One of Nigeria’s indigenous operators in the country’s oil and gas industry, AITEO E&P, has disputed claims that it was owing Shell Nigeria and seven Nigerian banks over $900million in missing loan repayments over the development of oil mining lease (OPL) 29.
Rather AITEO accused Shell and the banks of refusing to pay royalties due to the Federal Government between 2015 and 2016 while appropriating for debt service all revenues from sales of its crude oil production.
Court documents seen by this newspaper revealed that the alleged misconduct by Shell and the banks contravened the conditions in the account structure set up to finance the development of the OPL 29 asset.
On Sunday, Bloomberg reported that the oil giant and the consortium of seven banks are locked in a legal battle against AITEO to recover the alleged debt.
Root of the dispute
In 2015, AITEO acquired OML 29, including the Nembe Creek Trunk Line (NCTL), for $2.4 billion following the Shell Petroleum Development Company (SPDC)’s decision to divest 45 percent of its interest from the asset.
The asset was operated by Shell and its partners, Total and Eni, as a joint venture with the Nigerian National Petroleum Corporation (NNPC).
To facilitate the acquisition of the asset, AITEO took a loan of about $1.49 billion from a consortium of seven Nigerian banks, including Zenith, Fidelity, Union, GTB, Ecobank, FBN, Sterling, in addition to about $512 million provided by Shell, totaling about $2 billion.
AITEO said although it continued to diligently discharge its commitments on the loan, its debt service obligations were dictated by Shell and the banks, which controlled exclusively all the accounts and their administration.
In 2019, following the demand by the Federal Government for all unpaid royalties due to it from the asset to be settled in full, AITEO said it requested the banks to prioritize the payment of the royalties from the proceeds of its crude oil sales.
On the alternative, the company said it suggested the banks meet the obligation with a grant of short-term royalty payment facility that would be defrayed as a priority from the lifting of its crude oil.
The indigenous oil firm said following the failure by Shell and the banks to grant its request for a short-term facility, its management decided to single-handedly fund the royalty payment from its crude oil production, in view of the fact that all due royalties for more than two years were previously appropriated by Shell and the banks for debt service.
From about $2.142 billion contributed by shareholders as equity in August 2019, AITEO said apart from paying more than $287 million to the government in royalties, it continued to service its debt obligations to Shell and the banks.
The company accused Shell of exploiting its decision to deploy its private resources to prioritize royalty payment in place of previous appropriation by the banks to distort facts and fueling the current debt dispute.
Despite paying back about $1.241 billion to Shell and the banks as debt service on a loan of $1.97 billion as at July 2019, AITEO said the principal amount of the loan has remained largely the same due to “substantial distortion of its repayment obligations as a result of unauthorized debits and charges posted to its accounts by the lenders.”
Following the observations, AITEO said it requested a routine reconciliation of the accounts to resolve the discrepancies.
When Shell and the banks refused to respond to its request, AITEO said in a letter dated September 10, 2019, that it renewed its request for the restructuring of the finding facility based on the terms of the Finance Agreement.
On October 23, 2019, counsel to the banks in a letter to AITEO accused the company of being in default to a debt of about $288million and demanded immediate payment.
However, AITEO saw the bankers’ letter, which failed to respond to its request for restructuring of the loan repayment in line with the outline in the Finance documents, as a direct breach of the inter-creditor agreement.
On October 31, 2019, suit No. FHC/ABJ/CS/1310/2019 filed by AITEO at the Federal High Court, Abuja sought an order to restrain the banks from proceeding to call in the loans, expedite the repayment schedule or takeover the company’s assets.
Shell, banks dispute AITEO’s claims
Lawyers to the banks, Aluko & Oyebode, is quoted by Bloomberg to have disputed the narrative by AITEO in an email sent in response to an inquiry on the debt dispute.
The outstanding amount, the law firm said in court filings at the International Chamber of Commerce in London referenced by Bloomberg, stood at about $910 million as of the end of September, including $233 million owed to Shell, and the banks.
The debt, the law firm is quoted to have said, increased from $288 million in October 2019, when the lenders’ Nigerian lawyers sent AITEO a letter notifying the company it had “defaulted and continues to remain in default.”
Discussions by Shell, the banks, and AITEO “to identify restructured terms that were mutually acceptable,” the law firm said, were not successful, resulting in the ongoing legal process to recover the debt from AITEO.
An appeal by the bankers against the injunction by AITEO is pending before the appeal court, same as AITEO’s request for a high court judgment restraining the banks from continuing the alleged unauthorized debits and charges to its accounts.
Regardless, AITEO has continued to insist it was not in default of any loan obligation, arguing that the banks were under an obligation to restructure the repayment schedule due to unforeseen “events of force majeure” as a result of a loss of over 40 percent of crude oil production along the Nembe Creek Trunk Line right of way.
The banks, AITEO said, refused to heed its directives to fund an account opened specifically for paying suppliers, but which “applied wrongful deductions, charges and debits.”
In January 2021, AITEO filed a separate suit against Shell in a Lagos High Court to demand several billions of dollars in damages for deliberately misrepresenting the material condition of NCTL.
In the suit, the company accused Shell of using the material misrepresentation of the condition of NCTL to under-count the volume of crude oil dispatched by AITEO to the Bonny terminal, which it operated.
AITEO accused Shell of making it “practically impossible” for it to meet its repayment obligations to the banks, through organized theft of about one million barrels of AITEO’s crude oil production for several years.
Alleged crude oil theft
Allegations of “Crude Theft” by Shell as a result of an audit conducted by the Department of Petroleum Resources (DPR) which revealed huge discrepancies in crude oil volumes from AITEO and other oil producers using the unauthorized metering system was first reported in a letter by DPR to Shell on February 9, 2018.
Another letter by DPR dated July 8, 2020, to Shell and seen by this newspaper on Friday showed disparities in AITEO’s annual production data published by the Nigerian National Petroleum Corporation (NNPC) and DPR.
The figures showed NNPC figures of 16 million barrels against DPR’s 22 million in 2016; 13.5 million barrels against 21 million barrels in 2017, 15 million barrels by NNPC against 25 million barrels by DPR in 2018.
AITEO said they are inclined to accept the DPR figures as aligning with its reconciled production figures, and consistent with its operations on OML 29 against NNPC’s figure is provided by Shell, which is the operator of the Bonny Terminal on behalf of the joint venture it is a partner with NNPC, Total and Agip.
When contacted, Shell spokesperson, Bamidele Odugbesan, told our reporter the claims by AITEO are “factually incorrect and a clear misrepresentation of facts.”
“The industry regulator, Department of Petroleum Resources (DPR), has dismissed the claims and asked that the claims be disregarded,” he said in a response he sent to an inquiry on the matter.
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