Posts under ‘Reuters’

MPs are to question UK oil and gas companies on the safety of drilling in the Arctic, after fears that retreating ice will see a damaging rush to exploit billions of barrels of untapped reserves in the region.

The committee’s remit will include the entire area of the Arctic Circle and both onshore and offshore drilling Photo: Bloomberg News

James Kimer on January 4, 2012.

As the second largest energy company in the world after Exxon-Mobil, Royal Dutch Shell has been a major player in Nigerian oil and gas from the beginning, overseeing the first commercial export of oil from the country in 1958 from the Oloibiri Field.  Their success over the years has been notable, with operations are spread over 30,000 square kilometres in the Niger Delta, including more than 6,000 kilometres of flowlines and pipelines, 86 oil fields, 1,000 producing wells, 68 flowstations, 10 gas plants and two major oil export terminals at Bonny and Forcados.

But after a number of accidents, attacks by militants, and political scandals, is Shell’s honeymoon with Nigeria coming to an end?  Some recent events and transactions indicate a shift in the Dutch company’s strategy in the country, opening a window of opportunity for new operators.

The past year has battered and bruised Shell’s operations in Nigeria, with both environmental issues and political risk increasing.  Just this week, the company was forced to conduct emergency repairs on a sabotaged trunkline pipeline in Nembe Creek, Bayelsa State, where more than 200 barrels of oil were siphoned off by thieves, forcing Shell to cut production by 70,000 barrels a day during the repairs.  Sabotage and theft by militant gangs is currently on the rise following a brief lull since its height in 2005, while the company reportedly suffers the loss of between 70 to 200 barrels of oil stolen per day.

In December 2010, Shell also experienced its worst oil spill in Nigeria in the past decade, as more than 40,000 barrels of crude oil was spilled at the offshore Bonga Field (the accident being caused by tanker mishap instead of the usual sabotage).  According to a report in the Washington Post, “Some environmentalists say as much as 550 million gallons of oil poured into the delta during Shell’s roughly 50 years of production in Nigeria — a rate roughly comparable to one Exxon Valdez disaster per year.”

As a result, political pressure against Shell has also been mounting from civil society.  The Environmental Rights Action/Friends of the Earth (ERA/FoEN) has been on the offensive since the spill at Bonga Field, issuing statements demanding that the government secure independent verification of spillage data while enforcing clean-up payments.  The company’s environmental and human rights record has been under scrutiny at the highest levels, with the United Nations Environment Programme (UNEP) issuing a harsh report in August 2011 that examined the ecological and public health ramifications of oil spills in Ogoniland.  One of the UNEP report’s key findings included the following:  “Control and maintenance of oilfield infrastructure in Ogoniland has been and remains inadequate: the Shell Petroleum Development Company’s own procedures have not been applied, creating public health and safety issues.”

Even before all these issues came about, there were indications that Shell may be scaling back its exposure to Nigerian energy.  Shell is the 30% owner of the joint venture Shell Petroleum Development Company of Nigeria Limited (SPDC), which also features major stakeholders such as the state-owned NNPC with (55%), TotalFinaElf (10%) and Agip (5%), which together is responsible for a whopping 50% of all oil production in the country.  However in November 2011, Shell completed the sale of its shares in two major oil producing blocks (OML 26 and OML 42), while at the same time they are working to close ongoing deals to sell their stakes to three other blocks (OML 30, 34 and 40).

Representatives from the company are keen to express that these sales do not represent the beginnings of an “exit strategy.”  According to statements made by SPDC Managing Director Mutiu Sunmonu to NEXT Newspaper, “what we are doing is consolidating our operations to strengthen even our future in Nigeria. We are in Nigeria for the long haul. Some of these assets are of more value to indigenous companies than the multinationals. The sale of marginal oil fields is an exercise aimed at growing indigenous capacity in the upstream oil and gas industry.”

However, it appears that in fact the divestiture strategy is aimed at offloading the most vulnerable assets  in the company’s portfolio – the ones located onshore, and therefore susceptible to attacks, kidnappings, theft, and sabotage, indicating a declining confidence in the state’s ability to maintain law and order in the Delta region.  In recent years, Shell has experienced a steep decline in production among its onshore assets in Nigeria.  In 2009 Shell CEO Peter Voser said that due to violence in the Delta region, production has slacked to 120,000 barrels per day from the previous 300,000 barrels per day.

