Briefing Document / Feb. 23, 2012

Financial Times: US to probe Cobalt oil links in Angola

By Tom Burgis in London

US authorities have launched an investigation into Cobalt International Energy’s operations in Angola, where the Goldman Sachs-backed group is developing one of the world’s most promising oil frontiers.

Houston-based Cobalt said in a regulatory filing on Tuesday that US regulators had issued notice of a formal probe in November following informal discussions about allegations of ties between its local partner in Angola and senior government officials in the oil-rich southern African nation.

Cobalt’s shares rose by 38 per cent in a day earlier this month when it reported “extraordinary success” in drilling at one of the three blocks off the Angolan coast in which it is the operator and largest shareholder. The company’s current market capitalisation is $13bn.

The group, led by Joseph Bryant, a former head of BP’s Angolan exploration arm, has faced allegations that one of its junior partners in two of the blocks, Nazaki Oil and Gas, is linked to senior Angolan officials.

US authorities have in recent years brought high-profile prosecutions against energy groups operating in Africa under laws that prohibit the payment or offer of payment to foreign officials in order to win business.

Alerting its shareholders to the risk that the company might face liabilities under anti-corruption laws in the US, Cobalt said it was under investigation by the Securities and Exchange Commission, which handles civil cases, and the Department of Justice, which handles criminal cases. The SEC and DoJ declined to comment.

“We are fully co-operating with the SEC and DoJ investigations, have conducted an extensive investigation into these allegations and believe that our activities in Angola have complied with all laws, including the [foreign corrupt practices act],” Cobalt said.

Nazaki could not be reached for comment but Cobalt said in its filing: “Nazaki has repeatedly denied the allegations in writing.” Cobalt did not respond to requests for comment.

Goldman Sachs, the US investment bank, is Cobalt’s biggest shareholder, with a 19 per cent stake. It has two serving and one former executive on the energy group’s board. It declined to comment.

US private equity companies Riverstone, which did not respond to a request to comment, and First Reserve, which declined to comment, have similar stakes.

Some in the industry think deep offshore oil prospects in Angola – which has already established itself as a rival to Africa’s leading energy producers – have the potential to replicate the vast reserves discovered across the Atlantic off the Brazilian coast.

Last year Cobalt said it had become aware of allegations of connections between Nazaki and senior Angolan officials. It was contacted informally by the SEC in March.

A formal order allows the SEC to expand its inquiries by interviewing witnesses, obtaining records and other methods.

Cobalt holds a 40 per cent interest in blocks nine and 21 off the Angola coast. It was contacted informally by the SEC in March. Cobalt holds a 40 per cent interest in blocks nine and 21 off the Angola coast. It has said that Nazaki and another private local company, Alper Oil – which hold 30 per cent and 10 per cent in the two blocks of Cobalt’s three exploration blocks – were assigned to it as local partners by the Angolan government. State-owned Sonangol holds the remaining 20 per cent.

Asked by the Financial Times on Monday why the government appointed companies apparently lacking a track record in the industry to oil projects, Georges Rebelo Chicoti, Angola’s foreign minister, told an audience at London’s Chatham House think-tank that Angolan energy companies needed to gain experience. But he said foreign groups “are not obliged” to take designated local partners.

Cobalt, which also has oil projects in the Gulf of Mexico, made a net loss of $134m last year, it said on Tuesday, adding that it plans to sell 15.7m shares, worth about $500m at Tuesday’s share price, to fund capital expenditure.