No multinational company is more closely linked to Nigeria than Shell. Its subsidiary, the Shell Petroleum Development Company of Nigeria (SPDC), is the largest private sector oil and gas company in Nigeria, producing 43% of the country’s total crude oil. It is the biggest player, in the most important sector. Oil and gas account for more than 80% of the Nigerian government’s revenues, 90% of foreign exchange earnings, 95% of export receipts and 40% of GDP.
Most global oil majors are invested in Nigeria. However, it is a tough operating environment, characterised by ethnic conflict, corruption, crime and unemployment.
Shell’s other subsidiaries in Nigeria include the Shell Nigeria Exploration and Production Company, which is focused on deepwater exploration and drilling; Shell Nigeria Gas, which supplies gas to industrial customers; and Shell Nigeria Oil Products, a downstream marketing company. Shell also has a 25.6% shareholding in Nigeria Liquefied Natural Gas, which is tapping the country’s abundant gas reserves.
Shell faces an ongoing challenge to maximise the output and efficiency of its operations while maintaining good relations with the government and local communities. It is the latter, particularly, that feel that not enough of the oil wealth has flowed back to them. Shell and other companies operating in the sector face violence and criminality under the cover of ethnic conflict.
In 2003, SPDC’s production facilities in the northern swamp area of the Niger Delta were shut down as a result of inter-ethnic war. Organised theft of crude oil by armed gangs is a major challenge for all oil companies operating in the country. During 2004, periods of high theft activity peaked at 60,000 barrels per day (b/d), while low theft activity reached 40,000 b/d. SPDC recorded 71 crude-oil theft incidents in 2004, representing a 20% drop from the previous year. However, the government has intensified its activities to tackle this growing crime. “During , 32 barges, six ships, six tugboats and 10 road tankers were seized and 63 suspects arrested,” reports SPDC.
Community-related disruptions (including closure of production facilities, seizure of assets, blocking of access and disruption of drilling activities) increased by 10% in 2004 compared with 2003. However, SPDC reports that fewer project days were lost. “In most cases, such community protests were peaceful and were resolved through dialogue,” says the company.
Corruption continues to be a major challenge for investors. However, SPDC reports: “The Nigerian government under President Obasanjo has been engaged in a vigorous anti-corruption campaign since it assumed office. For SPDC, our position is clear: the giving or receiving of bribes is prohibited in the conduct of our business. We have also put in place appropriate measures to monitor, detect, investigate and take action where any breaches are established.”
The company has implemented a whistle-blowing policy that allows staff to report suspected fraud and breach of business ethics without necessarily disclosing their identity. “In the past few years, we have witnessed an increase in the number of reported cases, which may reflect growing confidence among staff in the policy,” says the company.
In 2004, SPDC employed 5000 staff directly. Of those, 95% were Nigerians and two-thirds came from the Niger Delta region. The company also employed 7000 contract staff.
Employing such a large number of staff in what is frequently a dangerous environment requires high levels of training and education. During 2004, the company worked on raising employee awareness of occupational health as well as safety issues. “Particular attention was devoted to the rapid communication of lateral learning from incidents, the application of consequence management on established violations and a ‘hearts and minds’ safety campaign,” says SPDC.