Daily Independent Online.
* Monday, March 22, 2004.
Oil reserves
scam: Shell report indicts Nigeria
By Ambrose Akor
Correspondent, London
Nigeria s image is once again receiving a battering for corrupt practices following claims by Royal Dutch/Shell that it over-estimated oil reserves in the country to protect the interests of the government.
The scale of the revision is important because Nigeria is a significant source of oil for Shell and
the country is seeking to increase markedly its production quota in the Organisation of the Petroleum Exporting Countries (OPEC).
The size of proven reserves is a basic consideration when OPEC sets quotas for its members. At stake
for Nigeria are billions of dollars in revenue .
Abuja
has repeatedly denied that it has falsified oil deposits
to enable it raise its OPEC quota .
The world press at the weekend lashed out at Nigeria for pressuring one of the leading global corporate
organisations
into corrupt practices.
The New York Times quoted Shell
as claiming that it has kept secret important details of its sharp reduction in oil and gas reserves, particularly in Nigeria, for fear of damaging its business relationship with the government. Internal company documents,
the paper claims, showed that Nigeria desires to produce more oil. That would only be granted if the country s
reserves are marked up.
Reserves are also important to Shell because they can influence its relationship with the country where oil and gas are found. This is particularly true in the case of Nigeria, it is claimed.
Identifying the extent of Shell's reduced reserves in
Nigeria, Africa's most populous nation, could affect the country s "quota discussions" with OPEC, a report
by Shell dated December 2003 warned.
Nigeria has been seeking a quota increase as part of a plan to double
production in the coming years.
Reserves are "a key input in quota discussions," the report says, and since Shell's reserves
account for about half Nigeria s total, "an external disclosure
indicating that estimates have been overstated
could negatively impact the government's position.
OPEC officials visited Nigeria last month, and the organisation will discuss a new formula for determining
quotas later this year, an OPEC spokesman said.
Oil yields 90 per cent of Nigeria's export revenue, estimated at $17.3 billion a year in 2002. A doubling
of its production means billions in extra
income.
While Shell has acknowledged that the biggest adjustments in reserves include those in Nigeria, it
continues to conceal the extent of its problems.
The New York Times claimed that confidential documents from late last year showed that Shell concluded that over 1.5 billion barrels, or 60 percent of its Nigerian reserves did not
meet accounting standards for "proven reserves."
Shell is already facing
investigations from the Securities and Exchange Commission
(SEC) in New York, and the Financial
Services Authority in London (FSA).
The Daily Telegraph of London
at the weekend reported Shell also as saying that it is now under investigation for "potential insider trading" by Dutch stock market regulators.
Shell disclosed two months ago that it had overstated its oil and gas reserves by 20 per cent, equivalent
to 3.9 billion barrels of crude oil. Last Thursday, it pared its reserves by the equivalent of 250 million barrels more, most
of that involving a natural gas field off Norway. Shell also postponed
the publication of
its 2003 annual report for two months to complete a review of its oil and gas assets.
Its executives are acutely aware of the potentially explosive political effect of cutting estimates of Nigerian reserves. A report dated December 8 last year, prepared for
senior executives by Walter van de Vijver, then the top official for exploration and production, recommended that
the revised Nigerian reserves
remain "confidential in view of host country
sensitivities.
Industry watchers believe that by reducing its estimates of reserves, Shell has not necessarily lost
any oil or gas. Instead, it reclassified some oil
and gas fields as less likely to be developed soon, if at all.
At the end of 2002, Shell recorded 2.524 billion barrels of proven reserves in Nigeria, but after
reviews and a tightening of company guidelines, only 990 million barrels
"fully complies" with the guidelines.
There are different explanations for Shell's lack of progress in developing its Nigerian oil fields.
A report last November by the International Energy Agency (IEA) said joint ventures like Shell's in Nigeria, where
it is in partnership
with the government "suffered from under investment, because of a lack of state funding."
In Nigeria, according to IEA and local news media reports, government
budget and other developments have shifted more of the financial burden of developing oil fields
to foreign investors.
The Nigerian
Government believes that foreign oil companies are partly to blame for the slow pace of meeting reserve targets because they "are sitting on large tracts of undeveloped
acreage," according to Shell's understanding of a growth plan prepared by
Funsho Kupolukun, who was once Oil Adviser to President Olusegun Obasanjo and now heads the Nigerian National
Petroleum Company (NNPC).