Royal Dutch Shell plc (ADR) (NYSE:RDS.A) continues to make the tabloids. This time, a concoction of issues from different geographies threatens the company’s present image and future performance: settlement in Nigeria, an economic sanction in the US, and the death of a worker in Ireland. The first two issues will be mediated by the court shortly, most likely ending in an economic settlement. But, the death of the worker remains a mystery and the first measure taken in relation to the incident is the suspension of work on the gas project. However, I suspect that consequences will be of greater impact in the long-term.
Even though the company admitted responsibility for the greatest oil spill in Nigeria’s history, its impact remains a hotly contested issue. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) argues the settlement should be calculated based on the amount of oil lost –around 4,100 barrels. Opposite, the claimants argue the spill amounted to 500-600K barrels. The area affected totals 35 square miles, including the Bodo lagoon and its associated waterways, 31K inhabitants distributed among 35 villages, and 15K fisherman. Hence, what is at stake here can be a great share of future revenues and current cash reserves. On its favor, political instability and militant disruption of oil pipes have incremented the damage.
The other issue concerns the EPA and exploration done in Alaska. Shell has been found guilty of violating the Clear Air Act by exceeding permitted emission levels. The company has so far agreed with US authorities to pay $1 million in penalties for the violation made by two of its exploration ships. However, loses are not fully reflected by the sum as the firm has already wrestled against public opinion and countless lawsuits before starting exploration. Also, the company has spent over $50 billion in offshore leases and equipment, and further operations had to be halted as safeguard material was damaged.
Last, over the last weekend a sub-contractor suffered a deadly blow to the head when working at an underground tunnel in Ireland. The tunnel is part of the Royal Dutch Shell plc (ADR) (NYSE:RDS.A)’s Corrib gas project that will see operations frozen for some time now. The repercussion from this awful event is yet to be assessed. The economic settlement with the family of the defunct may be small for the company. However, economic losses as the project stand stills will be of greater impact on overall performance.
Disclosure: Jodor Jalit holds no position in any stocks mentioned