19 May 2014

Nigeria: Shell's Nigeria Investments At Risk From Corruption Scandal, Investors Warned

press release

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]

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