Shell’s controversial one-billion oil deal

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Oil, power and corruption in Nigeria. What else is new, one might ask. But the OPL 245-affair is comprehensive, even for Nigerian standards. At the heart of the matter is oil field 245. With a surface of 1958 square kilometers it holds a quarter of all Nigerian oil reserves that are known to date. That is equal to 9,23 billion barrels, enough to power the entire continent of Africa for seven years. A lot of oil. And the field is out at sea, so it is less vulnerable for theft and sabotage than oil rigs on Nigerian land. The field has changed ownership many times since its discovery and was the subject of lawsuits and secret deals, the main characters of which move in the highest circles of Nigerian society. Shell played a key role.

How we wrote this story

This article was originally published in Dutch in January 2015. Only the last paragraph was updated when this English version was published.

The article is based on several anonymous interviews and public documents, including court judgements and notes of discussions in the Nigerian parliament. We also were able to read an internal report by the investigatory and prosecution agency of Nigeria EFCC.
In addition to Shell we asked ENI, a spokesperson for president Goodluck Jonathan and Dan Etete to comment. They chose not to do so.

‘It was based on a highly flawed ‘resolution agreement’ […] the resolution agreement seded away our National Interest and further committed Nigeria to some unacceptable indemnities and liabilities while acting as an Obligor’, is how the Nigerian parliament appreciated the 18 February 2014 deal that awarded the license for oil field 245 to Shell and Italian oil and gas company ENI. Parliament proposed to repeal the agreement and reprimand Shell and ENI for their lack of transparency in making the deal.

Shell’s Dutch spokesperson insists the company sees no harm. “Shell companies have always abided by Nigerian law and the conditions set by the licensing agreement with the Nigerian government”, he says. “We are open and transparent about all payments made by Shell companies to the Nigerian government and how much they were.”

A minister giving himself an oil field
Back to the beginning. Oil field 245 was discovered in 1998 in the Golf of Guinea. At the time Nigeria was led by military dictator Sani Abacha – infamous for monumental corruption and human rights violations. His minister of oil was Chief Dan Etete, a self-made businessman always looking for ways to better his own personal finances. An opportunity presented itself after oil bloc 245 was found. Etete’s job included signing new oil licenses (OPL – oil prospecting licenses). On 29 April 1998 he signed OPL 245 to Malabu Oil and Gas, established five days before. Shareholders: Dictator Abacha’s son (Mohammed, 50%), the wife of Hassan Adamu, former Nigerian ambassador to the US (20%) and the non-existent Kweke Amafegha (a pseudonym that Etete uses occasionally for ‘international missions’).

No drilling without Shell
1999. Malabu owns an oil field, but it does not make Etete (by now the primary shareholder) any money. The company has zero employees, nor the ability to drill for oil in deep seas. Only a handful of oil companies in the world have the expertise to extract oil in ‘ultradeep water’. One of those companies is Shell. Minor setback: Malabu cannot officially work with Shell. Oil minister Etete signed OPL 245 to Malabu under the so-called Indigenous Exploration Program, meant to boost Nigerian businesses. One of the conditions is that it is ‘not allowed to set up a joint venture agreement with a foreign company that actively explores oil in Nigeria’. Shell has been active in the West African country for over fifty years. Even so, Malabu and Shell come to a deal in 2000. Shell will operate oil field 245 and gets 40 percent of the shares.

Wrangling over the license
A much larger issue for both Malabu and Shell is that the Nigerian government not only signs oil licenses at its will, it just as easily repeals them. Nepotism and self-gain determine who gets a license. Not two months after Etete appropriates OPL 245 to himself, dictator Abacha dies. His democratically elected successor Obasanjo initially lets Malabu keep OPL 245. According to Etete, that is thanks to vice president Abubakar, who tries to defend the interests of Malabu. In return Pecos, a company affiliated with Abubakar, receives shares in Malabu. But after a while, Abubakar wants more. It sets bad blood between Etete and Abubakar. In July of 2001 the Nigerian government repeals the license for oil field 245. Shell by then invested millions in the oil field, and wants the license back.

Shell by then invested millions in the field, and wants the license back

In May 2002 the license is given to Shell after a bidding round, only to be given back to Malabu in 2006, after many legal procedures. But Shell spent millions on the field. They want the money back. The multinational sues Malabu and the Nigerian government in Nigerian court. It also files a claim with the arbitration tribunal ICSID of the World Bank in Washington DC. CEO Jeroen van der Veer travels to Nigeria to look after Shell’s offshore interests. In this time of wrangling over the license, neither party can operate the oil field.

