Our role in $1.09bn Malabu Oil mess – Shell

Mutiu Sunmonu, Shell MD31 July 2013, Lagos – Shell Nigeria Ultra Deep Limited, SNUD, is in the centre of the Malabu Oil deal, for which it is being investigated by the British police. The Nation has obtained documents filed at the International Centre for Settlement of Investment Disputes.

The controversy over the $1.092, 040,000 Malabu Oil deal continues with one of the parties, Shell Nigeria Ultra Deep Limited (SNUD) opening up on how it acquired 40 per percent equity in Oil Prospecting Licence, OPL, 245 in 2000.

The company insisted that it followed due process and consulted with relevant officials in the administration of ex-President Olusegun Obasanjo.

It also claimed that it received verbal assurances from the then Vice-President Atiku Abubakar that there was no objection from the Federal Government to Shell acquiring an interest in OPL 245.

It attributed the current crisis to the withdrawal of the allocation of OPL 245 to Malabu in July 2001 and how Obasanjo allegedly made a u-turn on March 25, 2002 leading to threats of legal action from Malabu Oil and Gas.

Shell admitted that the revocation of the oil block was shocking as “no explanation was given”. The Anglo-Dutch firm said it paid $210million as signature bonus for the oil block and operates the block on a Production Sharing Contract, PSC, basis.

It said S$ 209 million of the $210million signature bonus had remained in an escrow account ever since and with accruing interest; it grew to S$231, 299, 884.04 as of February 2008.

These facts were contained in a Claimant’s Memorial filed by SNUD before the International Centre for Settlement of Investment Disputes.

A copy of the Memorial was exclusively obtained yesterday by our correspondent.

The memorial is expected to be tabled before the UK Police which has stepped into the investigation of the Malabu Oil deal.

The memorial said: “In 1998, during the Gen. Sani Abacha military regime, OPL 245 had been allocated to Malabu on behalf of the Ministry of Petroleum Resources by Mr. Dan Etete in his capacity as the then Presidential Adviser on Petroleum and Energy. Malabu was an indigenous Nigerian company, incorporated on 24 April 1999, with Nigerian shareholders, apparently for the purpose of petroleum prospecting.

“In March 2000, Malabu approached Shell within a farm-in proposal. Malabu was looking for an international oil company to take a 40% equity stake in the OPL 245 licence itself and ‘carry’ Malabu in developing the block i.e. the international oil company would take all the exploration and development risk by funding Malabu’s share of the costs (including the acquisition, exploration and development costs of the block) as well as its own.

“Those costs would then be recovered by the international oil company from Malabu’s share oil production.

“Malabu’s representative provided Shell with a technical information brochure relating to OPL 245 and copies of the letter of allocation of OPL 245 to Malabu dated 29 April 1998, a letter to the DPR attaching cheques in respect of the US$2m “down payment” of the signature bonus and other fees and a letter confirming that the allocation had not been withdrawn dated 9 March 2000.

“At that time, several other oil exploration and development licences allocated by the Abacha regime had been withdrawn by the new civilian Government of President Obasanjo.

“Shell made enquiries from the Assistant Director of the DPR, Mr. Andrew Obaje, on 31 March, 2000. He confirmed to Shell that OPL 245 had been owned by Malabu since April 1998 and was currently in good standing.

“Obaje told Shell that the FGN did not intend to revoke the allocation because Malabu had paid all the required fees and part (US$2.04 million) of the US$20 million signature bonus for the block. The map of allocated concessions obtained from the DPR also indicated that Malabu was the owner of OPL 245.

“Nevertheless, Shell decided to pursue negotiations with Malabu. On 4 October, 2000, Shell was approached by a new Malabu representative. He was known to Shell, because he had been employed as the Managing Director of Texaco in Nigeria until his retirement in mid-2000.

“Shell received verbal assurances from the then Vice-President of Nigeria that there was no objection from the FGN to Shell acquiring an interest in OPL 245.”

