… FG, Minister in worrying silence
The Nigerian government has its hands full right now, many operators in its economy tell you when you ask how it is dealing with their own specific issues in the economy. They are right.
The government of President Godluck Ebele Jonathan is winding down its first term in office and all its attention is now almost taken up by a desire to return to office in elections already scheduled for February 2015. It cannot afford to have a divided attention and specifics are not its priority right now. In the last few months though, it has come to realise that the price of crude on the international energy market is as important to its survival as the coming elections.
Falling oil prices is challenging managers of the economy and the government as a whole to show it has capacity to manage an economy that, increasingly, stop getting lazy, cheap money from a commodity that it has tied itself to in decades’ long dependency. It knows that
even if it returns to office its capacity to manage the economy will become heavily tested. Observers say the economy needs an eye-to-detail management, especially on all aspects, but more so its golden-goose egg laying industry, oil and gas, which has always been challenged in
its management.
In the last two years, the oil and gas industry has witnessed a flurry of activities, not the least boosted by a raft of oil and gas asset sell offs by multinational oil companies who, for decades had worked with the Federal Government in Joint Venture (JV) arrangements on the assets.
Not many Nigerians know that the Federal Government is, in most cases if not all, the senior partners in the JVs owning as much as between 55 and 60 percent of the business. But with multinationals having the technology for the business, and hence operators, they tend to be thrust forward and tend to be the face of the business.
But as the year 2014 draws to a close in a week, the rounds of oil and gas asset sales that have taken place in the last two to three years would be remembered for two things. The first is the long and tortuous journey Oando Plc went through before eventually sealing its asset purchase transaction with ConocoPhillips, an American international, following the final intervention of the Federal Government through the office of the Minister of Petroleum Resources, Diezani Alison-Madueke. The second is the contentious outcome that has now become the first attempt by Chevron Corporation, another American multinational international oil company, which put up three Oil Mining Licences (OMLs) for sale through what was supposed to be a transparent public bid and offer process.
The difference between the two, however, say analysts, is that while ConocoPhillips’ bid and offer procedure went smoothly producing Oando as highest bidder and winner in its Nigeria asset sale, and it went on to publicly so declare and signed a deal with the latter, only
having to wait first for Oando to raise the balance of its bid money and secondly get Minister’s consent, the Chevron bid process is largely believed to raise a lot of questions. These questions are not helped by the fact that the Federal Government, the Ministry of Petroleum Resources and the Minister, who ultimately gives her consent for such transactions to get government approval, have not shown concern that something like this is happening in a sensitive area of its economy, oil and gas.
It is the reason why, for over 13 months after the Chevron oil asset sale bid round finished, and many are in the know as to the bid amounts posted by different interested participants, particularly the highest bidder, Brittania- U Nigeria Limited, the oil company led by, perhaps the only Nigerian woman on the operating side of the oil business in the country, Uju Ifejika, which made a bid to buy the three oil licences on offer for $1.67 billion and the second highest bidder, the SEPLAT Consortium, run by Austin Avuru and chaired by Bryant Orjiakor, which initial bid was $630 million, it has raised questions, which analysts say is attempting to give evidence to widely held view that the Nigerian oil industry is murky and lacking in transparency that cuts across government, regulators and operators.
A matter to attract Transparency International
Nigeria has never posted any positive outcomes since Transparency International (TI) started measuring and producing its global reports on the state of corruption in the world. Part of its report is based on findings on dealings
in business and corporate practices, not least in the oil and gas industry, especially in Nigeria. Many now say that the current fallout in the Chevron asset sale will surely draw TI’s attention and pull Nigeria down further.
When Chevron Corp, through its Nigerian registered business, Chevron Nigeria Limited, put up the three OMLs , namely 52,53,and 55 for sale, it attracted many interests. The interests were not necessary in terms of potential buyers, but many who were looking to see how Chevron would handle its first oil asset divestment sale in Nigeria. They had been used to the successes recorded by Anglo-Dutch oil giant Shell and ConocoPhillips who had had smooth asset transfers to Nigerian indigenous operators at different times. ConocoPhillips
went smoothly as the highest bidder was declared winner and was expected to come up with the bid money it offered or show clearly how it was going to pay up in strict stipulated time frame.
