SHELL NIGERIA 1 Essay Example
Organizations and companies operate in different environments. Globalization and internationalization of businesses have resulted in multinationals opening outlets in different countries. These outlets create benefits and challenges to the community and the multinationals. Such companies face numerous risks ranging from environmental to legal risks, and imperativeness of risk assessment and risk management is important. An example of such an organization is Royal Dutch Shell Company. The aim of the report is to analyze legal risks that the company faces. The paper starts with a presentation of a summary of the company, analyses the working environment, have to adhere with numerous legislations and Acts, and vulnerability to accomplishing organizational goals and missions. The paper concludes with a presentation of recommendations to address the identified problem.
Overview of the Royal Dutch Shell Company and Shell Nigeria
Royal Dutch Shell Company is a multinational organization, which is among the largest oil companies in the world. It is a Netherlands based organization, and its headquarters is located in The Hague. The company employs more than 93,000 employees and operates more than 25,000 Shell branded gas stations in the US alone, and some of the products offered include LPG, gasoline and diesel fuel. Other specific products that Shell offers include refining of petroleum productions, production and exploration of oil/gas, and car services. The company was established in 1907, and Royal Dutch Shell has entered into numerous partnerships and joint ventures. For example, Shell is a subsidiary company to Royal Dutch Shell and entered into a joint partnership with Motiva Enterprises.
As discussed Royal Dutch Shell deal in numerous activities such as petrochemical manufacturers, gasoline marketers, natural gas marketers, natural gas and oil producers. To fulfill these numerous requirements, the company explores and prospers for natural gas and oil products across the world (Shell Nigeria, 2017). Royal Dutch Shell employs different approaches in meeting the gas and oil demands such as seeking energy from deep seas and entering into contracts with other countries/states to explore for energy and later on develop and market the resources (Ite et al. 2013). Due to the nature of Royal Dutch Shell, the company has opened numerous subsidiaries including Shell Pakistan, Shell Oil Company, Shell Nigeria, Shell Canada, Shell Australia and Shell South Africa. For the purpose of the current assignment, the focus is Shell Nigeria.
Royal Dutch Shell is represented in Nigeria by Shell Nigeria that has four subsidiaries, which are grouped into Shell Petroleum Development Company of Nigeria Limited (SPDC). These subsidiaries are Shell Nigeria Gas, Shell Nigeria on Oil Products, Shell Nigeria Exploration and Production Company, and Nigeria Liquefied Natural Gas (Shell Nigeria, 2017). The activity of Royal Dutch Shell in Nigeria accounts for more than 21% of overall oil production in the country. Shell Nigeria was established in 1937 and started oil explorations and exports in 1958. Royal Dutch Shell continues to explore and create approaches to exploring and exporting the oil. The company is faced with numerous challenges and problems while the Nigeria government lacks enough capacities and authorities to implement development and supervisor roles.
Legal Governance, Management, And Relationship Issues
Royal Dutch Shell (henceforth Shell Nigeria) understands the importance of numerous processes and activities in fulfilling its operational requirements. These operational requirements can be classified into legal governance and management, relationship issues (Njidda, Hassan & Olatunji, 2013). These variables affected the company and different stakeholders are differently meaning aligning the activities of the organization with the wider objectives of the socioeconomic and political system is integral.
The legal governance focuses on ensuring the regulations and standards in place are implemented accordingly and where there is a misunderstanding, appropriate corrective measures implemented (Njidda, Hassan & Olatunji, 2013). In the oil and gas industry, the legal governance is integral because the risks associated with exploration, manufacturing, and transportation of the oil products. Different Acts and Standards are in place meaning observing and integrating these standards is crucial in advancing the organizational requirements (Okonta & Douglas, 2003). For instances, legislations and regulations exist that defines the operations of the company, the company as a self entity, the need of environment protection, and the inclusion of different conditions and approaches in ensuring the legal framework is upheld (Vaughan, 2017). It includes formulation and implementation of contracts, addressing conflicts and misunderstandings, and adhering to the international frameworks of the oil industry, human rights, environment protection and sustainability, and other legal frameworks that guide the activities of Shell Nigeria.