SNUD also released the details of its agreement with Malabu Oil and Gas.

The document added: “On 24 January 2001, Malabu and Shell executed a Heads of Agreement (“HoA”). The HoA set forth the major principles of agreement between Shell and Malabu regarding OPL 245.

“In the HoA, the parties ‘acknowledged that there (would) be …. other items of significance to be negotiated in final definitive commercial agreement(s) in connection with the transaction proposed (therein) (thereafter) referred to as the (“Definitive Agreements”)”;

“Malabu agreed to Shell holding a 40% interest in OPL 245 and being appointed contractor in respect of the licence, that Shell would pay, to and on behalf of Malabu, various amounts and that Shell would ‘carry’ Malabu.

“Once the HoA was finalised and signed, work began on the Definitive Agreements, which included:

“The Definitive Agreements were intended to govern the parties’ relationship for the duration of the OPL 245 farm-in.

“The Farm-In-Agreement was to provide the basis for the farm-in-agreement whereby SNUD would acquire a 40% interest in OPL 245, based on certain representations and warranties by Malabu, in return for making specified payments to or for Malabu.

“The OPL 245 Deed of Agreement was the actual instrument that would effect the assignment of a 40% interest in OPL 245 from Malabu to SNUD.

“The Operating Agreement was to define the parties’ respective rights and obligations in operating OPL 245 and in connection with OPL 245 itself.”

On how the disputes over the oil block came up, SNUD linked it to the withdrawal of the allocation of OPL 245 to Malabu.

Shell said: “On 6 April 2001, Shell delivered the signature bonus cheque in the sum of $17,960.000 and the Deed of Assignment and other Definitive Agreements, to Mr. Macaulay Ofurhie (Director of the DPR) and Mr. W.A Obaje (Assistant Director of the DPR) in person.

“Upon receipt of those items, Mr. Ofurhie acknowledged that OPL 245 was still in good standing and Mr. Obaje stated that the allocation was valid for ten (10) years from April 1998.

“On 12 April 2001, Shell learnt that Malabu had received a letter dated 9 April 2001 from the DPR granting OPL 245 to it, authorizing it to commence operations and confirming that the Deed of Assignment was due to be forwarded to the President of the Federal Republic of Nigeria(FRN) for approval early the following week.

“On 20 April 2001, Malabu told Shell that the DPR had confirmed that the conveyance of title had been signed by the President of the FRN and the Deed of Assignment would be approved very soon.

“Seven days later, on 27 April 2001, Shell was informed that the Deed of Assignment had been approved by the FGN and was for allocation at the DPR.

“On 24 may 2001, Malabu received the signed title deed of OPL 245 together with the co-ordinates of the licence area.

“However, in approximately mid-June, reports appeared in the Nigerian press suggesting that –notwithstanding the assurances Shell had received from Malabu and the results of its own due diligence-certain individuals whose names were not contained in any official records were claiming an interest in Malabu and/or OPL 245.

“In early July 2001, Shell received news that the FGN had withdrawn the allocation of OPL 245 to Malabu.

The Federal Government’s letter of withdrawal of July 2, 2001 stated that: “I, (the Director of Petroleum Resources) have been directed to inform you that the allocation of OPL 245 to Malabu has been withdrawn and the issued title deed has been revoked. You are therefore required to return the title deed of the block in your possession to the Department of Petroleum Resources please”.

“The FGN’s revocation was a shock to Shell as no explanation was given but Shell continued to hope that Malabu (together with Shell’s assistance) could reverse the FGN’s revocation. Shell did all it could do to assist Malabu to reverse the FGN’s decision.

“Shell heard no more substantive developments until 19 February 2002 when Malabu representative informed Shell that he was still confident that things were on the right track at all levels in FGN.”

SNUD gave further insights into how Obasanjo made a u-turn on the oil block and Malabu Oil and Gas threatened legal action.

