Last week, the Managing Director, Shell Petroleum Development Company, SPDC, and Country Chair, Shell Companies in Nigeria, Mr. Mutiu Sunmonu, reiterated that the company has not put any price tags on any of the oil blocks it is divesting from. Clara Nwachukwu captured the interactive session with journalists, during which he also spoke on varied issues concerning Shell’s operations in the country. Excerpts:
By CLARA NWACHUKWU
Preamble on 2013 operations
In the country people do not recognize that we have quite a good mix of portfolio most people talk really about SPDC, which is about onshore and shallow water business.
It is important for me to mention that, that is our biggest company in Nigeria. In 2013, the key points I want to bring out there is that we actually did produce over half a million barrels of oil per day. We could certainly have done more but for the problems of crude oil theft.
It is also very important to talk about offshore business, which many people refer to as SNEPCO. In 2013, we actually produced about 158,000 barrels of oil per day from Bonga.
LNG is another important business of Shell; we have about 35% stake in NLNG, and the capacity there is quite huge from Trains 1 -6, and there is still a potential to do one additional train.
Domestic gas distribution which is our Shell Nigeria Gas, this is 100% Shell company. Shell is the only company that has this sort of focus, and Shell Nigeria Gas main business is to actually distribute gas locally in the country to businesses and industries as well.
Economic contribution is something which are always very proud of and I will say that in terms of revenue Shell Companies in Nigeria contributed in the last five years between 2009 and 2013, we contributed about $70 billion to the Nigerian coffer – SPDC $44billion and SINEPCO $26billion.
Contract is a very important aspect of the way we do our business, and I think the few points I want to mention here is our support and encouragement of local contractors. So in 2013, we awarded contracts over $1.5billion to Nigerian companies and that is a very significant proportion of the total number of contracts that we actually award.
Employment, apart from direct employment we continue, again, as part of local content development we continue to make sure that we tap benefits from indigenous contractors. We will also make sure that there is a lot of indirect labor coming from our host community the figure is there over 4000 employees, over 90% of them Nigerians.
NDDC, statutorily we pay about $180million to Niger Delta Development Commission, but on top of that we do spend over $100 million on our social performance development.
Education Fund, statutory contribution the past five years we contributed over $700million to the country’s Education Fund. But on top of that as you all know we continue to emphasise education throughout Nigeria in terms of scholarships at various levels.
Challenges and progress:
One of our greatest challenges as I’ve always mentioned to the media is our footprint. Our footprint is very large compared to the other oil companies in the country, and if you look at the map you will see SPDC with so many red all over the place at the bottom right.
And then if you look at the other ones, you see that the red is always very concentrated in particular locations, that is why is one of the reasons why SPDC has suffers most in terms of pipeline vandalism.
Phillips (Shell staff) mentioned that our pipeline network is over 6000 close to 7000 kilometers, whereas if you go to other oil companies, it is a much smaller fraction.
One of the things we really want to do with our implementation strategy is to really re-focus our resources on a much smaller footprint. But most importantly to concentrate our efforts in where we can make the greatest value to the economy of Nigeria, and where we can have even the greatest competitive accounting.
That is why we will be focusing more on shallow water, deepwater and gas. Deepwater is a very highly technologically intensive business, and that is a major strength that we have. So we would rather spend our efforts there. Also, domestic gas in particular is so important to the people of Nigeria, so we’ll be focusing our efforts, going forward, on gas but most especially domestic.
We would continue to produce oil mainly in the shallow water area and less onshore. We believe that these three areas would actually allow us to maximise our contributions to the country, and also to the people of Nigeria.
These challenges Phillips has shared with you in terms of illegal refinery, crude oil theft and even flaring.
On flaring, if you look at the totality of gas that is being flared in the country, it is significant, and it’s about 1.2 BCF of gas per day, but Shell’s contribution to that is about 18%.
I always like to emphasize this is because when people talk about flaring, everyone is always pointing fingers at Shell. If you really look at this, you will see that Shell’s contribution to the flares that people see when they fly over Niger Delta is less than 20%.
I thought it’s important for us to know, and that didn’t just happen by accident, we continue to spend quite a lot of money. We have in the past spent over $3billion, and we still have over $3billion more to spend to actually complete our programme of gas utilisation.
It is our desire and target that by the time we finish some of the on-going projects, which is the Forcados Yokri, and the southern swamp which is going to cost us about $4billion, then flaring from all our operations will be one of the best in the whole world.
We are almost there, but it’s just important for the media to be aware that while we have made a lot of progress, we are not resting on our oars. We will continue to make sure that we can reduce flaring to the barest minimum and that will be achieved when we complete those two projects.
