Kiobel Dutch Case: Shell in Nigeria

3.1 Shell in Nigeria

38. The Anglo-Dutch company Shell has played an active role in what was then still British Colonial Nigeria since 1936, where it was involved in the search for oil fields and the first oil extraction in the Niger Delta from the 1940s. When a large-scale oil industry got going in Nigeria from 1958 Shell became the main player.28 Even after the independence of Nigeria in 1960 oil exploitation in Nigeria remained largely in Shell’s hands.

39. The oil industry in Nigeria was initially the responsibility of foreign companies, until the Nigerian government started to become more actively involved from 1971. The Nigerian National Petroleum Company (NNPC) was set up for this purpose in 1977. The NNPC is responsible for regulating and supervising the oil industry in Nigeria and its formation brought about a new system of cooperation between the government and the different oil companies. From 1977 joint venture agreements, production sharing arrangements and service or risk contracts came into play.

40. Since 1984, SPDC has been the operator of a Nigerian joint venture of which it holds 30% of the shares.29 As operator, Shell is responsible for all aspects of oil extraction and exploitation: the search for oil, the development of oil fields, the construction and maintenance of pipelines, the management of export terminals, the management of the crude oil in storage installations and the management of the operating budget. Consequently, there is a high degree of external control of the Nigerian oil industry, which is for the most part in the hands of Shell.

41. As the operator of the biggest joint venture in Nigeria, SPDC extracts large amounts of oil out of the ground; in the period 1991-1995 on average 13% of Shell’s total oil production came from Nigeria.30 According to its own figures, Shell produced on average 278,000 barrels of oil per day during this period in Nigeria.31 The importance of oil, and therefore the power and control of Shell in Nigeria, is evident from the fact that 95% of Nigeria’s exports consist of oil and that oil accounts for 80% of the Nigerian regime’s income.32

42. Shell and the Nigerian government are mutually dependent. First of all, Shell depends on the Nigerian regime because it needs the permission of the regime to extract oil; under the law all natural resources in Nigeria belong to the federal government. Shell also depends on the regime for 55% of the funding of the operations and, as will be explained in chapter 8, for the protection of its facilities. The Nigerian regime in its turn depends on Shell for the entire process of oil extraction and exploitation. Not only does the regime receive 55% of the profits of the joint venture, SPDC also pays 85% taxes over their own profits to the regime.33 Shell is therefore responsible for nearly half of the income of the Nigerian regime. As will be shown in chapter 8, Shell also regularly deploys its economic interest to apply pressure to the regime.