Crude production reconciliation creates rift in oil industry
Court blocks Shell’s bank accounts
Reallocation of crude oil volume from Nigeria’s Bonny Terminal between 2016 and 2018, following gaps in metered volume between oil majors and some indigenous firms, is responsible for allegations of crude theft in the nation’s onshore operations.
The calibration of a “2×12” Coriolis flowmeter installed by Shell Petroleum Development Company Nigeria (SPDC) at the inlet of the Nembe Creek Trunk Line (NCTL) into Bonny Terminal for custody transfer measurement and allocation purposes raised gaps in crude volume reconciliation among operators.
Findings from the Department of Petroleum Resources in 2018 had shown that the NCTL facility was installed by SPDC as a temporary arrangement, pending completion of the permanent LACT unit. With the commissioning of the permanent LACT in 2018, the Federal Government, through the Department of Petroleum Resources (DPR), reallocated volumes to address shortfalls and technical allowable.
Letters exchanged between DPR and SPDC suggested underestimation to the tune of 2,081,678 barrels of crude. The shortfall, it was alleged, had been reallocated from June 2016 to July 2018 through discrepancies in metering.
The DPR, having discovered crude oil metering discrepancies in Shell operations, had, in a letter dated 14th December 2020, demanded that Shell should refund the over two million barrels of crude oil illegally reallocated between June 2016 and July 2018.
The letter was referenced “Reallocation of Bonny Terminal Gross Volume from June 2016 to July 2018 Based on Comparison of Metered Gross between the Coriolis Meter and LACT Unit Installed on the NCTL.”
Shell confirmed the discrepancy in metering and, in a letter dated 8th February 2021, agreed to comply with the DPR’s directive to refund the stolen crude.
The Shell’s letter, addressed to the Director, DPR and referenced SPDC-COM-2021-00951, reads in part: “We note your directives as contained in the above-referenced letter and wish to confirm that the 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 Creek Trunk Line (NCTL) injectors (Aiteo, Belemaoil, Eroton and Newcross) over the period from the end of January 2021 till November 2021 following Schedule 111 as contained in the Department of Petroleum Resources (DPR) letter ref: DMR/CTO/COA/COM/V.5/230 dated 14th December 2020.”
It was learnt that both DPR and Shell had been going back and forth on the matter, with Shell recommending further dialogue and engagement. This was said to have angered the management of DPR which had insisted on refund by Shell, prompting the initial terms of further engagement recommended by Shell to be rejected by DPR.
In a DPR letter dated 28th January 2021, in response to Shell’s letter of January 14th, the Department stated: “Please be informed that we are unable to accept your request for further engagement on the matter due to your failure to implement the refund of 2,081,678 barrels of oil from TNP injectors to NCTL injectors as directed by the Department.”
The reallocated volumes from the Bonny Terminal showed gap of 2,081,678 barrels of oil between June 2016 and July 2018, resulting from what DPR described as unapproved metering system, necessitating a refund to other NCTL injectors, including Aiteo, Belemaoil, Eroton and Newcross.
WHILE SPDC has accepted the reallocation and agreed to implement the refund of the over two million barrels of crude oil from the Trans Niger Pipeline (TNP) over 11 months, AITEO has sought an ex-parte order from a Federal High Court in Ikoyi, Lagos, for an injunction directing 20 commercial banks to block accounts of SPDC and affiliates of the Royal Dutch Shell company operating in Nigeria in a bid to recover the cash value of more than 16 million barrels of crude allegedly diverted by the oil giant.
Justice Oluremi Omowunmi Oguntoyinbo of the Federal High Court granted the injunction in suit no FHC/L/CS/52/202, where AITEO Eastern E & P Company Ltd is the plaintiff/applicant and SPDC Ltd is the first defendant.
Royal Dutch Shell Plc, Shell Western Supply and Trading Ltd, Shell International Trading and Shipping Company Ltd and Shell Nigeria Exploration and Production Company Ltd are second, third, fourth and fifth defendants.
Twenty banks where Shell companies operate accounts in Nigeria are the respondents in the suit.
Messrs Kemi Pinheiro (SAN) leading Chief Mike Ozekhome (SAN), Dapo Olanipekun (SAN) and four other senior advocates of Nigeria filed AITEO’s application.
The court also directed the 20 banks to “ring-fence any cash, bonds, deposits, all forms of negotiable instruments to the value of $2.7 billion and pay all standing credits to Shell companies up to the value into an interest yielding account in the name of the Chief Registrar (CR) of the court.”
The CR is to “hold the funds in trust” pending the hearing of the motion and determination of the motion on notice for interlocutory injunction filed before it by AITEO.
Justice Oguntoyinbo further directed the respondent’s banks to pay any sums of money standing to the credit of the defendants within 48 hours of the service of the order of the court up to the sum/value of the amounts stated in prayers 1,2,3, and 4 above into an interest yielding account in the name of the Chief Registrar of the court, who is to hold the same in trust 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,” the judge held.
Meanwhile, the defendants have filed an application seeking to discharge the order, while further proceedings have been adjourned till February 24.
Media Relations Manager at SPDC, Bamidele Odugbesan, dismissed the allegation that Shell underreported its crude oil production, describing the claims as baseless and factually incorrect.