Perhaps I should say one or two things about the UNEP Report; we are all very familiar with the recommendations from UNEP. A key aspect of the recommendations is for the government to establish a restoration fund for Ogoni, which is a about $1billion over five year period. We have been discussing how that whole project will be funded, and we have reached agreements on the sharing of the formula for it. What is required for now is for us to make sure that government sets up a very strong governance process, which will give everyone, all stakeholders, oil companies, Ogoni people that when the fund is being disbursed it will be judiciously spent.
On our part, we are very clear that we will play our part and we will make our own contribution. There was some confusion about one or two months ago where some media reports carried the news that Shell has agreed to now underwrite the whole thing and that is far from the truth. What we said is that we are committed to paying in our own part the $1billion. And the governance process is very important, to be sure that every stakeholder understands how the money is being spent.
The thing about Ogoni land like I’ve always said is that we do believe that we are not going to wipe out Ogoni history, we want to be part of solution in terms of the cleanup of Ogoni land. That is why we are working very seriously with HYREP, which government has set up.
I also want to mention that the UNEP Report did highlight some aspects of our operations where we needed to improve upon, and every action that was given to SPDC in the UNEP Report, we have done. We are happy to say that we are now even contemplating doing some pilot remediation work in Ogoni, as part of our contribution to encouraging HYREP to also follow suit.
In terms of specific recommendations, I am really pleased about the progress we have made, and we want to move forward by making sure that we can also encourage HYREP to start further work on that.
I must say that it is very unfortunate though that we are yet to see an improvement with respect to crude oil theft in Ogoni. It is still happening every day and our pipelines have continued to be shut in because of crude oil theft.
This, in my view is what will make the clean-up of the Ogoni land even more difficult. UNEP in their report did say that unless there is an end to the issue of crude oil theft in Ogoni, it will be a wasted effort trying to do the cleanup.
One of the things we are doing is to sensitise the peope of Ogoni land by going there every now and again to educate the youths in particular. We’re going there to let people know about the dangers of oil spill in their environment, hoping that it would help in bringing reduction in the amount of crude that is being stolen in Ogoni, thereby causing spills.
It’s not all bad news because anytime I talk about Ogoni, I always feel that I need to also let people know about crude oil theft in particular, that we will continue to do our best for the country.
Many of you know about Gbaran-Ubie, which is a world class project in Bayelsa State. You also know about the Afam Power Plant, which is the biggest independent power plant in this country, it was developed by Shell and we are also operating it.
We hear about some election wheels and deals, where oil companies are being pressured, for want of a better word to support government’s electioneering processes. How far is Shell deep in these wheels and deals?
Let me start from the electioneering processes, I am not aware of pressure from anybody in government asking Shell to support electioneering. And just to be very clear about it, I actually sent out a note to all Shell staff today, as if I knew this question will be asked.
In Shell, we do not support, we do not play politics as an organisation, and if any of our staff is going to support electioneering by way of campaign, you have to think very carefully about it, and if you do, you have to come and declare that you did such.
For somebody like me at my level, it is very difficult to differentiate between what I do in my personal capacity, and what I do for Shell. So the answer is, no, no. We will not even get to paying half a million and then going to declare it at all, because it is very difficult for people to understand. So the answer is absolutely no.
OPL 245 is a recurring issue with Shell, so many things have awarded and revoked and resold to Shell. Since 2001, it has remained a challenge between Shell and the contending parties. What is really happening to OPL 245?
OPL 245, frankly speaking I wouldn’t want to comment on it because it is more or less a subjudiced as it were. There is a ding-dong battle between the National Assembly and the Attorney General of the Federation, and I think that is where the battle is best fought. As far as we are concerned, it was a transaction that we had done and we have concluded.
From your briefs on how much Shell paid to government, we are still having issues with reconciliation with the NEITI Reports past and present. So the question is, are oil companies, including Shell, not giving the right figures to NEITI, or why are there these discrepancies?
On NEITI, I am not too clear about what kind of reconciliation issues you are talking about, but I know that if you read NEITI’s Reports year on year, Shell has always gotten a very clean bill. Everything that we are supposed to pay, we paid, and NEITI has been able to confirm that year on year, except you are referring to other forms of reconciliation. What concerns me most is to ensure that every any payment that we are supposed to make statutorily, we have always made complete and accurately.
You spoke about refocusing on deepwater and onshore projects, what is the development with your Bonga Southwest and Aparo deepwater projects?
On Bonga Southwest and Aparo, that for me links to the other point by someone else that there has been no development on the deep water: The issue is that the oil business is a very serious business and from the day you said you want to embark on any project, it would take another eight years.