In addition, effective management is important to the success of any organization. The management has to appreciate the importance of finances, society, and environment in advancing the objectives of the organization (Adoga & Valverde, 2014). Balancing finances, society and environment are important in creating a sustainable organization. The management is supposed to treat the employees fairly, which is evident in Shell Nigeria, and also the management has strategic financial approaches (Hennchen, 2015). However, shortcomings can be pointed to the lack of effectiveness is the environment sector, which affects the overall business environment (Ite et al. 2013). Additionally, the management has to appreciate the importance of society and community is sustaining the company meaning collaborative, and a partnership approach between the company and community is crucial (Pegg & Zabbey, 2013). Conflicts with the community and poor conflict resolution mechanism may worsen the situation, which is currently evident in Nigeria. Shell Nigeria is unable to create conducive engagement with the community, which results in frequently conflict and misunderstandings.
The conflicts indicate a strained relationship. Shell Nigeria has to maintain an effective relationship with different stakeholders to ensure the organization and business are sustainable (Hennchen, 2015). However, the major problem is its engagement with the society and community in regards to environmental degradation, and the lack of integration both ethics and moral objectives in the management of the business (Gutti, Aji & Magaji, 2012). An effective relationship has to consider the needs and requirements of different stakeholders, but Shell Nigeria only considers the needs of Shell Nigeria alone (Okonta & Douglas, 2003). If the company considered the requirements of other stakeholders, the company would have implemented numerous frameworks and approaches such as environmental sustainability and inclusion of the views of the community in the strategic process (Okpanachi & Andrews, 2012). However, Shell Nigeria only considers its strategic goals, which creates problems. Hence, the poor relationship management affects overall operations at Shell Nigeria.
Regulations, Acts and Agencies Regulating Shell Nigeria
The Constitution tasks the government with the control of all minerals in Nigeria, exclusive economic zone and within Nigeria territorial waters but the government has to implement the numerous activities as prescribed by the National Assembly. To fulfill the control and management requirements, Nigeria relies on regulations and legislations.
The Petroleum Act is the important statute that dictates the petroleum operations including use, production, and exploration. It gives control and ownership of all petroleum products and related functions in the government and the powers associated with the Act are implemented by Minister of Petroleum Resources (Hennchen, 2015). The Minister authorizes and grants power to any qualified persons who aim to participate in petroleum operations. The Petroleum Act is complemented with numerous legislations including Petroleum Refining Regulations, the Petroleum Regulations, and Petroleum (Drilling and Production) Regulations (Gutti, Aji & Magaji, 2012). These legislations are aimed at governing petroleum operations but are not limited to marketing, refining, transportation, storage, production, development, and exploration (Njidda, Hassan & Olatunji, 2013). Its means these legislations covers numerous things, and adherence to the legislations is compulsory.
The Oil and Gas Pipelines Regulations and Oil Pipelines Act provide a regulatory and legal framework for the maintenance, operation, and establishment of pipeline that are important, supplementary and incidental to gas and oil operations in Nigeria (Hennchen, 2015). Moreover, numerous contractual frameworks such as the Deep Offshore and Inland Basin Production Sharing Contracts Act defines the fiscal incentives that companies operating in offshore obtains, which are premised on production sharing contracts (Okonta & Douglas, 2003). The purpose of these contracts is to encourage individuals and business to continue exploring for oil and gas but to understand the importance of working together and supporting each other (Pegg & Zabbey, 2013). To fulfill these varied obligations, the Nigerian National Petroleum Act is implemented through the establishment of Nigerian National Petroleum Corporation, which advances the petroleum related operations on behalf of the government.
In ensuring the local and indigenous companies participate in the development of Nigerian gas and oil industry, the legislative assembly introduced the Nigerian Oil and Gas Industry Content Development Act (Gutti, Aji & Magaji, 2012). The Act defines the minimum Nigerian content in terms of engagement and contractual obligations including preferences be given to Nigeria companies in the award of oil licenses and blocs. It means that companies with 51% equity by Nigerian parties have an advantage in oil production and related processes (Njidda, Hassan & Olatunji, 2013). These activities are tasked to the Ministry of Petroleum Resources, which is responsible for authorizing petroleum activities and responsible for policy formulation and regulating the industry. In addition, there are overall standards and frameworks that guide the business activities and operations.
