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Shell Nigeria divestment plan hit by scandal

Friday, 20 May 2011 00:00 Olusola Belo

Shell’s plan to divest from its OML 40 has been engulfed in a scandal after it emerged that one of the prospective buyers of the oil lease, Vertex has petitioned the Petroleum minister, alleging irregularities in the sale process.

The company is alleging a complete lack of transparency by the Anglo Dutch oil giant which may have side tracked its own laid down procedure.

In the letter to the minister titled, “Urgent request for ministerial intervention – OML 40 divestment,” Vertex said, “the structure of the current divestment was hinged on a firm and final bid. However, the process was switched into selective auction in which some bidders were unaware of the changing rules.

“For example, while bidders for OMLs 30, 34 and 42 received letters asking them to formally submit new bids after the first round of bidding, such a request was not made on OML 40. However, our competitor, Elcrest, was allowed to submit a new bid slightly higher than the original bid from Vertex.”

According to the petition, “At the time they sent in new bids, the bid prices had been leaked and newspapers were publishing the numbers. When the issue of our competitor changing their bid came to light, we wrote a letter to Shell, however, there was no response on the issue of change in bid price.”

The company also alleged in the petition to the minister that, “It is widely known that proper due-diligence with regards to corruption and money laundering issues was not done on some of the principals in the buying entities or deliberately ignored.”

Vertex then called for the minister’s “kind intervention in this matter and to amongst other things, protect this indigenous company (Vertex) from injustice, consistent with current FGN policy, recent and pending legislation and demonstrate Nigeria’s commitment to transparency and best practices. This will restore the much needed investor confidence that this otherwise flawed process has eroded and continues to erode.”

Shell commenced the latest round of its divestment programme in Nigeria with clear objectives of maximising the commercial offer on each of the blocks and encouraging local participation in the industry.

Investigations have revealed that the bid request Shell put out on all the blocks earmarked for divestment in the on-going programme was defined as a firm and final bid. However, a multi-stage auction process was later introduced to ensure maximum bid price from all the participants. In the case of OML 40, this multi-stage auction process was not communicated officially as was done for OMLs 30, 34, 42 Business Day learnt.

Elcrest which had earlier been reported in the press to have put in a lower bid and up-staged by Vertex Energy was surreptitiously allowed to top up its bid a little above the winning bid. The key evidence of this change in bid is the difference in the total value of the 10 percent escrowed by Elcrest for the initial bid and the final amount escrowed for the SPA. Strangely, the opportunity to change the bid price was not communicated to Vertex in the clarification letter sent by Shell to bid participants.

Industry sources reveal that while Shell and the other sellers were initially disposed to selling the asset to Vertex Energy based on strong Nigerian ownership, competitive bid price, technical depth and ability to finance the deal, political pressures were mounted by certain individuals close to the corridors of power to tilt the balance in favour of Elcrest.

Further evidence in support of this view was a statement attributed to Henry Simon, Shell Group Chief Finance Officer where he stated, “Nothing of that magnitude can happen in Nigeria without political support.”

This has been interpreted as a subtle endorsement of players who are good at playing an opaque system, rather than those who operate with strong business principles and corporate governance.

There are assertions that these individuals close to the corridors of power promised to resolve some pressing commercial issues faced by Shell in return for favourable consideration with regards to the bid for OML 40.

It is also apparent that in coming to a decision on signing the SPA, Shell and its co-sellers deliberately ignored the many controversies around some of the parties as well ELAND.

The Starcrest CEO, Emeka Offor and ELAND’s CEO Les Blair have had a long history of working together.

A recent case was around OPL 291, which was linked to the suspension of a DPR director. According to publicly available information, the block was awarded to Starcrest under questionable circumstances. Starcrest immediately sold most of its interest to Addax. At this point in time, Les Blair was head of business development at Addax.

One of the parties has also been involved in major controversies some of which were recently highlighted by a national newspaper. This included the raid by FBI on one of is companies in Houston in 2006, assertions of money laundry and immigration issues in the UK and recently, non-performance on some key strategic contracts.

One of his companies was awarded a contract in 2006 to build a 106 km pipeline to transport gas from Addax offshore platform to Calabar’s Nigerian Independent Power Plant (NIPP) for about $250 million. While the company has received over 80 percent of the contract value, only 8km of the 106km pipeline has been built. As a result, the Calabar NIPP slated for 2011 commissioning is unlikely to get gas.

On the other hand, the Vertex Energy team consists of tested Nigerian oil and gas and business professionals with over 200 years of experience and track-record of delivery. With strong Niger Delta representation, the company is devising unique approaches to working with communities to attain sustainable and mutually beneficial relationships.

Vertex promoters also include individuals with a track record of significant contribution to Nigeria’s development, including: building the first deepwater business in Nigeria; sanctioning Nigeria’s first LNG business; playing a key role in launching a major African Independent Oil and Gas company; building one of the most successful professional services firms in Nigeria; and helping to midwife one of the country’s most successful telecommunications company in Nigeria.

Armed with such an impressive record, oil and gas industry analysts say they are alarmed at how a process that threw up a properly set up, and properly funded Nigerian company as winner, would get subverted in favour of another company.

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