Campaigners call on Shell to stop lobbying against new transparency laws
Royal Dutch Shell’s involvement in a deal which saw $1.1bn diverted into the hands of a former Nigerian oil minister could see the company lose a valuable oil block, says Global Witness.
The deal for oil block OPL 245 off the coast of West Africa is being investigated by authorities in the UK, Italy and Nigeria.[1]
The Nigerian House of Representatives called for the deal to be cancelled, condemning Shell’s lack of transparency and describing the deal as “contrary to the laws of Nigeria.”[2]
According to a Nigerian House of Representatives report[3], the block was estimated in 2003 to hold “proven reserves” of 447 million barrels, while a more recent study cited in the same report claims that OPL 245 could contain “probable” reserves of as much as 9.23 billion barrels.
While none of these figures have been confirmed by the company, the block would appear to be of considerable future value. Shell and Eni each own 50% of the block, and are likely to have invested hundreds of millions of dollars in the developing it[4]. The offshore asset could be a significant growth project for Shell as it exits from some onshore leases in the Niger Delta.[5]
“Investors need to know what’s at stake. This deal is being investigated in several countries and there’s a threat of cancellation. Secret payments and shadowy deals are not just bad for people in developing countries, they’re bad business,” said Brendan O’Donnell, Oil Campaigner at Global Witness.
The 2011 deal saw subsidiaries of Eni and Royal Dutch Shell agree to pay US$1.1billion for OPL 245. The money was paid by Eni and Shell to the Nigerian government, which then paid the same amount to Malabu Oil and Gas, owned by former oil minister Chief Dan Etete.
Shell and Eni have denied paying money to Malabu. Indeed they paid the money to the Nigerian government. However court evidence has revealed that Shell knew that the payment was going to Malabu and had negotiated directly with Etete over “iced champagne”.
Etete had awarded the oil block to his own company when he was oil minister under corrupt Nigerian dictator Sani Abacha. In effect, he gave himself one of the most valuable oil blocks in Nigeria and, with this deal was now cashing in.
The details of the deal were undisclosed until middlemen who acted for Malabu, sued for unpaid fees in London and New York. Evidence in the court cases between the middlemen and Malabu revealed the exact payments and arrangements between the parties and showed that the Nigerian government effectively acted as a “straw man”[6]. The High Court in London made a finding of fact that Etete was a real owner of Malabu[7].
At the time the deal was agreed, Shell was subject to a deferred prosecution agreement with US authorities which required the company to conduct high standards of due diligence following a previous Nigerian corruption case[8].
Global Witness is asking Shell executives to tell shareholders what they knew about Etete’s ownership of Malabu, to reveal the role of Shell executives in the construction of the deal, including their meetings with Etete and his representatives, and to stop lobbying to weaken laws in the US and EU that require these sorts of payments to be made public.[9]
“There can be few better examples of why transparency is needed in the oil sector than this deal. Over a billion dollars has been lost to the Nigerian people, and Shell could lose a chunk of its future business in Africa. So why is it lobbying to weaken laws that would stop this happening?”, said O’Donnell. “Investors should know about the risks the company is taking and citizens should be able to follow money paid for their natural resources. Otherwise money that should go to health and education can end up in the wallets of crooked ex-ministers and who knows who else?”[10]
Infographics:
'What Nigerians could have done with $1.1bn?' - Available here: http://www.globalwitness.org/shellagm/
Contacts:
At Shell’s AGM in The Hague, – Barnaby Pace, Oil Campaigner, +447969295078
London – Brendan O’Donnell, Oil Campaign Leader, +44(0)7912517128
Notes to editors:
[1] In March 2014 it was reported that Italian prosecutors in Milan are investigating ENI’s role in the OPL 245 deal. The UK’s Proceeds of Corruption Unit has also confirmed that it is investigating allegations of money laundering related to the oil block. Following a complaint in February 2012 by Mohamed Sani Abacha (son of former President Abacha) and Pecos Energy limited the Nigerian Economic and Financial Crimes Commission began investigating Malabu Oil and Gas and the OPL 245 deal; Wall Street Journal, 22 July 2013, “UK Investigates Money Laundering Allegations Relating to Nigerian Oil Block”, http://online.wsj.com/article/BT-CO-20130722-706581.html; Sahara Reporters, 19 March 2014, “Oil Block “OPL 245” Fraud : Italian Police Launch Probe Into How President Jonathan And Cronies Shared Controversial Oil Block Funds”, http://saharareporters.com/news-page/oil-block-%E2%80%9Copl-245%E2%80%9D-fraud-italian-police-launch-probe-how-president-jonathan-and-cronies-s; Report by the Ad-Hoc Committee on the transaction involving the Federal Government and Shell/AGIP companies and Malabu Oil and Gas Limited in respect of the sale of oil bloc OPL 245, 9 July 2013