There are numerous additional legislations and acts exist that any company working in the oil and gas industry has to champion. Since the oil and gas industry affects the environment, numerous environmental related legislations and Acts exist (Gutti, Aji & Magaji, 2012). These Acts and legislations include Federal Environmental Protection Agency Act of 1988 (FEPAAct), and Environmental Impact Assessment Act of 1992 (EIA Act). Other bodies or agencies and frameworks tasked with environmental protection include Environmental Guidelines and Standards for the Petroleum Industry in Nigeria (EGASPIN) 2002, while Nigerian States have been tasked with the formulation and implementation of acts and legislations specific to their operational requirements and uniqueness of the environment (Njidda, Hassan & Olatunji, 2013). The legislations and standards indicate that Nigerian government aims to improve the overall business activities and processes relative to wider suitability objectives.
Furthermore, any business operating from Nigeria has to observe general rules and frameworks to support the business activities (Ite et al. 2013). It includes addressing the variables of consumer protection, health competition, and adherence to governance issues, obtaining the right permits and licenses, and other documentations that are integral to business operations (Gutti, Aji & Magaji, 2012). Additionally, the companies and individuals have to observe the international guidelines when it comes to international labor regulations, human rights, civil rights and other Acts and laws that define the business environment and dictates business operations.
High Legal Risk For The Shell Nigeria
In the oil and gas industry, there are numerous areas of legal risk. Before any company decides to invest in a region, some questions that the organizations ask include whether it is safe to invest, whether a guaranteed return is viable and significance of investing in countries with troubled reputations (Okonta & Douglas, 2003). In quantifying and qualifying these risks, risk management are frequently carried out determine the effectiveness of huge investments in the oil and gas industry, and some of the important legal implications in terms of risks include:
Market risks – for example, exchange rates, interest rates, and oil prices
Credit risks such as default, reliability of funds, sources of funds and appropriateness of the funds (Ehinola, Oluwajana & Nwabueze, 2012)
Operational risks such as equipment failure, quality of equipment
Geological risks such as dry wells, harsh operating conditions, residual liability from mature fields (Gutti, Aji & Magaji, 2012)
Environmental risks such as pollution, hurricanes and environmental conditions
Political risks such as contractual arrangements, regulatory, and changes to government, boundary disputes, nationalization, corruption, poor governance, terrorism
Organizational/individual risks – these are legal risks that are associated with the kind of conduct at a corporate or individual level that may result in the devaluation of the company. The approaches may result in negative public reputation, loss of productivity, and loss of investor confidence (Gutti, Aji & Magaji, 2012).
The high level of risk for the Shell Nigeria is the environmental risk because of wider impact in terms of short term and long term (Ehinola, Oluwajana & Nwabueze, 2012). It means that Shell Nigeria has to understand the legal consequences of not implementing effective frameworks in protecting and advancing a sustainable environment.
The Reasons And Implications Of This Legal Risk For Shell Nigeria
Without effective consideration of environment risks, Shell Nigeria is vulnerable to numerous legal risks and complications. Some of the environment outcomes related to oil and gas exploration includes emissions to air, discharge to sea, and seismic surveys (Hennchen, 2015). These processes take place through prospecting or exploring, producing or drilling, and transportation of the crude oil (Ite et al. 2013). In addition, accidents are unavoidable meaning effective measures and frameworks should be in place that ensures instances or chances of mistakes and accidents are minimized. Whether the environment degradation or population is accidental or negligence/ignorance, legal complications exists.
Organizational reputation is an integral that contributes to short and long term benefits to an organization. An organization that does not implement appropriate policies to protect the environment are viewed negatively (Oluduro, 2015). The changing climatic conditions mean that organizations have to implement practices and processes, which are friendly to the environment (Okonta & Douglas, 2003). The awareness and reasons of climate warming are associated with fossil fuel meaning the society and political frameworks continuously analyses the way energy, oil, and gas industry behaves. Shell Nigeria’s reputation is questionable because of implementation of measures for protecting the environment. Shell Nigeria activities have continuously been targeted, and activities and media have highlighted the weaknesses of the company (Pegg & Zabbey, 2013). The media and activities state that Shell Nigeria has not implemented measures to ensure reputation is capitalized. Even though reputation may be seen as a social component, but the continuous participation of media and activists highlight a legal question in which the company can be sued because of its activities.