In 2010 former oil minister Etete is back on track. Goodluck Jonathan is the new president. He and Etete are both Christians from the Bayelsa-region in the Niger Delta, which creates a bond. The new attorney general Mohammed Bello Adoke is a good friend of Etete. Within two weeks of his appointment, president Jonathan appropriates OPL 245 back to Malabu and Etete. Presidential sources confirm that the president acts on the recommendation of Etete’s friend Adoke.

Etete wants to sell
Meanwhile, Etete decides to sell the license for oil field 245. Malabu still does not have the capacity or the expertise to extract oil from deep seas. And it never paid the signature bonus (the reimbursement for the government for obtaining the license – red.) worth 109 billion dollars. That is risky. If president Jonathan gets replaced by a less Etete-minded president, there is a real chance he will take back OPL 245 from Malabu.

Etete took bribes from foreign investors and bought a French villa

Malabu hires two consultants to facilitate the take-over of OPL 245: Russian Ednan Agaev and Nigerian Ameka Obi. Even though the value of the oil field is undisputed, there are no takers. That is partly due to Etetes bad reputation. He was sentenced for money laundering in 2007 and 2009 in France, after he took bribes from foreign investors and bought a French villa with the money. Another reason for the lack of interest is the fear of Shell and its stake in the oil field. ‘Nobody wants to be on the wrong side of Shell’, consultant Agaev says later. The multinational has spent dozens, if not hundreds of millions of dollars on oil field 245 (it will not say how much precisely). According to insiders Shell writes warning letters to investors who take an interest in the license. The letters scared off Russian company Rosneft and French Total.

The most logical deal, a take-over of OPL 245 by Shell, is not an option. It would be against the Code of Conduct of the multinational, which reads: ‘

Money laundering occurs when the proceeds of crime are hidden in legitimate business dealings, or when legitimate funds are used to support criminal activities. […] You must not knowingly deal with criminals, suspected criminals or the proceeds of crime.’ In short: paying a billion dollars for a license that a former minister gave himself in a dictatorship is out of the question.

A billion-dollar deal
There seems to be no way out. Then, all of a sudden, on 7 December 2011, news agency Reuters reports that OPL 245 is in the hands of Shell and the Italian company ENI. The deal was made on 29 April 2011. ‘Shell and ENI told Reuters that all the money for the purchase of OPL 245 was paid to the Nigerian government and not to Malabu.’ ‘No agreement was entered into by NAE (a subsidiary of ENI – red.) and Malabu Oil and Gas’ , ENI adds in a press release.

In reply to OneWorld’s question, Shell states: “Any payments with relating to the issuance of the license (for OPL 245 – red.) were made only to the FGN (Nigerian Government – red.). No payments were made by NAE or SNEPCo (a subsidiary of Shell – red.) to Malabu Oil and Gas.”

How can you take over a license without paying the owner? Through an intricate structure behind closed doors. Unfortunately for Shell and ENI, they did not take into account the antics of business partner Etete. The major shareholder of Malabu does not pay the agreed upon reward to fixers Agaev and Obi. Agaev sues Malabu and Etete in a New York court, demanding 66 million dollars. Obi files a case with the Commercial Court in England. Shell and ENI are not part of these legal proceedings. But dozens of emails and statements about their dealings with Etete and the Nigerian government end up in the open. Ageav and Obi use these documents to prove the amount of work they did to sell OPL 245 on Malabu’s behalf.

The agreement is constructed in a way so that Shell can make this statement without it being a blatant lie

Three agreements
The court judgements show that Shell and ENI indeed paid the money for OPL 245 to the Nigerian government, just like they have been saying. But what the oil giants neglect to mention is that the agreement is constructed in a way so that they can make this statement without it being a blatant lie. It seems that on that particular Friday in April 2011, not one but three agreements were signed.

  1. Agreement between the Nigerian government and Malabu, signed by the minister of oil and attorney general Adoke and two unknown employees of Malabu. ‘Malabu effectively surrendered the OPL Assets to the Nigerian government and agreed to settle and waive all claims of any interest in OPL 245’ in exchange for ‘a compensation by the Nigerian government for $’
  2. Agreement between de Nigerian government (FGN) & NNPC (Nigerian National Petroleum Corporation) and SNUD & SNEPCO (subsidiaries of Shell) & NAE (subsidiary of ENI). The Nigerian government assigns OPL 245 to SNEPCO and NAE in exchange for a payment of $ (!) and a signature bonus (to the government – red.) of 207 million dollars.
  3. A settlement agreement between Malabu and Shell (SNEPCO and SNUD) to resolve the ongoing legal proceedings between them.

But Shell’s involvement with the deal with Etete goes even further. Officials of ENI and Shell met Etete multiple times prior to the OPL 245-deal, in Lagos, The Hague and Italy. Executive director of ENI, Claudio Descalzi, has dinner with Etete and others in the exclusive Principe di Savoia hotel in Milan in February 2010. A Shell official has ‘lunch and lots of iced champagne’ with Etete, after which he wants to know how much Shell is willing pay for OPL 245.

