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Nigeria biggest recipient of Shell payout

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By Abraham Adekunle

Shell's recent payout and shifts in Nigeria's oil industry.

Long regarded as one of Africa’s major oil producers, Nigeria has once again emerged as the primary beneficiary of Shell‘s payments, marking a significant financial milestone for the nation’s oil sector. According to new data released by Shell, the total payments to Nigeria in 2023 amounted to an impressive $4.92 billion, representing a notable increase of 8.85 percent compared to the previous year. This substantial payout encompasses production entitlement, royalties, taxes, and fees paid to the Nigerian government. The resurgence of Nigeria as the largest recipient of Shell’s payments underscores the country’s enduring significance in the global oil market.

This achievement comes after a brief period where Norway claimed the top spot in 2021, receiving approximately $4.52 billion, edging out Nigeria’s $4.48 billion. However, Nigeria’s robust performance in 2023 has firmly re-established its dominance in terms of payments from the British oil giant. It is noteworthy that Nigeria’s trajectory in Shell’s payments have experienced fluctuations in recent years. In 2022, although the amount paid to Nigeria increased slightly by 0.92 percent to $4.52 billion, the country slipped to the third position among Shell’s biggest recipients. This dip followed a peak payment of $6.39 billion in 2018, signalling a dynamic landscape influenced by various economic factors and industry dynamics.

Payments to Nigeria decline amid a strategic shift.

However, the firm’s total payments to countries where it operates witnessed a 14.11 percent decline year-on-year, amounting to $29.52 billion in 2023. This reduction aligns with the company’s overall financial performance, marked by a 30 percent drop in annual profit compared to its record-high earnings of $39.9 billion in 2022. These financial shifts reflect broader trends in the global oil industry, impacted by market volatility and evolving geopolitical dynamics. The breakdown of Shell’s payments to Nigeria reveals a substantial contribution to key sectors and entities within the country. Its subsidiaries in Nigeria disbursed $3.46 billion to the Nigerian National Petroleum Company (NNPC) as production entitlement. Additionally, $587.64 million was allocated to taxes paid to the Federal Inland Revenue Service, highlighting the company’s commitment to fulfilling its fiscal obligations.

Moreover, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) received approximately $727.85 million, with an additional $1.73 million allocated for royalties and fees. The Niger Delta Development Commission also benefited from Shell’s payments, receiving $139.99 million. Furthermore, Shell directed fees totalling $4.28 million and $85,890 to the National Agency for Science and Engineering Infrastructure and Nigeria Police Trust Fund, respectively. Despite the substantial payments made by Shell to Nigeria, the company’s future financial contributions to the country may witness a decline. This projection follows Shell’s decision to divest its onshore business in Nigeria, including its subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC). The sale, agreed upon with Renaissance, a consortium comprising ND Western, Aradel Energy, First E&P, Waltersmith, and Petrolin, represents a strategic shift in Shell’s operational focus.

CEO optimistic amid Nigeria’s oil industry shift.

Wael Sawan, Shell’s chief executive officer, expressed optimism about the transaction, emphasizing its importance for the company’s strategic objectives. This move aligns with broader trends in Nigeria’s oil industry, where international oil companies have increasingly divested from onshore assets since 2010. The divestment strategy has seen local operators such as Seplat Energy Plc acquiring oil blocks, signalling a shift in ownership and operational dynamics. The challenges faced by operators in Nigeria’s oil sector are multifaceted, ranging from oil theft and pipeline vandalism to regulatory hurdles and production constraints. These challenges have contributed to fluctuations in the country’s oil production levels, which peaked at 2.5 million barrels per day in 2010 but declined to below 1 million barrels per day in 2022.

As well, the company’s 2023 Sustainability Report sheds light on the environmental and operational challenges in Nigeria, particularly regarding oil spills and sabotage incidents. The report highlighted 139 out of 140 spills recorded are due to sabotage occurring in Nigeria, resulting in increased spill volumes compared to the previous year. The majority of oil spills in the Niger Delta region were attributed to crude oil theft, sabotage of production facilities, and illegal oil refining activities. Shell’s efforts to address these challenges include on-ground surveillance, installation of anti-theft protection mechanisms, and continuous monitoring of critical infrastructure nodes.

Related Article: Shell to make FID on major projects in 2024

The company’s proactive measures aim to mitigate environmental risks and enhance operational resilience in Nigeria’s oil-rich regions. Looking ahead, Shell’s strategic realignment and ongoing efforts to address operational challenges in Nigeria’s oil sector will continue to shape the country’s energy landscape. The divestment of onshore assets, coupled with sustained investment in environmental stewardship and regulatory compliance, reflects a dynamic phase in Nigeria’s oil industry evolution. As stakeholders navigate these transitions, collaboration, innovation, and sustainable practices will remain central to unlocking the sector’s potential and driving long-term growth.

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