The operations may result in different disasters and can be solved through legal measures. For example, the transportation is a major issue in oil and gas industry, because the businesses have clearly defined approaches of transporting the products. However, the use of pipelines, for example, possess different risks such as thieves drilling the pipelines or due to natural acts, the oil and gas are spilled to the environment (Frynas, 2000). Shell Nigeria continuously faces these challenges because of difference between the company and community (Sekularac & Deutsch, 2013). Since Shell Nigeria and community do not collaborate and engage because of many reasons, the community sabotages the activities of Shell Nigeria (Ite et al. 2013). In addition, Shell Nigeria last effective frameworks to ensure the oil and gas are transported fairly. These processes result in the discharge of oil to the environment, which translates to legal issues with government institutions.
Litigation is a major result of numerous environmental risks. The government, community or other stakeholders can take an individual to courts due to ineffective environmental protection approaches. The community and government may seek compensation or stop the production of the oil and gas (Sekularac & Deutsch, 2013). In both scenarios, Shell Nigeria’s production would be affected immensely meaning the solution is implementing appropriate environment protection measures. The penalties, fines, and negative media report tarnishes the name of the organization, which would suffer economically (Salami et al. 2012). For example, the community sued Shell Nigeria in The Hague because of environmental degradation including negative effects on the environment (Oluduro, 2015). The Hague court held that Shell Nigeria is liable and should compensate the community. Even though it was a legal issue, the integrity of subsidiaries including the parent company would be affected by the negative image.
Accidents are unavoidable as presented but when an organization continues to degrade the environment without implementing corrective measures, the government and state agencies make revoke the permits and licenses. An organization operates with permission from the government, which is premised on permits and licenses (Sekularac & Deutsch, 2013). However, when a government realizes the activities of an organization contravene the wider requirements of the government, the government terminates the contractual obligations (Okonta & Douglas, 2003). Shell Nigeria is vulnerable to the condition and situation because of continuous degradation of the society. Even though the Nigeria legislation and Acts on environmental degradation is ineffective including the impunity/poor governance structures, withdrawal of the permits and licenses would affect Shell Nigeria business activities.
Shell Nigeria’s Strategic Approaches to Address the Risks
Shell Nigeria has to address the legal risk and can employ different approaches. The following are some of the strategic options for management of environmental legal that Shell Nigeria faces:
Identification – Shell Nigeria should do extensive studies to understand the likely impact of the processes. Since the company understands the limits of its operations, it means that it is possible to analyze the entire environment related productions and consequences and implement measures that can address problems (Frynas, 2000). The identification process whether it is viable to implement the project and the consequences if the project fails (Shell Nigeria, 2017). It also enables identification of measures that may be employed in ensuring the threats and risks are minimized.
Review and analysis of the risk should be a continuous process to ensure weaknesses are identified in advance and corrective measures implemented (Njidda, Hassan & Olatunji, 2013). Since the legal risks have been identified, it is possible to create and implement measures that ensure risks are minimized or avoided (Okonta & Douglas, 2003). For example, if the issue identified is vulnerable in certain areas of the pipeline, the company may increase security or frequent checking of the areas to ensure linkages are minimized (Ehinola, Oluwajana & Nwabueze, 2012). If the current practices of legal risk monitoring and corrective are not effective, alternative approaches can be employed.
Prevention – Prevention is the most important strategic approach that Shell Nigeria should employ (Shell Nigeria, 2017). Shell Nigeria has to analyze the processes involved in exploration and production, and transportation of the oil and gas (Sekularac & Deutsch, 2013). Understanding these numerous processes is important since Shell Nigeria can employ preventive and corrective measures depending on the situation and circumstances (Oluduro, 2015). Risks are unavoidable meaning the solution is the implementation of corrective measures. For example, if the problem is oil linkages, the company should use quality materials and engage with the people who drill holes on the oil pipelines. The management of Shell Nigeria has to engage and adhere to the different requirements in the operating environment (Njidda, Hassan & Olatunji, 2013). It includes engaging with stakeholders and involving the stakeholders in implementing strategic requirements. For instance, the environment affects numerous stakeholders meaning engaging with these stakeholders are important in preventing problems and complications.
