Global Witness, others allege Shell, Eni denied Nigeria of N2.1 trn oil revenue

In what was meant to be a cash cow for the benefit of Nigeria oil Industry, a report by a non-governmental organizations led by Global Witness have estimated that Nigeria will lose N2.1 trillion ($6billion) in revenue to International oil giants Shell and ENI over the sale of the most prolific oil field in Africa, widely known as Oil Prospecting License (OPL) 245.
According to the report called Take the Future; Global Witness said its discovery of Shell’s dire terms for the OPL 245 oil block comes soon after Nigeria became the country with the highest rates of extreme poverty in the world.
“The $6 billion in revenue that the companies are set to deprive the Nigerian people of is equivalent to twice the country’s annual health and education budget, or enough to train six million teachers,” anti- corruption group Global Witness said.
”Instead, we could see that money boosting profits for the European oil giants.”
Global Witness revealed that Shell executives knew the deal they were asking for was not a “Production Sharing Contract”, which would have given the Nigerian Government a share of the oil from their OPL 245 block. But Shell and Eni continued to call it that despite having removed the Nigerian Government’s share of oil entirely.
Global Witness also noted that Nigeria’s civil servants objected, calling the deal “highly prejudicial to the interests of the Federal Government” but Nigerian ministers appeared to have ignored or overruled the concerns of their civil servants.
Barnaby Pace from Global Witness said “Shell and Eni execs set the deal up so that Nigeria would earn some $6bn less than it could have. This scandalous deal must be cancelled.”
The breakdown which was carried out by Resources for Development Consulting on behalf of Global Witness, as well as other NGOs such as Human and Environmental Development Agenda (HEDA), RE: Common and The Corner estimated losses were calculated using an oil price of $70 a barrel as a basis.
To do the analysis, Resources for Development Consulting explained that it used discounted cash flow modeling which is an industry-standard methodology used for valuation by oil companies and for revenue forecasting by governments as field data contained in this analysis came predominantly from the companies themselves: Shell and Eni.
“The basic field data comes from a 2006 Valuation document prepared by Shell in support of arbitration proceedings. This data has been updated based on information from subsequent Shell reports and information published by Eni in 2011 as well as public domain sources from analogous blocks in neighboring countries.” According to the report from Resources for Development Consulting.
“Under our base case assumptions and assuming a future oil price of $70 per barrel, the 2003 Production Sharing Contracts (PSC) terms would generate $14.3 billion in government revenue over the lifespan of the project; while the 2005 terms would generate $15.6 billion. In contrast, the 2011 resolution agreement terms would generate $9.8 billion.
“The potential reduction of between $4.5 billion and $5.9 billion when compared to the 2003 or 2005 terms is due to the removal in the 2011 resolution agreement and the 2012 Production Sharing Agreements (PSA) of the central feature of the production sharing system: a share of Profit Oil for the government.
“The differences in benefits grow under higher oil price scenarios. At $100 per barrel, the 2003 PSC terms would generate an additional $7.7 billion in government revenue, while the 2005 PSC terms would generate an additional $10.6 billion,” the consulting firm noted in its report.
In response to the analysis’ findings, Shell did not comment on the specific points put to them saying only that “The statements in your letter are based on faulty methodologies which do not meet adequate qualitative standard.
“They fail to take into account elements that are typically used by the industry (e.g., geology), make wrongful factual assumptions (such as by using obsolete of irrelevant data), misconstrue the terms of the 2011 settlement and even reference legislation which has not been passed.”
Eni claimed in light of their ongoing trial it would be “inappropriate for us to comment on such circumstances outside the court.”
They did not comment on the specific points put them other to say “the technical and contractual assumptions adopted as the basis for the analysis appear to be partial and inaccurate, if not misleading.”
Mohammed Adoke, the former Nigerian Attorney General also responded to the findings, stressing that the deal was concluded following consultations with relevant ministries, no attempt was made to prevent civil servants voicing their concerns, and issues were resolved following inter-ministerial discussions.
The unfolding scandal, which is being played out in an Italian court, has involved former MI6 officers, the FBI, a former President of Nigeria, as well as current and former senior executives at the two oil companies.
No charges have been brought against former President Goodluck Jonathan who approved the controversial settlement agreement and transfer of the funds to Malabu.
Nigeria’s OPL 245 is one of the biggest sources of untapped oil reserves on the African continent with reserves estimated at 9 billion barrels. It covers nearly 2,000 square kilometers in the southern edge of the Niger Delta in water depths of more than 1,200 meters, was first allocated in 1998.
It covers nearly 2,000 square kilometers in the southern edge of the Niger Delta in water depths of more than 1,200 meters, was first allocated in 1998.

DIPO OLADEHINDE