OPL 245: Examining Eni’s Role in Messy Malabu Oil Deal

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It’s over two decades since Oil Prospecting Licence (OPL) 245 was first awarded by the Nigerian government. Yet, there seems to be no end in sight to the intrigues and legal fisticuffs that have long beset the now beleaguered deal, writes Emmanuel Addeh

Said to be one of Nigeria’s most lucrative oil wells, with an estimated nine billion barrels worth roughly half a trillion dollars, the OPL 245 is located approximately 150 kilometres off the Niger Delta waters.

The tale began in 1998 when the military administration of Gen. Sani Abacha came up with the policy of encouraging indigenous participation in the upstream sector of the oil and gas industry.

Thereafter, oil blocks were allocated to indigenous companies at a reduced signature bonus of $20 million.

In the oil and gas industry, signature bonus is a one-time fee for the assignment and securing of a license, paid irrespective of economic success for the contractor or licensee.

The Abacha government awarded the oil block to Malabu, which made an initial payment of $2 million as signature bonus. It later brought in Shell as technical partners in the deal that was completed in 2011.

But trouble was just about to start for the deal in which many Nigerian government functionaries have been alleged to be complicit and which has not operated since the first time it was awarded.

The story has it that in 1999, former President Olusegun Obasanjo assigned OPL 245 to Shell after revoking it from Malabu, whose beneficial owner was Dan Etete, using his influence as minister of petroleum under Abacha.

Malabu felt cheated, saying that that Shell, its technical partner, had inside knowledge of the block which then was offered at a signature bonus of $210 million.

The oil firm took the matter to the House of Representatives’ Committee on Petroleum which ordered that the license be returned to Malabu.

It thereafter instituted a case before the Federal High Court (FHC), Abuja, to enforce its claim , which was struck out by the FHC prompting it to lodge an appeal before the Court Appeal, Abuja.

While the appeal was pending, an amicable settlement was entered into between Malabu and the federal government and in compliance with the terms of settlement executed by the parties on the November 30, 2006, OPL 245 was fully and completely restored to Malabu in consideration for its withdrawal of the appeal.

Shell was dissatisfied with the development and therefore took up the matter before the International Centre for the Settlement of Investment Disputes in Washington DC, demanding $2 billion from the federal government for breach of contract.

Although Shell also commenced a suit against the government before the Federal High Court, Abuja, an agreement was eventually reached for the company to pay $1.2 billion to the federal government which was expected to in turn settle Malabu to relinquish its rights to the disputed oil block.

In a twist of events, the Economic and Financial Crimes Commission (EFCC), later stepped in and said the deal which was brokered by the federal government led by Bello, Adoke between Malabu and Shell was fraudulent.

It sought an arrest warrant for Adoke, minister of justice under Goodluck Jonathan, whom it accused of diverting the sum of $800 million paid into the federal government’s escrow account at JP Morgan Chase Bank to Malabu.

The anti-graft agency also indicted Etete, and other accomplices on charges of receiving the monies and transferring them to other accounts and obtained an order from a Federal High Court in Abuja, ordering the interim forfeiture of the lucrative oil block in question.

Since then, the whole back and forth has led to several court cases within and outside the country, while several negotiations have broken down and a number of both government officials and those of the oil companies involved eventually arraigned.

But back in 2007, to bring an end to the dispute and break the deadlock, Malabu started negotiations with Shell and at the same time began to look for other international operators wishing to develop the block.

Malabu then contacted the Nigerian Agip Exploration (NAE), Eni’s local subsidiary, but the company said it broke contacts with Malabu due to the uncertainty regarding the ownership of the rights, also resulting from the legal action threatened by Shell.

In 2009, Malabu continued the search for international buyers interested in acquiring 40 per cent of the block, through another energy firm, during which negotiations with NAE resumed. And that’s where the company reconnected with the controversial deal.

But the intrigues which have consumed several parties in the deal are also threatening some Eni’s top officials who court witnesses have equally levelled allegations against, claiming that the company knew about the corruption that happened but chose to cover it up.

Top management staff are also alleged to have drafted the documents (including an escrow agreement) that specified that Nigeria’s former oil minister, Etete, would receive as much as $1 billion in kickbacks.

However, on its complicity in various bribery allegations and its involvement in court cases, Eni said it “ corresponded directly to the Nigerian government a fair and reasonable consideration with respect to the characteristics of the concession, the contractual terms and the historical evolution of the local and international oil market.

“Eni was not required to know, nor knew, the destination of the funds paid to the Malabu company by the Nigerian Government, a payment authorised by the British anti-money laundering authorities.

“The allegations of bribes to Eni managers were denied by witnesses and experts in the courtroom, as well as by the Finance Guard itself in 2016; As part of the transaction, Eni complied with internal procedures, international best practices and implemented any industrial, economic and process verification. These are the key facts that Eni demonstrates in the dossier, with documentation and subpoena of supporting facts.

“Eni reiterates the total alienation of its own and that of its management with respect to the trial charges, and trusts that the truth can be re-established as soon as possible by the Judicial Court,” the company said.

Recall that in September 2018, a Milan, Italy court jailed two middlemen in the OPL 245 deal—Italian and Nigerian Emeka Obi—to four years in prison each for corruption. They were put on trial separately from the two companies, as part of the same legal proceedings.

But the company says that these are grounds which are intended to contest Eni’s probity and transparency and went on to debunk some of them.

It said that contrary to speculations, the price paid for the deal was reasonable and appropriate to the characteristics of OPL 245, the terms of the contract, and the development recorded on the oil market over time, adding that it is a false claim to state that the cost was inflated.

“Eni paid the agreed amount to the Nigerian government pursuant to a legitimate contract entered into therewith. It is a false claim to state that Eni made illegal payments to Malabu.

