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Nigerian Parliament Fines Shell 3.96 Billion For Bonga Oil Spill

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Published: November 29, 2014 at 6:55 am EST
By: Micheal Kaufman

Nigeria is a member of the Organization of Petroleum Exporting countries and is the largest crude oil producer in Africa. At one point, the country had a great demand for its oil exports in the US and enjoyed high profit margins. However, the US shale oil boom has taken this advantageaway from Nigeria. The hydraulic fracturing techniques have allowed the US to produce oil that is quite similar in composition to the oil produced in Nigeria, reducing its reliability on Nigeria for oil imports.

Furthermore, Nigeria has experienced a fall in foreign investments as major investors like Royal Dutch Shell plc (ADR) (NYSE:RDS.A) are now involved in asset divestitures due to the oil theft in the region. Recently, Shell also decided to shut down a pipeline due to leakage, which has been a major source of oil revenue for the country. Therefore, the country is going to suffer heavily following Shell’s actions.

In pre-market trading today, Shell’s shares of Class “A” American Depository Receipts (ADR) dropped 6%. Over the past three months, Shell stock has declined 11.6%.

However, it seems that Nigeria is not going to let go of Shell that easily. Nigeria’s National Assembly has bombarded the oil giant with a $3.96 billion fine. The fine has been imposed as a punishment for the 2011 oil spill in the Bonga oilfield in which Shell’s subsidiary, Shell Nigerian Exploration and Production Company, was involved.

Numerous state agencies of Nigeria have spent a lot of time analyzing and researching the oil spill. Initially, the agencies felt that the fine should have been $11 billion. However, the assembly finalized a penalty of $3.96 billion after going through a report by the National Oil Spill Detection and Response Agency (NODRA).

According to NODRA’s report, around 40,000 barrels of oil were spilled in 2011. The oil spill covered an area of 950 square kilometers and heavily disrupted the environment. Before the spill, the Bonga oilfield had been producing 200,000 barrels of oil per day. Local fishermen who heavily relied on fishing in the area were also severely affected.

Although Shell initially assumed responsibility for the spill and cleaned the area, decided not to comment over the recent development. The company on several occasions was approached by the environmental committee over the issue but was constantly rejected by the company. Therefore, the committee decided to use NODRA’s report as a lead agency in the oil spill management.

Other than the Bonga oilfield spill, Shell was also alleged of involvement in two oil spills in the Niger delta in 2008. In June, the company offered $51 million in compensation, which was rejected. The compensation was offered to the 15,000 individuals living in the Bodo community.

Shell is bound to face considerable pressure owing to the newly-imposed fines. The United Nations Environment Program has consistently blamed the European energy company for not dealing with the Nigerian spills in an efficient manner. How Shell will react to the non-binding fine remains to be seen. However, one thing is certain that the Nigerian Government is not going to let Shell divest its assets and leave the country without paying a heavy price.

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