[2] On 18 February 2014 the Nigerian House of Representatives voted on the recommendation of an investigation into the deal, calling for the deal’s cancellation and criticised the deal for being contrary to the laws of Nigeria, committing the country to unacceptable indemnities and liabilities while acting as an obligor, ceding away the Nigerian national interest and censured and reprimanded Shell and Eni’s subsidiaries for their actions; House of Representatives Federal Government of Nigeria, Votes and Proceedings, 18 February 2014, p994
[3] Nigeria’s House of Representatives found that a figure of 447 million barrels of proven reserves was used to construct Shell’s 2003 production sharing agreement for OPL 245. However they also noted that a more recent study, conducted in 2007 put the “probable” reserves (P50) at 9.23 billion barrels; Nigerian House of Representatives, Report by the Ad-Hoc Committee on the transaction involving the Federal Government and Shell/AGIP companies and Malabu Oil and Gas Limited in respect of the sale of oil bloc OPL 245, 9 July 2013, p64; Eni has also stated publicly that OPL 245 contains nearly 500 million barrels of already discovered oil; Eni SpA, October 6, 2011, “Exploration and Production Update Conference Call – Final”. More recent industry press figures cite a variety of figures, for example Upstream’s comment in 2011 about Shell’s partner Eni, “.. more importantly, the company is also eyeing a deep-water project in OPL 245 to exploit its Zabazaba and Etan discoveries, which are believed to hold about 550 million barrels of oil equivalent resources between them.” http://www.upstreamonline.com/hardcopy/features/article1217826.ece
[4] Shell may not yet have yet sanctioned the project nor booked reserves.
[5] Given that Shell owns half the rights to the block, even the lower estimate is equivalent to 34% of its current African oil reserves.. Shell states in its 2013 annual reports that its proven oil reserves for Africa are 651m barrels. This includes crude oil, NGL, synthetic crude and bitumen but excludes natural gas: http://reports.shell.com/annual-report/2013/supplements/oil-and-gas-unaudited/crude-oil-and-natural-gas-liquids.php. Estimates of the reserves values of OPL 245 from the Nigerian House of Representatives report do not appear to include natural gas reserves in OPL 245.
[6] In a US legal case the Honorable Bernard J. Fried described the Federal Government of Nigeria’s role in the deal as that of “the proverbial ‘straw man’”, who was “holding $1.1billion for ultimate payment to Malabu”. Order to Show Cause with temporary Restraining Order, “In the Matter of Arbitration between International Legal Consulting Limited and Malabu Oil and Gas Limited and J. P. Morgan Chase and Co and all of its subsidiaries and affiliates, including but not limited to JP Morgan Chase Bank, NA”, Supreme Court of the State of New York, County of New York,” Index no 651733/2011, 22 July 2011, p.10. Edwards, Angell, Plamer and Dodge on behalf of Malabu to Clifford Chance LLP, 15 July 2011.
[7] In the July 2013 UK High Court case of Energy Venture Partners Versus Malabu Oil and Gas, Lady Justice Gloster of the Queen’s Bench Division, Commercial Court ruled, “I find as a fact that, from its incorporation and at all material times, Chief Etete had a substantial beneficial interest in Malabu”, Approved Judgement, Case 2011 FOLIO-792 17 July 2013. The Nigerian House of Representatives investigation into the case also found Dan Etete is the 30% owner of Malabu. See also Global Witness, 25 November 2013, “The Scandal of Nigerian Oil Block OPL 245”, http://www.globalwitness.org/library/scandal-nigerian-oil-block-opl-245
[8] United States of America vs Shell Nigeria Exploration And Production Company Ltd., “Deferred Prosecution Agreement”, 4 November 2010, http://www.justice.gov/opa/documents/shell-dpa.pdf
[9] Shell is a leading member of the American Petroleum Institute (API) and supported the API’s October 2012 lawsuit that sought to overturn in its entirety Section 1504 of the Dodd-Frank Act, a U.S. transparency law that requires extractive companies to disclose payments such as for the OPL 245 oil block (see letter from Shell to Publish What You Pay, 13 May 2013: bit.ly/1mRvNwY). In its 2013 Revenue Transparency report, Shell states that it “actively advocates” for including a clause in the implementing rule for the U.S. Section 1504 law and in comparable EU legislation (the Accounting and Transparency Directives) that would exempt extractive companies from reporting payments in certain countries (page 1: bit.ly/1hhvRGf). Shell officials have had two meetings with senior SEC staff to discuss the Section 1504 rule since October 2013 (1.usa.gov/1lnVPbG).
[10] Federal Government of Nigerian, Budget Office, “2014 Budget Proposal”, http://budgetoffice.gov.ng/2014_budget_proposals/16.%20Summary_Health.pdf; The total Nigerian Health budget for 2014 is 262bn Naira or approximately $1.6bn