Mitigation is integral to any organization, and it is important for an organization to frequently carry out different risk assessment management (Ehinola, Oluwajana & Nwabueze, 2012). Risks and accidents are sometimes unavoidable meaning mitigation measures are important. The mitigation processes are important depending on the nature of the risk, and potential outcome (Okonta & Douglas, 2003). For example, if it is a contamination problem, the company can compensate the community (Ite et al. 2013). Shell Nigeria should also engage the community and other stakeholders in the right strategies to mitigate the environmental issues (Oluduro, 2015). It means that a collective approach should be employed in addressing issues through owning the problem or implementing measures to correct the shortcomings.
Avoidance is a tough decision to take or make. The organization has to analyze and review the different processes, which affects the overall requirements of the organization (Sekularac & Deutsch, 2013). Shell Nigeria should collect information and data that apply to the situation and use the information to make informed choices. Shell Nigeria has to make the choices depending on the wider impact of the project (Frynas, 2000). If the consequences of the project are negative, the company may decide not to pursue the project. Moreover, alternative approaches should be considered to ensure the threat to the environment is avoided.
These different approaches are important when viewed from the perspective of cost-benefit analysis. Implementing these strategic requirements is crucial in reducing costs while gaining numerous benefits. Even though the requirements of an organization are profitability, it is important to consider the social and environment requirements. A sustainable framework is important and weighing the benefits of implementing appropriate measures is important compared with costs.
The most appropriate approach is prevention and protection of the environment. The company has an extensive understanding of the market including the different challenges that Shell Nigeria faces. Implementing a prevention strategy would cement the position of the company and create a positive image for the community and society (Okonta & Douglas, 2003). The company should implement different measures to ensure the environment is protected and include quality assurance and effective management frameworks (Oluduro, 2015). For example, routine maintenance is important and crucial in reducing accidents and related problems. It means that the organization has to implement prevention measures such as using quality materials and labor reducing chances of risks.
A preventive approach is important because collaborative and participative strategies are important in addressing the environmental concerns (Gutti, Aji & Magaji, 2012). The inclusion of different stakeholders means that problems can be identified in advance and measures implemented to prevent the risk (Frynas, 2000). It means collaborative frameworks and engagement with the community is paramount because of the ability to create understandable and appreciative coexistence (Sekularac & Deutsch, 2013). Shell Nigeria can collect information from the community; engage with different stakeholders resulting in the implementation of long standing strategies (Ite et al. 2013). For instance, pollution sometimes is unavoidable and compensating the community is one of the approaches to prevent the issue from worsening.
Royal Dutch Shell Company has been in operation since 1907 and has opened numerous subsidiaries across the world including the Shell Nigeria that was established in 1937 and started exporting oil in 1958. The activities Shell group of companies operate include exploration, production, and transportation of oil and gas products. The management, relationship and legal governance are integral to the success of the company. Numerous processes and activities are implemented to ensure Shell Nigeria upholds the requirements of the legal framework. For example, incorporating the numerous laws and standards into the operational requirements means that Shell Nigeria can operate effectively. Conflicts and misunderstandings are unavoidable, but Shell Nigeria has incorporated numerous frameworks to address the problem. In fulfilling its organizational and management obligations, Shell Nigeria has to adhere to numerous regulations and legislations including the Petroleum Act, The Oil and Gas Pipelines Regulations and Oil Pipelines Act, Nigerian National Petroleum Act, Deep Offshore and Inland Basin Production Sharing Contracts Act, Federal Environmental Protection Agency Act of 1988 (FEPAAct), and Environmental Impact Assessment Act of 1992 (EIA Act) among others. These numerous legislations are aimed at ensuring the needs and requirements of other stakeholders are considered and integrated into the operational objectives. Risks are unavoidable, and numerous legal risks face Shell Nigeria. These risks originate from the market, credit, operational, geological, environment, political and organizational, individual risks. However, the risks that impact Shell Nigeria the most is an environmental related risk. The environmental risks in legal perspective include not observing the legislations on environment protection, environmental pollution and contamination, changes of ligation, and liability related complications. Shell Nigeria has to implement numerous processes and strategies in ensuring the company is not exposed to these risks or addressing the risks appropriately. Some of the strategies include mitigation, prevention, identification and implementing corrective actions. However, the recommended approach is risk prevention because Shell Nigeria can formulate and implement numerous measures to prevent the risk from occurring. Some of the approaches that may be employed include effective risk assessment and risk management processes. These approaches are important because it reduces the wider impact of risks to an organization and the environment and community.
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