Nigeria freezes Shell’s bank accounts over oil pipeline dispute

By William Clowes on 02/21/2021

(Bloomberg) – A Nigerian court six years ago restricted Royal Dutch Shell Plc’s access to its bank accounts in the West African country due to a dispute with a local oil producer over a pipeline deal.

Aiteo Eastern E & P Co. Ltd. claims billions in damages and claims Shell misrepresented the condition of the pipeline and undercounted the volume of crude oil in one of the facilities it received from the Nigerian firm, according to Bloomberg court records.

Shell said Aiteo’s lawsuit was unfounded and was working to lift the freeze order.

The dispute is just one of a growing list of legal entanglements surrounding Shell’s deal with Africa’s largest crude oil producer. Since the beginning of the year, more than a decade ago, a Dutch court asked the company to pay compensation for oil spills in two villages, and the UK Supreme Court allowed 40,000 fishermen and farmers to sue Shell in England.

The legal precedents could result in the company facing more cases related to Nigeria in its home country.

A federal court in Lagos, Nigeria’s commercial hub, on February 15 upheld an order issued late last month ordering Shell not to withdraw funds held at 20 banks “without first receiving or securing nearly $ 2.8 billion “. Judge Oluremi Oguntoyinbo has adjourned the trial until February 24th.

Aiteo’s allegations relate to the purchase in 2015 of a 45% stake in an oil block and pipeline from a trio of multinationals for $ 2.4 billion: Shell, Total SE and Eni SpA. Nigeria’s state-owned energy company owns the rest.

The African company has received a loan of nearly $ 1.5 billion from local and international banks to fund its entry into the oil exploration and production business. This resulted in a lawsuit the company filed on Jan. 15 against four Shell units and the parent company. Aiteo is controlled by the well-known Nigerian businessman Benedict Peters.

Aiteo alleged in the lawsuit that “fraudulent misrepresentations” by the local unit of Shell, the former operator of the assets, prior to the sale mean that it is “virtually impossible” for the company to “meet its repayment obligations to its financiers”. The company claims the pipeline, the Nembe Creek Trunk Line (NCTL), is in worse shape and more prone to theft than Shell announced.

After the deal, Aiteo also claims Shell underestimated the volume of crude oil that Aiteo and other local producers supplied to its Bonny oil and gas export terminal through the NCTL. The company is demanding a refund from Shell for 16 million barrels of oil, or $ 1.3 billion.

The full penalty sought in Aiteo’s lawsuit is more than $ 9 billion, including $ 5 billion in general damages, $ 799 million for the purchase of the NCTL, and $ 933 million for reimbursement of Pipeline repairs.

Shell “is working to get a swift discharge on the freeze warrant that we believe was obtained without valid basis by Aiteo,” a spokesman for the company’s Nigerian unit, SPDC, said via email.

Aiteo’s claim of “gross theft / distraction” in connection with the Bonny terminal was “factually incorrect,” said Shell. Rather, it is a “special issue” related to a directive from the Nigerian Ministry of Petroleum Resources to SPDC, as the operator of the facility, that the company redistribute oil between producers who inject into another pipeline and producers who use the NCTL should.

Shell plans to return 2.1 million barrels of producers, including SPDC and Total, who pump crude oil into the Trans Niger Pipeline, to companies using the NCTL. This emerges from a letter the company sent to the Ministry of Petroleum Resources on February 8. The allocation to Aiteo will be 1 million barrels, with the largest portion being drawn from a joint venture led by SPDC.

The adjustment, which relates to calculations performed between June 2016 and June 2017 at the Bonny Terminal, is part of “normal industry practice,” Shell said.

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