Date: 06/07/2021
Author: Kent Moors, Ph.D.
Saturday evening, over a nice meal at the Four Seasons in Miami, I renewed an old acquaintance from my days in private sector energy advising. The last time paths crossed with Jacques, the two of us were exploring opportunities in new parts of the world and some unusually creative ways to finance them.
That led inevitably to Africa…then and now.
Not on the front burner for some other guys. But both of us had early seen the prospects for sub-Saharan oil operations. There, projects are among the least expensive to operate in the world, while located within a rapidly expanding convergence of domestic market demand and readily available export routes.
In fact, the last time we worked together it was on an advising contract for Royal/Dutch Shell in what is still considered a huge African field operation within an often-difficult place to do business. We reminisced a bit and discussed the current state of the project with which Jacques’ consulting firm is still connected.
Welcome to the swirling world of Nigerian oil, where the possibilities are huge but so are the problems.
During my work in global oil, some of my most frustrating experiences took place in Nigeria. The country has reserves of prized sweet light crude, the grade most sought by refiners worldwide. Unfortunately, to get to the oil, you must jump over hurdles, both natural and manmade.
Despite the passage of three years from my last involvement, our dinner conversation Saturday concluded with the observation that not much has changed.
The natural impediments are provided by the environment surrounding the Niger Delta, one of the most disagreeable places in which I have ever worked. There are insects there that need saddles, the rest of the fauna are hardly agreeable, disease abounds, the weather is either stickily oppressive or drenching, and the locals have been known to attack all manner of oil installations (as well as the people working there).
Meanwhile, aside from the always-lingering prospects of revolution in the Delta, other human barriers involve some of the most egregious degrees of corruption found anywhere, on all levels of administration, including the courts.
The central government in Abuja and authorities in the economic center (and former capital) of Lagos have pledged to make the country move transparent and friendly to outside business and investment. New legal codes have even been passed or updated.
But the improvements have been slow in coming, even in the case of assets no longer controlled. Just ask Shell. The unfolding legal battle testifies to the continuing problems of doing business in Nigeria. As such, it also introduces similar problems throughout the region.
This mishap involves Oil Mining Lease (OML) 42, the main one of eight Niger Delta consignments the oil major has divested to Nigerian domestic company Neconde Energy.
The OML 42 block encompasses 315 square miles and has been a major producer over the years with operations commencing in 1969 at the Egwa field. By 1974 it was yielding 250,000 barrels per day (b/d) from Egwa alone and had a normalized production of as much as 150,000 b/d. It now has seven producing and five undeveloped fields.
However, not all of that was continuous extraction. The entire block was shut down in 2006 because of security problems in the West Delta. By early 2011, two smaller fields – Batan and Ajuju – were brought back online by Shell before the divestment of a 45 percent interest in OML 42 to Neconde. That position was held by Shell as operator, along with French Total and Italian ENI.
At the time, the sale attracted protest by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), an objection that may well have figured in later legal actions.
Production in four operating OML 42 fields reached an estimated 135,000 b/d by mid-2019. Unfortunately, that was also the last time figures were available that I would consider “reliable.”
The remaining 55 percent interest in the entire block belongs to the Nigerian National Petroleum Corporation (NNPC), assigned to NPDC, its exploration and production (E&P) subsidiary. The Nigerian government named NPDC operator. In May 2015, the government moved block operating status to Neconde for a period of ten years.
There are also significant offshore blocks adjacent. These deep-water zones have had onshore assets, consignments, or forward production contracts involved in collateral in the bidding and development cycles.
OML primarily contains crude oil. But it also has some 6 trillion cubic feet (about 170 million cubic meters) of natural gas resources. Plans are to develop this in the next several years, with the target of 500 million cubic feet/day (mcf/d) to service the domestic market. That development plan will also monetize a significant amount of gas condensate resources. A Neconde/NPDC joint venture rehabilitated the Odidi gas central processing facility, resulting in an initial run of 40 mcf/d coming online several years ago.
Against that backdrop, legal matters took a nasty turn and again indicated how quickly matters could go south in this part of the world. About the time I ended my consultancy, Neconde announced it had launched an arbitration action stipulating that Shell had allegedly diverted crude oil worth millions of dollars produced from OML 42.
In its press release (distributed first by government-controlled media outlets in Nigeria), Neconde contended that the arbitration move was central to a response following a “phantom” criminal lawsuit by Shell against its former employee over suspected fraud in the sale of block crude oil to Neconde.
On the same day, Shell had filed that suit in Dutch court against former staff after the company declared that it discovered alleged infractions during an ongoing internal investigation conducted by the company in its legal battles over the controversial acquisition of deep-water oil block OPL 245.
In response, Neconde disagreed that there had been any underhanded dealings before, during, or after the processes leading to its purchase of Shell’s 45 percent position in OML 42. The Nigerian company’s statemen read, in part: “Neconde, in an open and competitive bid, acquired the 45 percent joint equity interest in OML 42….Neconde paid the full consideration provided by its financiers and in accordance with the competitive bid process adopted.
Given that this was a matter in which my work had intersected, I can only say that Neconde provided a statement that was accurate to the spirit rather than the letter of the agreement.
Anyway, it is at this point in the Niconde statement that the “fun” starts. The company added that it completely denied any allegation or suspicion of kickback, and then followed that up by saying “This allegation by Shell may not be unconnected with an ongoing arbitration instituted by Neconde against Shell in London in connection with Shell’s diversion of crude oil worth millions of US Dollars from OML 42 after the acquisition of the 45 percent joint equity interest by Neconde and for other infractions.”
While Neconde identified the concerned Shell ex-employee as the oil giant’s former vice-president of Shell in Nigeria, Peter Robinson, it added that the allegation of kickback was defamatory and that it was seriously considering legal options.
The Nigerian federal government then sued Shell and its allied Shell Western Supply & Trading Ltd. for $407 million, the amount claimed as being revenue that should have accrued from undeclared/under-declared lifting of Nigerian crude.
Meanwhile, the Shell suit in The Netherlands was filed against one of its own executives heading up the local Nigerian subsidiary. Shell never named the individual, but Neconde stated it was the above-named Peter Robinson, information I can personally confirm.
In addition, a Shell contact at the time acknowledged to me that, “Based on what we know now from an internal investigation, we suspect a crime may have been committed by our former employee against Shell in relation to the sale process for Oil Mining Lease (OML) 42 in Nigeria.”
Added pressure has been brought to bear on Shell over the still simmering issue. In a press comment, Barnaby Pace, spokesperson for global anti-corruption crusader Global Witness, remarked that the development showed Shell indeed was “always swimming in murky corruption waters in its dealings in Nigeria.”
Pace added, “After years of saying that there is no place for bribery or corruption in their company, they have finally admitted that one of their most senior executives may have taken kickbacks in return for an oil deal.”
Shell is also facing a separate suit lodged in Milan against the deep water OPL 245 deal.
Nothing is ever simple in this part of the world. All of this also brings back painful memories of my failed separate attempt to broker an export of Nigerian crude for import of processed low sulfur diesel. That was a venture in which I would lose a fair amount of my own money. But that will remain a tale for another occasion.
This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it. Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations).
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