“Eni was not obliged to be aware, nor was it aware, of the use and the beneficiaries of the funds Malabu had received from the Nigerian Government. It’s a false claim to state that Eni was aware of Malabu’s.

Taking a walk down memory lane, Eni further gave explanations as to the extent of its involvement in the deal.

“Between 1998 and 2011, block 245 was the object of legal disputes and international arbitrations between the FGN, Shell, and Malabu. These disputes hindered exploration work in preparation for bringing the oilfield into production. Eni was never a party in these disputes.

“In 1999 the FGN revoked 31 OPLs following a change in the interpretation of the ICP. The licences revoked in this period did not include OPL 245; on the contrary, the Nigerian government confirmed its award to Malabu and invited the company to begin exploration.

“On 30 March 2001, Malabu surrendered 40 per cent of OPL 245 to Shell Nigeria Ultra Deep Limited (SNUD) via a farm-in contract, and received a payment of about $18 million to settle the $20 million signature bonus, the remaining $2 million having already been paid by Malabu.

“Without providing any warning or giving a reason for its decision, or granting the company the opportunity to respond, on 2 July 2001 the FGN revoked the granting of exploration rights to Malabu, and reallocated such rights to the Nigerian National Petroleum Corporation (NNPC, the state oil company).

“ In 2002, the NNPC called for tenders in search of a partner capable to contribute with technological expertise and capital. Shell was awarded the contract, committed to pay a $210 million signature bonus, and obtained 100per cent of the licence.

“This signature bonus – which was actually paid by Eni and Shell in 2011 – is still the largest signature bonus ever received by the Nigerian State for an oil licence to date. OPL 245, at this point, became a partnership between NNPC and Shell,” it narrated

Eni said in its explanatory notes to the Nigerian National Petroleum Company (NNPC, the state oil company) on 10 September 2003, Malabu reacted by filing a lawsuit against the FGN and Shell in Nigeria, demanding assessments and precautionary measures, as well as, in particular, that the FGN declared the validity and effectiveness of the allocation of OPL 245, the unlawfulness of the earlier revocation, and the nullity of subsequent reallocation to Shell.

It recalled that on 30 November 2006, the FGN, NNPC, and Malabu entered into a settlement agreement whereby OPL 245 was again allocated to Malabu.

“Malabu committed to pay the Nigerian Government the signature bonus that Shell had previously agreed to pay. Shell responded to the reallocation of the licence to Malabu by suing the FGN.

“In 2007, to bring an end to the dispute and break the deadlock, Malabu started negotiations with Shell and at the same time began to look for other international operators wishing to develop the block.

Eni noted that in April 2007, Shell filed a request for arbitration against the FGN under the ICSID (International Centre for Settlement of Investment Disputes) Convention and the Bilateral Investment Treaty between the Netherlands and Nigeria, aimed at regaining the rights to OPL 245 or receiving compensation for the damages caused by their revocation.

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In late 2009, it said, Malabu hired Emeka Obi, a representative of Energy Venture Partners Ltd. (EVP), to search for international buyers interested in acquiring 40per cent of the block. As a result, negotiations with NAE were resumed.

Eni said it entrusted the analysis of geological, financial, and legal aspects to a team of more than 80 in-house experts and external consultants.

“On 18 June 2010, the FGN, with President Goodluck Jonathan, confirmed the awarding of OPL 245 to Malabu, on condition that the company paid the signature bonus of $210 million, which had not yet been paid due to the pending court cases. The final deadline for payment was set in summer 2011.

“During this period, being aware of the litigation that had begun between Malabu and Shell, Eni had discussions both with EVP, on behalf of Malabu, and with Shell for the acquisition of OPL 245. On 30 October 2010, NAE made an offer to EVP to acquire 100per cent of OPL 245.

“EVP deemed it unsatisfactory and rejected it. In November 2010, being concerned about the loss of income due to delayed production in the block, the FGN entered into negotiations with Shell, Malabu, and Eni (the owner of the rights to OPL 244, an adjacent block on which it had begun to work) in order to try to come to a solution,” the company said.

It posited that a few days later, negotiations stalled once again when Mohammed Abacha appeared before the Federal High Court in Abuja claiming his rights to a 50 per cent interest in Malabu.

“Abacha cautioned Shell, Malabu, and Eni against continuing talks. Mohammed Abacha is the son of Nigeria’s President, who had awarded OPL 245 to Malabu in 1998.”

On 15 December 2010 Claudio Descalzi, Eni’s then chief operating officer of the Exploration & Production Division, suspended negotiations until the beneficial owner of Malabu was identified.

According to the oil giant, to break the deadlock, the FGN’s then Minister of Justice, Adoke, proposed the following solution to the parties: first, the FGN would be the sole party to the contract with Eni and Shell; and second, the FGN would settle the ongoing legal disputes with Shell and Malabu by paying the latter compensation for giving up the rights to OPL 245.

It explained that on 29 April 2011, Eni, Shell and the FGN signed a Resolution Agreement that transferred the rights to OPL 245 to Eni and Shell. This agreement included settlements made solely between Eni and Shell and the FGN, represented by the Ministers of Petroleum, Justice, and Finance.

“As part of this agreement, Shell and Eni paid $1.3 billion (the price plus the signature bonus) to an escrow account opened by the Nigerian Government with JP Morgan in London.

“During the same period, the FGN paid Malabu $1.092 billion as compensation for revoking the rights to OPL 245. Malabu dropped its complaints against the Nigerian Government” it explained.

While insisting that its senior management received no bribe, Eni insisted that the charges were disproven by witnesses and experts in court, saying that it’s a false claim to state that Eni’s senior managers collected the alleged bribes.