Shell Docked As Nigerian Oil Community Wins Court Judgment in The UK

Oil & Gas
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Monday, May 13, 2019    / 7:00PM / By TheAnalyst /Header Image Credit: Shell Nigeria


Shell Petroleum Development Company of Nigeria Limited, Shell International Company Limited and Shell International Exploration and Production BV, have had a judgement registered against them in a  court case in the United Kingdom reaffirming the judgment of the Federal High Court (FHC) Asaba Division in Nigeria concerning the compensation due to the Ogoni community of Ejama Ebubu, as judgment creditors, in a suit filed at the High Court of Justice, Queens Bench Division in the United Kingdom.

 

The judgment awarded the community the sum of roughly N183bn in line with the judgment given by an Asaba, FHC, on the 14th June 2010. It will be recalled that in 1970 an oil spill occurred that affected 255 hectares of arable farm land in the Ejama-Ebubu community in the Tai-Eleme part of Rivers State which adversely affected fishing livelihood, farming activities and communal health of the local area. In July 2010 the Federal High Court in Asaba set damages against Shell Petroleum Development Company of Nigeria Limited, SPDC, in the region of N15.4bn (or about $43 million at current NAFEX rate of N360/$).

 

The recent judgment amidst pre-existing adverse claims and orders against the Anglo- Dutch giant, Royal Dutch Shell, raises fresh claims with the registering of judgment in the sum of N182.7bn against the three defendants all subsidiaries of the conglomerate based in Nigeria, UK and the Netherlands. The new judgment registered by the Queen’s Bench Division in February 2019 follows protracted litigation which commenced in the FHC Port Harcourt and went all the way to the Supreme Court.

 

The local environment green case had dragged on for 29 years before the Supreme Court in February 2019 in a ruling upholding earlier FHC judgments ordered that the community be paid a total judgment debt of N134bn ($372.2m by Shell). This is about 16% of Royal Dutch Shell’s Net Income of $23.91bn for 2018.


 

Table 1 Royal Dutch Shell (RDSA) Q1 Revenue/Income

Royal Dutch Shell (RDSA)

 

Q1 2019 Result (GBp 'bn)

Q1 2019 Result (GBp'bn)

·         Revenue

64

·         Net Income

5

·         Profit Margin

7.17%

Source: Royal Dutch Shell Quarterly Report 2019 

 

The fresh UK Judgment is likely to compound Shell’s challenges with judgment debts across the globe and in Nigeria, given the size of its contingent liabilities and their potential effects of compressing the Group’s FY 2019 profit before tax (PBT)

Royal Dutch Shell (RDSA) currently trades at a market price of GBp2, 447.50 on the London Stock Exchange (LSE); since Q2 2018 the Group’s quarter-on quarter net income has remained flat at GBp5bn. This suggests that if the 2018 trend persists in 2019 the company would likely post a net income of GBp25bn but this could fall considerably if judgment debts in line with IFRS9 rules are charged against its 2019 profit and loss account.   


Chart 1 Royal Dutch Shell Net Income (2015-2018)

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Source: Royal Dutch Shell Annual Accounts 2015-2018


These contingent concerns may not have been priced-in with the Oil Group’s price earnings ratio (P/E) of 11.17; one year return of -3.67%, and a twelve month trailing earnings per share (EPS) of GBp2.84. Recent contingent concerns may underline a bearish trend in the stocks London price as investors begin to charge a ‘green discount’ to accommodate fears over judgment debt outflows.


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