Could Mr. Newman put me straight here?

Shell faces a bill of hundreds of millions of dollars after accepting full liability for two massive oil spills that devastated a Nigerian community of 69,000 people and may take at least 20 years to clean up.

Right, OK, big spills, environmental damage, should be put right.

Proceedings against Royal Dutch Shell and Shell petroleum development company (SPDC) Nigeria began in the high court on 6 April 2011. Last week Shell Nigeria said: \”SPDC accepts responsibility under the Oil Pipelines Act for the two oil spills both of which were due to equipment failure. SPDC acknowledges that it is liable to pay compensation – to those who are entitled to receive such compensation.\”

SPDC, is that this SPDC?

SPDC\’s role in the Shell Nigeria family is typically confined to the physical production and extraction of petroleum. It is an operator of the joint venture, which composed of Nigerian National Petroleum Corporation (55%), Shell (30%), Total S.A. (10%) and Eni (5%). Until relatively recently. it operated largely onshore on dry land or in the mangrove swamp.

The JV that\’s 55% owned by the Nigerian Government?

If it is, how many commenting on this case are likely to note that government involvement?

8 thoughts on “Could Mr. Newman put me straight here?”

  1. Reasonably standard JV by the looks of things – Shell as operator will have taken the front role and taken all technical decisions in conunction with Total and ENI. NNPC probably won’t even be paying development capital cost up front (being “carried” through the expense stage) and the other partners will pay for them and recover the cost from production. NNPC’s role is to sit there, act as guardian of the state’s resources and receive cheques

  2. I presume people who will accuse Shell of being responsible will argue that they are the practical operators of the JV (the Nigerian govt being a sleeping partner ) and therefore are responsible for the errors that allowed the spill.

    Of course the same people will have contended that BP were liable for the Macondo disaster, despite the practical operation of the well being 100% in the remit of its American subcontractors.

    Basically you can’t win with such people if you are a multinational oil company. If you are minority shareholder (but responsible for the practical operations) then you are 100% to blame. If you are a majority shareholder (as BP was, it had other partners in Macondo) and have contracted out the practical operations you are still 100% liable.

  3. The Pedant-General

    The you lose-I win contradiction and the fact that it really should be the operator who is held responsible notwithstanding, the whole thing ought to be moot: the damages should be levied against the JV, not the individual partners shouldn’t it?

    In which case, the compensation cash should in proportion to shareholding in the JV shouldn’t it?

  4. P-G

    Well, in a just and fair world, that would be the case, but you notice this jv includes a government. That alone should warn any reader that the justa nd fair clause just flew out of the window. Even before one notes that it’s the Nigerian government.

  5. NNPC are indeed a 55% owner, but Shell are the operator. It is increasingly common for an operator to be a minority owner, on the Usan project for example Total is the operator with 20% but ExxonMobil owns 30% of it. It is usually about who has the necessary expertise.

    The degree to which the operator is responsible for all fuckups came to a head during the Macondo blowout when BP’s partners turned around and sued them. When everything is going fine they are happy to pocket the proceeds, when things go badly “nothing to with us”. I’m sure the small print will be refined considerable for future JVs.

    In the case in question, it doesn’t surprise me in the least that Shell are on the hook for the pollution. Quite possibly they did cause it, but equally possibly it is due to illegal bunkering (i.e. theft of the oil from pipelines) which takes place on a staggering scale with the full knowledge and participation of ministers at all levels, including those involved with NNPC. Hanging a bill on whitey is hardly something new in Nigeria. I’ll write more about the equipment failure later….

  6. Whilst I am pretty sure that had no operational input into the running of SPDC and probably cannot be blamed for the spill, I am almost certain government interference of one sort or another is the ultimate cause.

    Nigerian content laws – backed by incredibly strong trades unions – ensure that well-connected locals fill positions in oil companies for which they are hopelessly unsuited. The result of this, and I have seen this for myself, is lazy, incompetent, and dishonest people occupying key positions in maintenance, operations, and safety. These people cannot be crtiticised, let alone removed, without causing the unions to stage a walkout.

    Couple this with the blatant corruption that goes on within the contracting and procurement departments, whereby the Nigerian partners or government bodies insist a certain supplier or contractor is used (one from which hefty kickbacks can be expected) who is completely inexperienced and hopelessly unqualified to do the job or supply the component. This happens on a daily basis – I have seen suppliers send us domestic kitchen piping for high-pressure gas processes; I have seen a contractor be awarded an exclusive offshore construction contract and fail to provide a single welder who passes the weld tests; and most of our equipment comes without certificates, and if we do get certificates half the time they are forged. Nigerian content regulations insist we use local suppliers, even if they are dangerously incompetent.

    So, it is hardly a surprise that equipment is failing in Nigeria and causing spills. It is even less surprising that the Nigerians, true to form, are refusing to take any responsibility and prefer to pin the blame on the nearest whites with deep pockets.

  7. Actually, it’s even more complicated if you take into account the Ogoniland issue. I know enough people I trust personally who have experience of the area (yes, I work for Shell, but never in Nigeria) to believe that sabotage (in order to claim damages) and theft of product are the major components of the issue. As Mutiu Sunmonu explains in this video (http://www.youtube.com/watch?v=0aHa4VbQBZ8), leaks are occurring in areas shut down decades ago, and not because they were left in an inappropriate state. I know Mutiu of old – he is diligent, thorough, and of great integrity. I trust him.

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