It said: “On 25 March 2002, a Shell representative was suddenly and unexpectedly summoned to meet with President Obasanjo in Abuja the following day.

“Chief Olusegun Obasanjo (the President of the FRN), Mr. Obaseki, Mr. Kayode Are (the Director General of the State Security Service), Mr. Funsho Kupolokun (Special Assistant to the President of the FRN on Petroleum Matters) and a representative from ExxonMobil were all present.

“At the meeting, the President of the FRN informed Shell and ExxonMobil that OPL 245 would not be returned to Malabu and that Shell and ExxonMobil would instead be invited to bid competitively not for the role of licence-holder (as Malabu had been) but rather for the role of contractor for OPL 245 with NNPC holding the licence.

“The President of the FRN said there was to be a simple and transparent competitive bidding procedure whereby Shell and ExxonMobil would submit sealed bid containing a proposed signature bonus and the highest bid would win the right to develop the block in accordance with the terms of a PSC. (As noted above, very few oil and gas companies had the experience in drilling in “ultra –deep” water, Shell and ExxonMobil being two).

“On 7 April 2002, Shell received a formal invitation to bid, dated 5 April 2002, together with the Guidelines for Competitive Bidding on Block 245 from the Office of the Special Adviser to the President on Petroleum Matters.

“Shell learnt that, following the invitation to bid, Malabu wrote directly to the FGN on 9 April 2002 threatening to commence legal proceedings.

“In response to that threat, on 29 April 2002, the Office of the Presidential Adviser on Petroleum and Energy wrote to Shell to confirm that: The Federal Government has revoked the prior award of this block to Malabu oil and Gas Limited.

“The decision to revoke the award was made solely in the best interest of the Federal Government in reliance on its rights under law and without any influence from your company or its affiliates or anyone else.”

Further to Federal Government ’s letter, on May 6, 2002, Shell wrote to Malabu setting out its position as to the frustration of the HoA and the Farm-In-Agreement and also giving notice of termination of both agreements.

“On 13 May 2002, Shell submitted its bid for the role of Contractor for OPL 245 on the basis of a PSC to which NNPC was the contractual counterparty

“On 23 May 2002, the Ministry of Petroleum Resources wrote to SNUD to confirm that it had been successful with its bid. The letter stated that:

“The allocated block would be operated on a “Production Sharing Contract” (PSC) basis. The Nigerian national (sic) Petroleum Corporation shall be the Concessionaire, while your company shall be the contractor”.

“The PSC was executed and approved by the Presidential Advisor on Petroleum and Energy for and on behalf of Minister of Petroleum Resources, on 22 December 2003.

“Under the terms of the PSC, SNUD obtained the “exclusive right” to conduct Petroleum Operations (i.e. the winning or obtaining and transportation of petroleum or chargeable oil in Nigeria by drilling, mining, extracting or other like operations and all operations incidental thereto and any sale of or any disposal of dischargeable oil) in the area of OPL 245 for a period of 30 years.

“The conditions of the approval were that SNUD would act as contractor, pay a signature bonus of US$210 million and operate the block on a PSC basis with the NNPC as concessionaire and SNUD as Contractor.

Shell disclosed that it had so far invested $535.9 million in the controversial oil block.

“Following the execution of the PSC with NNPC, SNUD undertook major work and incurred substantial expenditure in connection with OPL 245.

“SNUD paid the signature bonus of US$ 210 million in December 2003. SNUD paid $1 million via bank draft on 23 December 2003. SNUD paid the remaining US$ 209 million into an escrow account pursuant to an Escrow Agreement with the FGN (as represented by the Ministry of Finance) and JP Morgan Chase which was signed on 22 December 2003.

“The total amount incurred in developing OPL 245 amounts to over $535.9 million. SNUD has borne all the risks attendant upon the exploration and appraisal of the OPL 245 area.”

– The Nation

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