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Licence Renewal in Nigeria, Others cut Shell’s CAPEX by $2.3bn

-By Gideon Osaka

Oil giant, Royal Dutch Shell Plc said it recorded lower capital expenditure (CAPEX) and capital investments last year compared to 2018 attributing some of the reasons to higher spend for lease renewals in Nigeria.

The company stated this in its annual report and accounts for the year ended December 31, 2019 which was released in the middle of March.

The Annual Report provides a comprehensive account of Shell and its subsidiaries’ operational and financial activities for the year.

According to the report, cash capital expenditure in 2019 was $10.3 billion, compared with $12.6 billion in 2018. Capital investment in 2019 was $11.1 billion, compared with $12.8 billion in 2018.

Shell said, “The lower cash capital expenditure and capital investments in 2019 reflected our continuing efforts to improve capital efficiency by pursuing lower cost development solutions, the completion of the Appomattox project, IFRS16 implementation effects and the 2018 impacts of relative higher spend for lease renewals in Nigeria and additional investments in exploration acreage.”
Shell, one of Nigeria’s oldest oil majors, through its subsidiary, Shell Petroleum Development Company of Nigeria Limited (SPDC) is the operator of a joint venture (30% interest) that has 17 Niger Delta onshore oil mining leases (OML). Its main offshore deep-water activities are carried out by Shell Nigeria Exploration and Production Company Limited (SNEPCO).

Shell also have a 25.6% interest in Nigeria LNG Ltd, which operates six LNG trains located on Bonny Island and a 17.9% share in the West African Gas Pipeline Company Limited which owns and operates a 678-kilometre pipeline transporting gas from Nigeria to Ghana, Benin and Togo.

Despite the plunge in cash capital expenditure and capital investments in 2019, the company reported that share of production, onshore and offshore, in Nigeria increased to 266,000 barrels of oil equivalent per day (boe/d) in 2019, compared with 255,000 boe/d in 2018.

It however lamented that security issues, sabotage and crude oil theft in the Niger Delta remained significant challenges in 2019 adding that “A further erosion of the business and operating environment in Nigeria could have a material adverse effect on us.”

The report said: “In our Nigerian operations, we face various risks and adverse conditions. These include: security issues surrounding the safety of our people, host communities and operations; sabotage and theft; our ability to enforce existing contractual rights; litigation; limited infrastructure; potential legislation that could increase our taxes or costs of operations; the effect of lower oil and gas prices on the government budget; and regional instability created by militant activities. These risks or adverse conditions could have a material adverse effect on our earnings, cash flows and financial condition.”