Shell‘s role in a billion dollar corruption scandal in Nigeria poses significant hidden risks for investors, Global Witness said at the company’s 2015 AGM. The warning comes as the oil major is lobbying the UK and US authorities to undermine the implementation of new transparency laws which would consign such secretive deals to history.

The corruption at the heart of the deal deprived the Nigerian state of over U.S. $1.1 billion, triggered investigations by authorities in three countries, and could potentially lead to Shell and its Italian partner Eni losing access to the oil block.

In 2011 Eni and Shell paid $1.1bn for oil block OPL 245, one of the largest off the coast of Nigeria (2). The money should have ended up in state coffers, where it is badly needed – the amount in question is equivalent to two thirds of the Nigerian healthcare budget (3).

Instead, the payment was made by Shell and Eni to the Nigerian government, who had a separate agreement to pay the same amount to Malabu Oil and Gas, a company controlled by convicted money-launderer and former oil minister Chief Dan Etete (4). As Etete had awarded the oil block to Malabu Oil and Gas whilst oil minister during the regime of the corrupt dictator General Abacha, he had effectively given himself one of the most lucrative oil blocks in Nigeria.

“This is a billion dollar bombshell, Shell’s shareholders deserve to know the stakes. This deal is being investigated in several countries and could be cancelled altogether. Such shady deals expose investors to risks they do not know about, entrench corruption and rob people in countries like Nigeria of money they badly need for things like schools and hospitals. So why is Shell blocking laws that would bring such payments into the open? What else have they got to hide?” said Simon Taylor, Director of Global Witness.

Shell and Eni deny paying any money to Malabu Oil and Gas. However, High Court proceedings and other evidence seen by Global Witness reveal that Shell and Eni were aware and in agreement that the deal was for the benefit of Malabu.

This also leaves the companies open to accusations of purchasing stolen goods and the Nigerian Government of monetising an illegally acquired state asset on behalf of a convicted felon. If Shell and Eni’s claim that they purchased the oil block from the Nigerian Government are true, then under the constitution the US$1.1 billion should have been paid to the Nigerian Government’s “Federation Account”.  It was not. The alternative, as explained by the broker of the deal, Nigeria’s Attorney General Adoke, is that the Nigerian Government acted as an “obligor,” or conduit, to pass the payment from Shell and Eni to Etete’s company Malabu.

The risks posed by the OPL 245 deal could ultimately have a dramatic impact on the ability of Shell to add the block’s reserves to its global total, and thus could negatively impact its overall market performance (5). The case is being investigated by authorities in a number of countries and Nigerian lawmakers called in 2014 for the deal for the block to be cancelled. Eni’s current and former CEOs as well as other senior managers are under investigation by Italian authorities (6), UK police have been investigating money laundering connected to the case.(7) and US$190m in proceeds of the deal has been frozen in the UK and Switzerland (8).

In recent correspondence with Global Witness Shell stated that it disagreed with the premise behind various public statements by Global Witness about OPL 245 but did not answer specific questions.

Shell is part of a group of major oil companies attempting to side-step parts of a new, landmark UK law that was championed by the Prime Minister David Cameron, which would bring such deals into the open. Shell is also leading a lobby effort to weaken the implementation of a similar law in the U.S.  

Contact: Oliver Courtney, [email protected]; +44 (0)7912 517147. 
 
Notes:

1. Shell is lobbying in support of industry-drafted guidelines to implement the UK law that would allow companies to keep payments worth billions of dollars hidden from public view, and as a consequence would place firms at risk of violating the UK law. Shell is also leading a lobby effort to weaken the implementation a similar law in the U.S., whilst paying lip service to the idea of transparency and accountability in public.
2. Nigeria’s House of Representatives found that a figure of 447 million barrels of proven reserves was used for Shell’s 2003 production sharing agreement for OPL 245.  However they also noted that a more recent study, conducted in 2007  put the “probable” reserves (P50) at 9.23 billion barrels; Nigerian House of Representatives, Report by the Ad-Hoc Committee on the transaction involving the Federal Government and Shell/AGIP companies and Malabu Oil and Gas Limited in respect of the sale of oil bloc OPL 245, 9 July 2013, p64; Eni has also stated publicly that OPL 245 contains nearly 500 million barrels of already discovered oil; Eni SpA, October 6, 2011, “Exploration and Production Update Conference Call – Final”.  More recent industry press figures cite a variety of figures, for example Upstream’s comment in 2011 about Shell’s partner Eni, “.. more importantly, the company is also eyeing a deep-water project in OPL 245 to exploit its Zabazaba and Etan discoveries, which are believed to hold about 550 million barrels of oil equivalent resources between them.”  https://www.upstreamonline.com/hardcopy/features/article1217826.ece
3. The Nigerian proposed national health budget for 2014 is 262,742,351,874 Naira or approximately $1.6bn.; Budget Office, “2014 FGN Budget Proposal”,   
4. In July 2013, a British High Court ruled that Etete was indeed a beneficial owner of Malabu Oil & Gas. 
5. On 18 February 2014 the Nigerian House of Representatives voted on the recommendation of an investigation into the deal, calling for the deal’s cancellation and criticised the deal for being contrary to the laws of Nigeria, committing the country to unacceptable indemnities and liabilities while acting as an obligor, ceding away the Nigerian national interest and censured and reprimanded Shell and Eni’s subsidiaries for their actions. House of Representatives Federal Government of Nigeria, Votes and Proceedings, 18 February 2014, p994.
6. Reuters, 3 October 2014, “Italian Authorities accuse Eni of Bribery”, https://www.iol.co.za/business/international/italian-authorities-accuse-eni-of-bribery
7. Wall Street Journal, 22 July 2013, “UK Investigates Money Laundering Allegations Relating to Nigerian Oil Block”, https://online.wsj.com/article/BT-CO-20130722-706581.html
8. Reuters, 3 October 2014, “Italian Authorities accuse Eni of Bribery”, https://www.iol.co.za/business/international/italian-authorities-accuse-eni-of-bribery