Tag Archives: ENI

OPL 245: an Affair to Remember and Sanction

Nigeria has long ignited interest from oil firms, but it can be a dangerously combustible environment when it comes to the risk of corruption. Two firms caught up in scandals are Royal Dutch Shell and Eni, Italy’s state-backed energy group.

The case centres on the purchase of a big offshore oil field known as OPL 245, and touches the top ranks of both firms. In the dock will be, among others, Eni’s current CEO, Claudio Descalzi, and Shell’s former exploration chief, Malcolm Brinded. Also on trial are the firms themselves, charged with failing to prevent bribery. The individuals face jail if convicted; the companies face fines. All deny wrongdoing.

In 2011 Shell and Eni jointly paid the Nigerian government $1.3bn for OPL 245. Prosecutors allege they knew the government would pass $1.1bn of the funds to a shell company called Malabu, controlled by Dan Etete, a former oil minister. They claim the companies had reason to believe Mr Etete would use much of what he received to pay off officials, including Nigeria’s president at the time, Goodluck Jonathan. They also suspect that more than $50m may have gone to Shell and Eni executives as kickbacks. Mr Jonathan has denied involvement. Mr Etete faces charges in Nigeria; his whereabouts are unknown…

International investors are particularly vexed about the alleged involvement of Shell, a blue-chip oil major. In 2017, after e-mails were leaked, it admitted that executives had known that much of the purchase price would go to Mr Etete, a convicted money-launderer. In the e-mails, they speculated that funds might flow on to Mr Etete’s political friends. One investor says that Shell, by emphasising for so long who the contract was with, not where the money was going, honoured the letter but not the spirit of good governance—“and that’s not good enough anymore”.

Excerpts from The OPL 245 Affair: Drillers in the Dock, Economist, Mar. 3, 2018

Shadow Oil Deals: governments as condoms between oil companies and shells

opl245 nigeria

Deals for oilfields can be as opaque as the stuff that is pumped from them. But when partners fall out and go to court, light is sometimes shed on the bargaining process—and what it exposes is not always pretty. That is certainly true in the tangled case of OPL245, a massive Nigerian offshore block with as much as 9 billion barrels of oil—enough to keep all of Africa supplied for seven years.

After years of legal tussles, in 2011 Shell, in partnership with ENI of Italy, paid a total of $1.3 billion for the block. The Nigerian government acted as a conduit for directing most of that money to the block’s original owner, a shadowy local company called Malabu Oil and Gas. Two middlemen hired by Malabu, one Nigerian, one Azerbaijani, then sued the firm separately in London—in the High Court and in an arbitration tribunal, respectively—claiming unpaid fees for brokering the deal.

The resulting testimony and filings make fascinating reading for anyone interested in the uses and abuses of anonymous shell companies, the dilemmas that oil firms face when operating in ill-governed countries and the tactics they feel compelled to employ to obfuscate their dealings with corrupt bigwigs. They also demonstrate the importance of the efforts the G8 countries will pledge to make, at their summit next week, to put a stop to hidden company ownership and to make energy and mining companies disclose more about the payments they make to win concessions. On June 12th the European Parliament voted to make EU-based resources companies disclose all payments of at least €100,000 ($130,000) on any project.

The saga of block OPL245 began in 1998 when Nigeria’s then petroleum minister, Dan Etete, awarded it to Malabu, which had been established just days before and had no employees or assets. The price was a “signature bonus” of $20m (of which Malabu only ever paid $2m).

The firm intended to bring in Shell as a 40% partner, but in 1999 a new government took power and two years later it cried foul and cancelled the deal. The block was put out to bid and Shell won the right to operate it, in a production-sharing contract with the national petroleum company, subject to payment of an enlarged signature bonus of $210m. Shell did not immediately pay this, for reasons it declines to explain, but began spending heavily on exploration in the block.

Malabu then sued the government. After much legal wrangling, they reached a deal in 2006 that reinstated the firm as the block’s owner. This caught Shell unawares, even though it had conducted extensive due diligence and had a keen understanding of the Nigerian operating climate thanks to its long and often bumpy history in the country. It responded by launching various legal actions, including taking the government to the World Bank’s International Centre for the Settlement of Investment Disputes.

Malabu ploughed on, hiring Ednan Agaev, a former Soviet diplomat, to find other investors. Rosneft of Russia and Total of France, among others, showed interest but were put off by Malabu’s disputes with Shell and the government. Things moved forward again when Emeka Obi, a Nigerian subcontracted by Mr Agaev, brought in ENI (which already owned a nearby oil block). After further toing and froing—and no end of meetings in swanky European hotels—ENI and Shell agreed in 2011 to pay $1.3 billion for the block. Malabu gave up its rights to OPL245 and Shell dropped its legal actions (see timeline).