“The overall security situation is still very fragile, the government had some success with their amnesty programme and we are looking now towards the next few weeks to see how this influences the whole security situation,” Voser told Reuters. “But it would be by far too early to say that it has improved. We are still dealing with the same kind of issues.”

Two years later, it looks like Shell might be losing patience.  The sale of these marginal fields such as OML 40, referring to oil and gas assets that have yet to be developed due to difficult location, infrastructure, and access, are bringing about a sharp increase of participation by indigenous companies.  New players in the Nigerian oil sector include Mike Adenuga’s Consolidated Petroleum, Femi Otedola’s African Petroleum (AP) Consortium, Elcrest, and Neconde Energy.  There are other indigenous companies which are actually backed by international finance, such as Oando (China), Perenco (Afren – a Nat Rothschild entity), and Equinox Group (Gazprom).

But the reasons motivating Shell’s divestitures may be more complex than the challenges of violence, insecurity, and public scrutiny.  After all, the company has survived some of the roughest periods of Nigerian history, including the murder of activist Ken Saro-Wiwa by the Abacha regime, which resulted in a $15 million lawsuit settlement.  In 2008, attacks by militant groups such as the Movement for the Emancipation of the Niger Delta (MEND) had reached such heights, that Shell was forced to steeply cut production, driving global oil prices to record highs well above $120 a barrel.  And yet, despite these harsh circumstances, the company persevered and held on up to the 2009 amnesty, which helped production recover.

The problem for the company may be bigger than just oil spills, theft, and attacks, as some observers point to the pending passage of the Petroleum Industry Bill (PIB), which would revolutionize the tax and royalty structure for international oil companies doing business in Nigeria, carving out a sphere of participation in production and exploration (as opposed to simply regulation) for parastatal companies.  First proposed in 2008 by the presidential administration of Umaru Yar’Adua, the PIB is a complex, 100-page document that has been repeatedly stalled in the legislature due to controversy and disputes over its contents and purpose.  According to the former Minister of the Federal Capital Territory of Abuja, Nasir El-Rufai, international oil companies such as Shell stoutly oppose the passage of the PIB and are actively lobbying against it because the bill contains new royalties structures for offshore production (because the Nigerian government forfeited these rights in a 1991 agreement).

And while the PIB remains stalled, much-needed foreign investment is put on hold.  According to one analyst interview by The Financial Times, “The wait for the adoption of the PIB is very damaging. It’s why the big new investments have been put on hold. The impact becomes exponentially more problematic [because] if reserves don’t get replaced, there is the risk of production capacity in Nigeria dropping for the first time in 30 years.”

As demonstrated by the overwhelming protests and public outrage over President Goodluck Jonathan’s decision to remove the fuel subsidy at the New Year, there is a strong social aspect to the country’s economic policies concerning the energy sector.  For most citizens, who live on less than $2 a day, the fuel subsidy was seen as the only way that the oil wealth was shared – and, with its removal, there could be increased public support for the passage of the PIB that aggressively targets the traditional energy players with higher taxes and more difficult conditions.

For the moment, public anger is directed toward President Jonathan and a small group of advisers.  But if this pressure translates into real political costs for the administration, it is possible to imagine President Jonathan finding a scapegoat in the foreign oil companies, and satiating voters with promises to pass the PIB and enforce payments on environmental clean-up costs.  If that’s the case, Shell’s divestitures may accelerate, while local companies – which are in no way more accountable – will take over more and more critical onshore production fields, posing an unknown risk to global energy supplies.

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4 January 2012

An Ecuadorean appeals court has upheld a ruling that Chevron should pay damages totalling $18.2bn (£11.5bn) over Amazon oil pollution.

Chevron said the judgement was “illegitimate” and “a fraud”.

Texaco, which merged with Chevron in 2001, was accused of dumping toxic materials in the Ecuadorean Amazon.

The original ruling ordered Chevron to pay $8.6bn in damages, which was more than doubled after the company failed to make a public apology.

“We ratify the ruling of February 14 2011 in all its parts, including the sentence for moral reparation,” the court in the Amazonian city of Lago Agrio said in its ruling, according to Reuters.

Long-running battle

In a statement released in response, Chevron said the decision was a “glaring example of the politicization and corruption of Ecuador’s judiciary”. It said it would continue to seek recourse through proceedings outside Ecuador.

