyer, Lucius Nwosu (SAN), is doing everything legally possible to get Shell to pay.
With the awareness and consciousness to sue Shell and the number of compensations and damages hanging over its head, not a few fear the oil giant may one day shut down its operations in Nigeria.
