Nigeria is one of the top oil and gas producers in Africa and has the continent’s largest natural gas reserves. Population estimates range from 160-175 million and the United Nations predicts that Nigeria could have the world’s fourth largest population by 2030. It therefore has a natural resource foundation to build a more prosperous economy and address some of its human development challenges in the years ahead. Shell Companies in Nigeria work in partnership with the Federal and State Governments, local and international companies, investors, contractors and communities in the drive for socio-economic growth in Nigeria.
Production of Energy
Shell Companies in Nigeria contribute to the Nigerian economy through the energy they produce and revenues they generate for the country. In 2017, Shell-operated ventures in Nigeria produced an average of 631,000 barrels of oil equivalent per day (boe/d)5, with 464,000 boe/d from The Shell Petroleum Development Company of Nigeria Limited operated Joint Venture (SPDC JV) and 167,000 boe/d from the Shell Nigeria Exploration and Production Company Limited (SNEPCo).
Shell Nigeria Gas Limited (SNG) supplies natural gas to about 90 industrial and commercial customers, majority of which are in Ogun, Rivers and Abia States. The gas is used for power generation and processing by industries for the manufacture of domestic products ranging from household consumables, to household utensils and hardware. Among its customers are four compressed natural gas (CNG) companies that make the gas available to other companies outside the SNG pipeline network.
The SPDC JV is the major supplier of natural gas from its onshore and offshore fields to Nigeria Liquefied Natural Gas Company Limited (NLNG) (Shell share 25.6%). The SPDC JV Afam VI power plant, which has a 650-megawatt generating capability, supplied approximately 15% of the nation’s grid-connected electricity in 2017 and since its commissioning in 2008 has delivered 25.97 million Megawatt-hour (MWh) of electricity into the Nigerian grid.
Generation of Revenues
According to statistics released by the Nigerian National Bureau of Statistics (NBS), in 2017 the oil and gas industry in Nigeria accounted for approximately 70% of government revenue and more than 90% of its export earnings. The contribution of the oil and gas industry to Nigeria’s gross domestic product was approximately 10% by end of third quarter 2017.
The country exited its first recession in a quarter of a century, as the economy witnessed a marginal growth of 0.55% in the second quarter of 2017 and by the third quarter, growth figures stood at 1.4%. This was largely attributed to the performance of the oil and gas industry following improved global oil prices and the management of disruptions to oil and gas production in the Niger Delta following intense stakeholder engagement led by the Federal Government.
Shell Companies in Nigeria were one of the initiators and a leading sponsor of the Nigerian Extractive Industries Transparency Initiative, which publishes payments made to the government by extractive industries including international oil companies. The economic contribution6 from SPDC JV partners to the Nigerian government between 2013-2017 is $23 billion2 (N5.31 trillion7). The Shell share of royalties and corporate taxes paid to the Federal Government of Nigeria in 2017 is approximately $1.1 billion (N333.33 billion8) (SPDC $0.4 billion; SNEPCo $0.7 billion).
For Shell Companies in Nigeria, 2017 was an important year in enabling the profitable harnessing of the country’s oil and gas resources that will contribute to the development of the economy. First, an alternative funding agreement worth $1 billion (N303.03 billion) was signed between SPDC, Total E&P Nigeria Ltd (TEPNG) and their government partner, the Nigerian National Petroleum Corporation (NNPC) to help develop two shallow water projects in the Niger Delta – Short Term Oil and Gas Growth (STOGG) and Estuary of Amatu.
Further Oil Development (EA FOD). Second, the SPDC JV commenced production at the Gbaran-Ubie Phase 2 project that will help boost gas supply to the domestic market and maintain supply to the export market. Third, SNG signed an agreement with a Nigerian company, Shoreline Energy, to market and distribute natural gas to wholesale and retail customers in the Lagos area.
More details about the Gbaran-Ubie project and agreement with Shoreline Energy can be found in the ‘Unlocking Nigeria’s Potential in Natural Gas’ section.
NLNG contributes to the national wealth and the economic well-being of states in which it operates, through the taxes and tariffs it pays as well as social investment projects. In 2016, the company's corporate income tax paid to the Federal Government of Nigeria amounted to about $323 million (N101.83 billion10). Between 2012 and 2017, the company has committed over $45 million (N14.19 billion11) (approximately $12 million [N3.78 billion12] Shell share) to social investment projects in the Niger Delta, especially in the areas of capacity building and infrastructure development.
In 2017, the company flagged- off the construction of the 34-kilometer Bonny – Bodo road following an agreement with the Federal Government of Nigeria to co-fund (50:50) the project estimated to cost more than $190 million (N60 billion13) (Shell Share $49 million [N15.36 billion14). This is a strategic infrastructure project that will enable socio-economic integration in the Niger Delta region and Nigeria at large when completed.