The decision is the latest twist in a long-running legal battle between Chevron and the Ecuadorean plaintiffs.

The lawsuit was brought on behalf of 30,000 Ecuadoreans, in a case which has dragged on for years.

Ecuadorean indigenous groups said Texaco dumped more than 18bn gallons (68bn litres) of toxic materials into unlined pits and rivers between 1972 and 1992.

But Chevron says Texaco spent $40m cleaning up the area during the 1990s, and signed an agreement with Ecuador in 1998 absolving it of any further responsibility.

In September, a US appeals court overturned a decision to block the collection of the fine from the company.

Plaintiffs, who had agreed not to attempt to collect the damages until the appeals process was completed in Ecuador, welcomed Tuesday’s ruling.

“This [ruling] confirms and ratifies that the company polluted and affected the Amazon,” they said in a statement.

“It is necessary to clarify that no amount will be enough to repair all the crime they did in our area, nor will it be enough to bring the dead back to life.”

Ecuador’s President Rafael Correa described the dispute as a “David and Goliath” battle.

“I think justice has been done,” he said after the ruling was announced.

“The harm that Chevron caused to the Amazon cannot be denied.”

Chevron has challenged the fine, arguing that lawyers and supporters of the indigenous groups who brought the case conspired to fabricate evidence.

In a previous separate case, international arbitrators ordered the Ecuadorean government to pay $96m to Chevron because Ecuador’s courts had violated international law as a result of delays in resolving commercial disputes involving Texaco.

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• US court upholds Chevron oil fine
• Ecuador’s oil battle far from over
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December 24, 2011

By Alex Lawler

LONDON | Fri Dec 23, 2011 1:41pm EST

(Reuters) – Royal Dutch Shell’s Nigerian oil spill, the largest in the African nation since 1998, highlights the different world responses to oil spills.

Nigerian authorities on Thursday put emergency measures in place to prevent the spill of less than 40,000 barrels from the Shell facility, the biggest leak in Nigeria for more than 13 years, washing up on its coast.

The spill is small compared to last year’s much documented rupture of BP’s Macondo well off the United States but critics say the fact it happened in Nigeria means little attention has been paid to it.

In comparison, BP’s Macondo disaster spilled nearly 5 million barrels in the Gulf of Mexico, sparked criticism of the company by politicians, a media frenzy and wiped billions off its market value.

“There are double standards operating. With the Deepwater Horizon spill last year there was a massive amount of interest,” said Paul Horsman, a spokesman for Greenpeace, the environmental group. “The reality is, where ever the oil industry operates, it creates havoc.”

Shell’s shares briefly declined on Wednesday when news of the spill from the Bonga oilfield 120 kilometers off Nigeria’s coast emerged, but have since risen as investors saw little reputational risk for Shell.

An oil analyst at a bank said Shell’s latest Nigerian spill was unlikely to have much of an impact on the company.

“They are cleaning it up and the authorities seem very supportive of what’s happening,” he said. “This is not the worst incident.”

Shell’s pipelines in Nigeria’s onshore Niger Delta spill often, and the company usually blames this on sabotage attacks and oil theft, though it did not in this case.

On its website, Shell says almost 30,000 barrels spilled from the operations of its Nigerian venture in 2010 and there were more than 150 separate spills.

It said “less than 40,000 barrels of oil” had leaked into the ocean in the latest spill, equal to almost 6.4 million liters.

Nigeria’s National Oil Spill Detection and Response Agency put the spill at 20,000 barrels on Thursday and said it was the biggest in Nigeria since 1998, when some 40,000 barrels leaked from a ruptured Mobil pipeline off the coast.

POLLUTION IN THE NIGER DELTA

The latest spill comes four months after a U.N. report criticized Shell and the Nigerian government for contributing to 50 years of pollution in a region of the Niger Delta which it says needs the world’s largest ever oil clean-up, costing an initial $1 billion and taking up to 30 years.

Shell’s global website includes a prominent link to updates on the spill and photographs taken at the site, including of a damaged export line at Bonga identified as the source of the leak.

In an update on Thursday, Shell said an oil sheen on the ocean’s surface had thinned due to a combination of natural factors and the use of dispersant. Five ships were applying dispersant and more equipment and vessels are being mobilized.