The deal was apparently split into two transactions. Shell and ENI paid $1.3 billion to the Nigerian government. Then, once Malabu had signed away its rights to the block, the government clipped off its $210m unpaid signature bonus and transferred just under $1.1 billion to Malabu.  Tom Mayne of Global Witness, an NGO, has followed the case closely; he believes things were structured this way so that Shell and ENI could obscure their deal with Malabu by inserting a layer between them. Mr Agaev, Malabu’s former fixer, lends weight to this interpretation. It was, he says, structured to be a “safe-sex transaction”, with the government acting as a “condom” between the buyers and seller.

Oil companies in emerging markets: Safe sex in Nigeria, Economist, June 15, 2013, at 63

Fictitious Deals: Who Pays for the Unregulated Oil Market

futures market oil

The European Commission declared that it feared oil companies had “colluded” to distort benchmark prices for crude, oil products and biofuels. Royal Dutch Shell, BP, Norway’s Statoil and Italy’s ENI  all said that they were co-operating with the commission. The competition authorities also called on the London offices of Platts, a subsidiary of McGraw Hill, an American publisher and business-information firm, which sets reference prices for these commodities.

The volumes of oil and products linked to these benchmark prices are vast. Futures and derivatives markets are also built on the price of the underlying physical commodity. At least 200 billion barrels a year, worth in the order of $20 trillion, are priced off the Brent benchmark, the world’s biggest, according to Liz Bossley, chief executive of Consilience, an energy-markets consultancy. The commission has said that even small price distortions could have a “huge impact” on energy prices. Statoil has said that the commission’s interest goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

The authorities are tight-lipped about their focus, but they seem to be examining the integrity of benchmark prices. Each day Platts’s reporters establish a reference price by following the value of public bids and offers during a half-hour “window” before a set time—4:30pm in London, for example. This “Market-on-Close” (MOC) method is based on the idea that using published, verifiable deals to set the price is more reliable than having reporters ring around their pals, who might be tempted to talk their own books.  Platts keenly defends the MOC method. It points out that it ignores bids, offers and deals that are anomalous or suspicious. “We are not aware of any evidence that our price assessments are not reflective of market value,” it says, before declaring that it stands behind its method.

Yet such price-setting mechanisms have come in for criticism. The International Organisation of Securities Commissions (IOSCO), a grouping of financial regulators, said last year that the potential for false reporting “is not mere conjecture.” Total, a French oil giant…told IOSCO that benchmark prices were out of line with the underlying market “several times a year”.

Nobody knows what, if anything, the present investigation will find. The authorities should be scouring firms’ books for trades within the half-hour window that are offset in the futures markets. Perhaps they will find deals used in Platts’s assessment that are quietly unwound by the oil companies in private. They should also check shipping registers to see that cargoes have actually changed hands, or whether deals are fictitious. If any of these tricks could distort the benchmark by even a few cents, it might create a handy profit on contracts that are priced off it.

Oil consumers have been quick to rage at news of this week’s raids. The belief that oil companies rip off consumers is as unshakable as the idea that Rockefeller was good with money. “Our members…will be incandescent if what many have long suspected—that is price fixing—proves to be true,” said Robert Downes, of the Forum of Private Business, a British group that backs small firms. In fact, if there have indeed been price distortions, then these could as well have nudged prices down as forced them up—because oil traders make money on price movements, not just rises.

It is a complicated picture and the EU’s competition authorities are likely to take months or years before deciding whether they suspect any oil companies of having committed a crime. Meanwhile, a reform of the oil markets is unlikely to come anytime soon. Despite IOSCO’s fears of price distortion, it backed away from recommending changes—after fierce lobbying from the industry.

Trading in oil: Libor in a barrel, Economist,, May 18, 2013, at 77

Mining the Oil Sands of Congo, ENI. More of the Resource curse?

Italian oil major Eni will launch a pilot of its estimated 500 million and 2.5 billion barrels reserves of recoverable oil sands project in the Republic of Congo, Eni’s chief executive said Thursday (Oct.6, 2011).”Eni-Congo’s great future project for Congo is the oil sands. We have put in place a small pilot which will start next year,” Paolo Scaroni said after meeting Congo’s president Denis Sassou N’Guesso on Thursday in Brazzaville. Eni signed a deal in 2008 with the government of Congo to explore and develop the oil sands field with a surface area of about 1790 square km, in the south of the oil-producing Central African nation. Eni had said it planned to invest 3 billion in the project over the four-year period from 2008-2011. The project has however drawn under criticism from environmental groups which warned that exploiting the non-conventional oil in tar sands could destroy Congo’s rainforest and bio-diversity. Scaroni said the Congo project will be carried out with respect to the environment. “All this will be done, taking into account the environment, which is the number one priority of our activity in Congo,” he said. Congo is one of sub-Saharan Africa’s top crude oil producers. Eni and French group Total and the main operators.

Eni to start Congo pilot oil sands project in 2012. Reuters, Oct 6, 2011

Resource curse