The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™
The politics of resources redefined™

Ratings update: Shell, Nigeria

Shell’s acquisition of a highly prospective block offshore Nigeria in 2011 is the subject of corruption-related controversy – the latest in a string of high-profile cases in the extractive sectors.

Key developments

  • A recent leak of internal communications amongst senior executives at Shell has attracted intense scrutiny of a highly prospective oil block offshore Nigeria – OPL 245. Critics allege that emails and call recordings suggest awareness at the highest corporate levels that a former petroleum minister would improperly receive from government a significant portion of the US$1.3bn payment made for the block. Shell and all other parties concerned strongly deny any wrongdoing (see Shell’s response below).
  • These developments are the latest corruption-related controversy to come to light in the extractive sectors, highlighting a potential new front of risk for companies.

Evaluation

  • Shell’s history with OPL 245 is long and fraught. In a 2011 deal intended to conclude nearly a decade of negotiations, arbitration and lawsuits over the block’s ownership, Shell, together with Italy’s Eni, paid US$1.3bn for the rights to OPL 245. This deal however has embroiled Shell in corruption-related allegations across multiple jurisdictions – Nigerian, Dutch and Italian authorities are investigating whether Shell and Eni knew that former oil minister Dan Etete stood to personally benefit from the payment. Mr Etete allegedly covertly controlled Malabu, a Nigerian company that was originally granted the rights to OPL 245 in 1998 during his tenure as minister. He was also convicted by a French court in 2007 in connection with an unrelated money laundering scandal. Recent intense scrutiny by international media, transparency campaigners and authorities suggests that the path to the block’s development will remain complex.
  • Aside from the controversy around OPL 245, Shell has faced political and social challenges in Nigeria for many decades. Community and NGO opposition, local conflict and allegations of environmental damage (albeit a significant part of this is attributable to illegal operations and sabotage) have long impacted Shell’s onshore operations.
  • Other extractive-sector companies have recently faced corruption-related controversies. In 2016, two top executives of Rio Tinto were dismissed in connection with allegations over payments made to help secure the company’s rights to the Simandou iron ore project in Guinea; they deny all allegations against them. More recently, in March 2017, an offshore oil deal in Angola has come under scrutiny; under the 2011 deal, BP and Cobalt International Energy paid US$350m to the government to fund a research centre, but critics allege that only negligible progress on the centre has been made to date. The US Securities and Exchange Commission (SEC) is looking into the matter, according to regulatory filings made by Cobalt.
  • The high-profile nature of these cases highlight the intensifying scrutiny that extractive-sector companies are likely to face from governments, law enforcement and civil society, requiring them to have robust and defensible anti-corruption policies in place. The Shell case also suggests that a new front for anti-corruption efforts is emerging: extractive companies must now pay more attention to how payments made to governments will be used – specifically in situations where it can be argued that management was aware of a high likelihood that funds paid legitimately would thereafter be used to make corruption-related payments.
  • Aside from reputational damage, recent significant financial penalties demonstrate the potentially costly outcomes associated with corrupt behaviour. For example, in 2014 Alcoa settled SEC proceedings at a cost of US$384m. More recently, the hedge fund Och-Ziff agreed to pay US$413m to settle criminal and civil charges in connection with alleged bribes paid to senior government officials throughout Africa to secure mining rights.

Shell response to Critical Resource’s request for comment:
Given this matter is currently under investigation, it would be inappropriate to comment on specifics. However, based on our review of the Prosecutor of Milan’s file and all of the information and facts available to Shell, we do not believe that there is a basis to prosecute Shell. Furthermore, we are not aware of any evidence to support a case against any former or current Shell employee. If the evidence ultimately proves that improper payments were made by Malabu or others to then current government officials in exchange for improper conduct relating to the 2011 settlement of the long standing legal disputes, it is Shell’s position that none of those payments were made with its knowledge, authorization or on its behalf.

We are taking this matter seriously and are co-operating with the relevant authorities. This includes when appropriate having shared the key findings of an investigation led by Debevoise & Plimpton LLP, an independent international law firm. We have also accurately reported on the OPL 245 settlement in our annual reports.

Shell attaches the greatest importance to business integrity. It’s one of our core values and is a central tenet of the Business Principles that govern the way we do business.

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This article uses Critical Resource’s LicenseSecure™ model to assess the likely level of political and stakeholder risk. Our updates provide a rapid overview of new or updated ratings in our database, with a focus on projects in the news. Please note that these ratings updates are provisional, based in part on open source analysis and are not from client projects. Full LicenseSecure analyses are in-depth, involve extensive intelligence gathering and are confidential.

 

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