Robust growth in other areas of the economy, improved infrastructure and progress on human development is crucial to Nigeria’s long-term economic and social well-being. The oil and gas industry will continue to provide a backbone for this wider growth for the foreseeable future.
Supply Chain and Local Content
Shell Companies in Nigeria continue to support local content, develop the country’s human resources and strengthen Nigerian contracting capacity. This is achieved through sustainable partnerships, which further the country’s socio-economic development. In 2017, 95% of Shell Companies in Nigeria employees were Nigerian and 94% of contracts were awarded to Nigerian companies.
The use of locally manufactured goods and Nigerian service companies creates jobs in the communities in which we operate. In 2017, about $0.76 billion (N230.30 billion15) was spent by Shell Companies in Nigeria on contracts awarded to Nigerian companies.
Nigerian ownership of key assets such as rigs, helicopters and marine vessels is a key focus. For example, between 2010 and 2017 SNEPCo has provided financing and built capacity in training and safety standards to enable Caverton Helicopters, an indigenous company, to become one of the biggest aviation logistics providers in sub-Saharan Africa.
Shell Companies in Nigeria have been recognised for their work in local content, including the Local Content Operator of the Year Award by the Petroleum Technology Association of Nigeria (PETAN) in 2013 and 2015. In 2016, PETAN honoured SPDC with the Distinguished Achievement Award (Corporate) in recognition of the company’s pioneering role in Nigerian content development. PETAN also conferred a Professional Award to Bayo Ojulari, Managing Director of SNEPCo, for his notable contributions to the development of Nigerian content in the oil and gas sector. In 2017, PETAN bestowed Shell Companies in Nigeria with the Aret Adams Award for Excellence.
Shell Companies in Nigeria also support Nigerian vendors and suppliers in the oil and gas industry to improve access to financing at reduced interest rates, relaxed collateral requirements and reduced loan processing time. A contractor funding mechanism was started in 2011 with the Shell Kobo Fund, which gave rise to the Shell Contractor Support Fund in 2012. To date, the seven participating banks have disbursed a total of $1.5 billion (N472.88 billion16) to more than 290 vendors.
In 2016, Shell Companies in Nigeria signed a Memoranda of Understanding (MoU) with seven Nigerian banks under a revised Shell Contractor Support Fund, to enable local vendors and suppliers to finance projects executed for Shell Companies in Nigeria in line with the aspirations of the Nigerian Content Act. Under the MoUs, Access Bank Plc, Skye Bank Plc, Zenith Bank Plc, Stanbic IBTC Bank, First Bank of Nigeria Limited, Standard Chartered Bank, and Guaranty Trust Bank Plc have set aside $2.2 billion (N693.55 billion17) for contract execution by Nigerian companies.
Shell Companies in Nigeria have also made great strides in developing Nigeria’s human resources, which has led to more indigenous companies’ participation in the oil and gas sector. Current and former employees of SPDC and SNEPCo transfer their technical and project management skills throughout the Nigerian oil and gas industry. Several of the growing indigenous oil and gas producing companies are run by former Shell Nigeria staff.
A commitment to local content was also demonstrated in 2017 at the annual Global Nigerian Forum in Aberdeen, Scotland. Sponsored by SNEPCo for the fourth consecutive year, this initiative provided a platform for Nigerian professionals in the UK to connect with Nigerian companies to consider participation in offshore exploration activities in their home country.
Shell Companies in Nigeria work with government, communities and civil society to fund and implement programmes that have a lasting impact on lives in the Niger Delta and Nigeria as a whole.
Some of these investments are mandated by federal legislation, such as requiring all oil and gas producing companies in Nigeria to contribute funds from their annual budgets to the Niger Delta Development Commission.
Social investment activities focus on community and enterprise development, education, health, access-to-energy and since 2016, road safety. This, however, excludes community-driven development programmes and initiatives in the Niger Delta delivered through the Global Memorandum of Understanding (GMoU). A GMoU is an agreement that brings a group (or cluster) of communities together with representatives of state and local governments, SPDC and NGOs. Under the terms of the GMoUs, the SPDC JV provides secure five-year funding for communities to implement development projects of their choice.
Collectively, this makes Nigeria the largest concentration of social investment spending in the Shell Group. More details about Shell Companies in Nigeria’s social investment projects can be found in the ‘Social Investment’ section.
2 - Based on average exchange rate between 2013-2017.
5 - This figure is on a 100% basis.
6 - Economic contribution is derived from actual taxes, royalties and levies paid by Shell; estimates based on SPDC JV partners share of crude liftings, using Shell costs and prices; net receipts taken as Nigerian National Petroleum Corporation lifted volumes (valued at Shell prices); and from barrels of crude oil to refineries conservatively valued at 50% of export price less cash call obligation.
7,16 - Based on average exchange rate between 2011-2017.
8,15 - Based on 2017 exchange rate.
10,11,12,14,17 - Based on 2016 exchange rate.
13 - Based on actual project cost.