Sabotage up, theft down for Shell in Nigeria

14 March 2017, Week 10, Issue 680

Royal Dutch Shell’s production in Nigeria slipped to 258,000 boepd in 2016, from 278,000 boepd in the previous year. While oil theft appears to have fallen during the year, sabotage of facilities increased. An unexpected benefit of this, though, is that gas flaring fell. 

Of the company’s total flaring, 16% of it was from Shell Petroleum Development Co. (SPDC), its Nigerian onshore venture. Flaring intensity from SPDC fell by 35% year on year, with the company saying this was a result of production outages. 

It made progress on gas-gathering projects during the year but the start-up dates for two of these developments were pushed back as a result of insecurity – combined with a “lack of adequate joint-venture funding from our government partner for most of the year”. Nigeria is working to overhaul the way in which it finances projects, and there is some discussion that it may sell down its stakes. Helping to offset some of its operational issues, the Erha North Phase 2 project ramped up in 2016, having come on line in September 2015. 

Offshore, though, the company faced challenges in 2016, particularly on future projects. An FID is not expected on the Bonga South West/Aparo project until 2018. “A reframing exercise is under way to make this project economically viable in the current business environment,” it said. 

In addition, Shell – and its partner, Eni – are being investigated over the acquisition of Oil Prospecting Licence (OPL) 245, struck in 2011. A Nigerian court temporarily reclaimed control of the block in January while, in mid-February, the Italian prosecutor in Milan announced an indictment stemming from the block. Fields on the area include Zabazab and Etan. 

Oil spills in Nigeria continued to be a cause for concern. The company said that 90% of spills involving more than 100 kilograms of crude were caused by illegal activities by third parties. Shell said it was committed to cleaning up spills regardless of the cause and that, over the last five years it had replaced more than 950 km of pipeline and flow lines. 

It uses a number of ways to tackle pipeline sabotage, including daily overflights, surveillance and the use of “anti-theft protection mechanisms” on essential infrastructure. 

Shell signed a memorandum of understanding (MoU) with the Bodo community in 2015. Clean up work began in September of that year but was quickly halted, as the community refused access. Discussions were held throughout 2016 but no resolution has yet been reached. 

Production of LNG in 2016 dipped, also as a result of pipeline problems, with Shell’s equity share falling to 4.5 million tonnes in the year, from 5 million tonnes in the previous year. 

Shell managed to cut production prices in 2016, continuing its trend from the previous year. In addition, while oil and NGL sales prices fell across the board, the company’s African production managed to hold on to the top spot, coming in at US$42.73 per barrel, seeing off the competition from all the other aspects of the super-major’s portfolio.