“Since Tuesday, when we became aware of this regrettable leak at our Bonga offshore facility, substantial progress has been made in mitigating the consequences,” Shell’s chairman in Nigeria, Mutiu Sunmonu, said.

(Editing by James Jukwey)

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By Pierre Bertrand | December 22, 2011 2:07 AM GMT

Alaskan environmentalists are sounding the alarm bells this week, responding to two major oil industry victories in a state that has been a recurring flash point between environmental groups, legislators and the giants of petroleum exploration.

(Reuters) – The U.S. Coast Guard was investigating a 13,000-gallon spill from an oil rig leased to Shell, operating about 26 miles southeast of last year’s BP Plc Macondo oil well disaster, a Coast Guard spokesman said on Monday.

The spill of either drilling fluid or oil mixed with drilling fluid was reported Sunday by Transocean Ltd’s Deepwater Nautilus rig, which was drilling a well at Shell’s Appomattox discovery.

“Shell can confirm it has a loss of 319 barrels of drilling fluid,” Shell spokeswoman Kelly op de Weegh said by email.

The leak was from a booster line, which provides additional drilling fluid and is separate from the well, she said.

“The leak was isolated, stopped and remedial action has been approved by BSEE (the U.S. Bureau of Safety and Environmental Enforcement), which includes temporarily abandoning the well, and making appropriate repairs,” op de Weegh said.

The Coast Guard was attempting to determine what material was spilled, Coast Guard spokesman Steve Lehmann said.

“An overflight from New Orleans spotted a very light sheen in the vicinity,” Lehmann said.

He did not estimate the sheen’s size.

The initial report filed with the U.S. National Response Center described the leak as a discharge of base oil mixed with synthetic-based (drilling) mud with an oil content of 180 barrels.

“Everything’s pretty up in the air as to what the actual substance is and what the cause of it is, but that’s what we’re going off of right now,” said Coast Guard spokesman Lehmann, referring to the report.

“The ‘oil’ referenced in the report is referring to the synthetic fluid,” op de Weegh, the Shell spokeswoman, said. “The remaining amount in that discharge is water-based.”

The BP Macondo well blew out in April 2010, killing 11 workers, sinking the Transocean Deepwater Horizon drilling rig and spilling nearly 5 million barrels of oil into the Gulf.

(Reporting by Bruce Nichols; editing by Erwin Seba, Gary Hill)

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(Reuters) – The U.S. Bureau of Ocean Energy Management on Friday conditionally approved Shell Gulf of Mexico Inc’s revised plan to drill six oil exploration wells in the Chukchi Sea offshore of Alaska next year, the agency said in a news release.

The conditional approval does not authorize drilling to start. Shell Gulf of Mexico, a unit of Royal Dutch Shell, must obtain separate drilling permits for each well.

BOEM’s approval also requires the company to undertake a range of safety and environmental protection measures prior to starting work, including winning approval of its well capping and containment system and its oil spill response plan.

The conditional approval seeks to mitigate the risk of an end-of-season spill by requiring cessation of drilling 38 days before the annual onset of sea ice, typically November 1, to allow time for blowout control and cleanup in the event of an accident.

“We will continue to work closely with agencies across the federal government to ensure that Shell complies with the conditions we have imposed,” BOEM Director Tommy Beaudreau said.

Environmental advocacy groups including the Natural Resources Defense Council, the Sierra Club and a number of Alaska-based groups issued a joint statement decrying BOEM’s “reckless” decision.

“There is no proven way to clean up an oil spill in the Arctic’s extreme conditions and there is a significant dearth of scientific information, making it impossible to understand the impact of Shell’s activities,” the groups’ statement said.

Shell issued a statement welcoming the BOEM decision, but expressing caution about the provision limiting the Chukchi drilling season.

“We are concerned that this unwarranted restriction could severely impact our ability to deliver a complete Chukchi program,” Shell’s statement said.

“Shell remains committed to employing world-class technology and experience to ensure the delivery of a safe, environmentally responsible Arctic exploration program,” Shell said.

(Reporting by Bruce Nichols; editing by Andrea Evans)

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Curtis Smith, spokesman for Shell in Alaska, said the company continues to concentrate on its exploration plans in federal waters of the Beaufort and Chukchi Seas but is seeking to diversify its offshore operations.