Champagne with Etete
It was the Russian consultant Agaev who recommended using the three-tiered agreement, says an internal report by the investigatory and prosecuting government agency against corruption EFCC. ‘By the end of March 2011, the Nigerian government seems to have followed this suggestion.’ Attorney general Adoke presented it the same way during an ad hoc committee public investigative hearing. Under oath he stated that Shell ‘agreed to pay Malabu through the Federal Government acting as an obligor’. The Nigerian government was just a middle man. Shell was fully aware of the payments for OPL 245 ending up with Malabu and Etete, according to Adoke.

The minister that signed the license was working for Shell just months before

As stated, the three deals were made in April 2011. The transfer of OPL 245 however was only official after the minister of oil put his signature on the new license, which did not happen until December 2011. As it happens, a new minister of oil was appointed just before (mid-November): Osten Olorunsola. Before he was appointed, he was vice president Gas at Shell Upstream International. In April 2013 he is minister no more. Leaked embassy cables (confidential reports by American embassies to the American ministry of Foreign Affairs – red.) published by Wikileaks, show that Shell (in their own words) has people at all relevant Nigerian ministries. ‘We are meeting with them at all levels.’

A billion for Malabu
Shell and ENI paid over a billion dollars to the Nigerian government on 24 May 2011 through a trust account with JPMorgan Chase in London. Where is that money now? Because of the lawsuit of consultant Obi against Malabu, the British High Court freezes 215 million dollars on 3 July 2011. The remaining amount is wired to two Nigerian account in Malabu’s name on 16 August 2011. The transaction is coordinated by Etete’s friend attorney general Adoke and the Nigerian minister of finance.

“Malabu wired the money to five different mailbox companies that only exist on paper”, says Simon Taylor, director of Global Witness, a non-profit fighting for transparency. The companies include Rocky Top Resources Limited (336 million), A-Group Construction Company (157 million) and Novel Property and Development Limited (30 million). Shareholder in all these companies is one Abubakar Aliyu, a man called ‘Mr. Corruption’ by anti-corruption agency EFCC.

In the British lawsuit Etete said he had kept 250 million dollars from the OPL 245-deal. The remaining millions he invested on behalf of Malabu, he claimed. Malabu-shareholders decided to spend the money in a manner they see fit.

Criminal investigation in Italy
The prosecutors office in Milan is doing a criminal investigation into the acquisition of OPL 245, prosecutor Fabio Depasquale confirms to OneWorld. During the investigation however he does not wish to elaborate about the charges. Through other ways it was confirmed to us that the Italian justice department is investigating which role oil company ENI played in the deal with Malabu and Etete, and whether anti-corruption legislation was violated in doing so. ENI is an Italian company and 30 percent of the shares are owned by the Italian government. If the case goes to court any judgement will affect Shell, because they signed the exact same agreement with regard to OPL 245. If ENI is sentenced, the case will be used to bring Shell to court. So far there is no criminal investigation taking place in the Netherlands.

An investigation by the Italian prosecutor’s office (see box) shows that millions have been spent on private jets and limousines.

Bad news for Shell?
In January 2016, the Premium Times, the Nigerian online newspaper that broke the OPL 245-story back in 2014 and has been following it ever since, wrote that the Nigerian prosecutor’s office urges the new Nigerian president Muhammadu Buhari (who came into office in May 2015) to revoke the license and take back the oil field from Shell and ENI. He can do so by declaring the contracts that his predecessor Goodluck Jonathan signed null and void.

The prosecutor’s office also urged the government to fine Shell and ENI for 6,5 million dollars, because the deal violated several local and national laws. For one thing, an oil field in Nigeria can only be owned by a foreign company for a maximum of 40 percent.

The advice is yet to be officially given to the presidency, Premium Times wrote in February 2016, but vice-president Yemi Osinbajo (who is acting on this matter at this time) seemed to know about the recommendation. No formal reaction by the presidency is however known at this time. Premium Times also wrote that Shell was in the know of the recommendation and has started lobbying to prevent the government taking back OPL 245.

Is Shell still of the opinion that OPL 245 has been obtained in an ‘open and transparent’ matter, and that the deal does not pose any kind of threat to its shareholders? This is the question we posed to its Dutch spokesperson in June 2015. We did not receive a new answer. Part of the response which we had already received in January was just repeated: ‘Any payments relating to the issuance of the licence were made only to the FGN. No payments were made by NAE or SNEPCo to Malabu Oil and Gas.’

The quote on openness and transparency which was included in the previous statement has been omitted in this reply. The same counts for the quote that Shell has always and at all times operated within the Nigerian law.

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