Why people may not be seeing any development on deepwater. The oil business is a very serious business. From the day you decide you really want to do a project, it may go for another seven to eight years. While you may not be seeing anything or you may not be hearing any news, but there is a lot of work going on in the organisation.
People are busy studying this project; looking at the risk management; checking whether it is profitable or not; looking at what are the technology options to be used; what are the special considerations. So there is a lot of work, and the gestation period is quite long.
So the fact that you are not hearing a lot of announcement does not mean that we are not being faithful to our strategy of doing a lot more in deep water. So work is going on in Bonga Southwest and Aparo, I can assure you is going to take a quite a while.
In your briefing notes, I expected to see new developments in deepwater and shallow water, and we have Bonga Southwest, Aparo and others, so is it because of the PIB, I know Shell is leading the protest against PIB, especially the fiscal issues. Why are these assets not seeing activity?
I think Precious (Shell staff) was very prompt in saying we are not leading any protests on PIB. We made our submissions on PIB, and we have been able to make our case as clear as we could to every organ of government on where we think improvements should be made. So the whole bill is now in the hands of the legislators, and we like other entities and Nigerians as a whole are waiting for response.
For two years now, Shell has been trying to renew its acreages and it has not succeeded. Part of the reason, I understand is that there is some kind of compromise, if you like, where oil companies are being asked to give up one or two lesser fields in exchange for the renew. How true is this and how has it affected your operations?
On Shallow water renewal, I think it is important to note that it is not only Shell licenses that have not been renewed; we have Total, we have Chevron. The process is going on, and there is no dispute whatsoever.
You are alluding to the fact that we are being asked to relinquish some; otherwise, our licences will not be renewed. There is no such thing at all. It is not a precondition that we must divest before the licenses can be renewed. In fact, you cannot divest unless you renew your licence, because you cannot divest what you don’t have. So the renewal will technically have to come first, then if you decide to divest we will. It cannot be a pre-condition, and it is not a viable precondition if you think about it that way.
Also, it has not affected our operations in any way, because we have five shallow water blocks; one of them is operating and continues to operate. Everybody is getting the benefits; we are taking the benefits, and government is also getting their own benefits from it. But we are also not in breach of the law because we have an injunction, which kind of protects our rights on it.
A recent report by the London-based Chatham House on crude theft, accused international companies operating in Nigeria of collaboration with the JTF and some politicians to ensure that there is no end to crude theft. The reason for the collaboration is because royalty is not paid for stolen crude, or any financial commitment made on it. How will you react to this?
The Chatham House Report, where you claimed the report said there was collaboration between the international oil companies and crude oil thieves, there is no such thing in my view. And the argument being put forward because we don’t pay royalty, I would rather sell my crude and pay royalty on it than just let the crude to be stolen.
I think that particular logic, unfortunately for me doesn’t work at all. I know that that is why some people have been pushing that we should pay royalty based on the well head, whether it gets to the terminal or not. And we have consistently argued against that because in terms of the production and protection of the oil and gas facilities, it is not our business; it is the business of the government of Nigeria.
I keep using Iraq as an example, Iraq is a war zone, but the government really appreciates the strategic importance of the oil in Iraq, to the economy, and they protect it very religiously. They will not allow anything to tamper with that source of revenue, and that is the kind of aggression and aggressiveness that I am expecting from the government’s security agencies. Government has deployed security agencies to protect these facilities, they should do their job. If they don’t do their job, I don’t think it is my business to continue to suffer more losses by paying royalty on oil that I don’t get to sell. So it is not about being complicit with crude oil thieves at all.
What is holding up the cleanup of Ogoni land as recommended by the UNEP Report?
The whole issue of Ogoni is that government has set up an organisation that will handle the cleanup of Ogoni. The clean-up is going to be done by government agency and not by Shell, not by Total, and not by Eni. Our job is to provide as much support as we could, and we are willing to provide that support. But the lead party in all of this is government agencies not Shell.
I did explain that we are also eager to see that the cleanup in Ogoni starts as soon as possible, and that is why we will do our best to collaborate with HYREP, to see how we can help and encourage the cleanup of Ogoni. I think it will not be wise for us to now take on the role of government, that role has been clearly given to government and I think it is best for government to play that role rather than Shell.
Looking at your presentation on payments to government, you did not mention how much you realised from your business operations in Nigeria. Exactly how much did Shell companies make during the period in review?
Let me note that we are not at an AGM and you are not a shareholder in Shell, so why do you want to know how much I made from my business. But I can tell you that Government makes far more money than Shell in this business.