Tag Archives: shell

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

Nigeria Delta: Ogoniland’s oil damage

A landmark U.N. report on 50 years of oil pollution in Nigeria is unlikely to bring the change many had hoped for, after Shell and the national petroleum company went on the defensive and weary local communities said they had seen it all before.  The United Nations Environment Program (UNEP) report focused on the Ogoniland region and is the most comprehensive, scientific analysis in any area of the vast Niger Delta wetlands, the heartland of Africa’s largest energy industry.  The report offers evidence that operator Shell Petroleum Development Company (SPDC), a coalition between state-oil firm NNPC and Shell, failed to follow best practice, leading to serious public health issues.  The report laid out a detailed road map for the world’s biggest ever oil-spill clean-up, taking 30 years and cost an initial $1 billion, led by money from SPDC and the Nigerian government. The local communities are not holding their breath.  “The shelves are filled with reports … the fact that the devastation was caused by oil exploitation is something that all of us already knew,” said Ledum Mitee, president of the Movement for the Survival of Ogoni People (MOSOP).  “In our view, Shell has just been able to purchase, at huge cost and time, another four years of doing nothing, absolutely nothing, to clean the environment.”  UNEP produced the report, which was paid for by Shell, at the request of the Nigerian government.  MOSOP, led by poet and activist Ken Saro-Wiwa, forced Shell out of Ogoniland in 1993 after they said the oil giant had destroyed their fishing environment. Saro-Wiwa was later hanged by the military government, prompting international outrage.  Shell may not pump any oil from Ogoniland any more but its pipelines and production infrastructure still sit in the region and are subject to leaks and sabotage attacks.  In some areas pollution was at levels that needed emergency action with one community drinking water that was contaminated with benzene, a substance known to cause cancer, at levels over 900 times above the World Health Organization guidelines.  UNEP said in 10 out of 15 areas visited where SPDC said it had completed restoration, there was still serious oil-related pollution that didn’t meet Shell’s own best practice standards.  NNPC and Shell both said oil spills in the Niger Delta were a major problem but they always clean them up and the major reason for oil spills is thieves and saboteurs.

Sabotage attacks and gangs bunkering oil has been a serious problem in the Niger Delta for years, although an amnesty for militants in 2009 brought a halt to major attacks.  “The report, what’s new?” a spokesman for NNPC said. “There is no question of paying because we already clean up all the spills,” he said in reaction to the $1 billion proposal and comments made by UNEP that spills were not cleaned up.  Despite the lack of hope felt by many of the communities in the Niger Delta, the pressure of 50 years working onshore in Nigeria is telling on Shell, as the future of crude oil exploration increasingly spreads to deep offshore projects.  Last year it sold off four onshore oil blocks and it has said it is not targeting growth in Nigeria.  The company’s London-listed shares lagged rivals on Thursday after it emerged the company had accepted that a British court had jurisdiction in villager claims for compensation for damages caused by two oil spills from pipelines controlled by SPDC.  One source close to the case said the cost of cleaning up the spills and compensating those affected has been estimated by some experts at about 250 million pounds…..

Joe Brock, Analysis: Nigerian oil region’s gloomy outlook unmoved by U.N., Reuters,Aug 5 2011