The same can be said of the sales made by Shell. In all cases, the sellers announced the results of the bids process and sent letters to the highest bidders to say they had won. This was enough reason for many people to watch how the Chevron process was going to go. If there were silent sceptics, the current quagmire must be offering them cushion to say, “I told you so.” “Outside of the pure business side of it, my concern is how much image damage it has brought to the country generally and the oil industry in particular,” said one operator who did not want to be named.
But a financial analyst familiar with how bidding process go, told BusinessDay that “there is something not quite right with this particular bid exercise. The major concern, usually, for sellers of assets, is first to realise the biggest amount they can get for their assets, but to be sure that whoever is putting in a bid is able to pay up. Once this is clear, sellers always want to realise the best on their assets.”
Questions surrounding an awry asset sale
BusinessDay is now in possession of different documents, including Sales and Purchase Agreements (SPA) signed by officials of Chevron Nigeria and the Consortium led by SEPLAT. There are documents relating to the forming of consortia with dates that show they were formed in November 2013, well after the bid had closed, whereas in the bid document, Chevron specifically said all consortia must have been formed and submitted with the bid at the close on 30 September 2013. There is also information showing that Chevron, while meeting with the highest bidder, Brittania-U Nigeria Limited at its offices in Houston, it was also meeting with SEPLAT in London to discuss the same transaction for which Brittania-U was the highest bidder.
Many say this action is reminiscent of the stories the international community and businesses, who are quick to mouth global best practices, often tell of 419 practices that they claim are prevalent in Nigeria in order to give the country a bad name and image. “Why would they be holding two meetings simultaneously with the first and second highest bidders, especially with the highest bidder clearly able to pay for its bids?” an oil industry operator asked over the weekend.
But the intrigues seem to go further. BusinessDay now understands that the following transpired once the bid process closed on 30th September 2013, and it emerged that Britannia-U Nigeria Limited posted the highest bid of $1.67 billion. The Nigerian media had swooped on the story and had gone to town announcing how, at the time, lesser known Brittania-U (which actually operates the Ajapa fields that produces between 4000 and 5000 barrels per day) run by the female lawyer and one time company secretary of Texaco in Nigeria, Uju Ifejika, had won the bid and had made effort to find out more about the company. It was not long after the reports started appearing that a sudden twist was introduced as Chevron stalled on publicly announcing the winners or sending letters to participants informing of the outcome of the exercise.
On October 23, 2013, BusinessDay can now reveal that a telephone call was put through from Houston to the Chief Executive Officer of Brittania-U by Ali Moshiri, Chevron President Africa and Latin America Exploration and Production Company in relation to the bid outcome. The subject of that telephone conversation was believed to be Chevron wanting to establish that Brittania-U could pay up its bid price. Moshiri is said to have told Ifejika that if her company could provide ability to pay between $1 billion and $1.2 billion, that she should come to Houston for a meeting with her bankers on November 14, 2013. It was on this strength of this conversation that Brittania-U went to Houston to honour this meeting with its bankers.
Our investigation is now showing that Chevron never expected that Brittania-U had the capacity to carry through the deal; a clear miscalculation on its part especially seeing that it had backed its initial bid offer with a down payment of $250 million in Irrevocable Letter of Credit from its bankers. When Brittania-U management showed up in Houston and showed up at Moshiri’s office, it seems he was surprised as it was then that he scrambled a team comprising Hemant Patel who supervised the bid process and Matthew Steele, the company’s head of treasury to meet with Brittania-U and its bankers (comprising of executive directors – First Bank, Ecobank, Diamond Bank) who were there with Firm Board Commitment letters to fund the bid to the tune of $765 billion. If you add that to the initial $250 million payment you have $1.015 billion (the figure that was negotiated after examining the initial bid offer made by Brittania-U).
During the November 14 meeting, Chevron thoroughly checked the bankers’ commitment letters and then promised to send the Sales and Purchase Agreement (SPA) to execute, but this never came. On November 17, 2013 a telephone Short Message Service (SMS) seen by BusinessDay sent from the phone of Hemant Patel, Chevron Commercial Consultant who handled the bid process, said: “Mrs Uju, sorry I am out of Houston weekend, our lawyers are revising the SPA,” an apparent apology and offer of excuse why the SPA was not sent immediately after the meeting of November 14, 2013.
There are many legal experts who say that with this SMS it can easily be assumed that a contract was already in place. However, what is still not clear is why Chevron, which had told Brittania-U that it was “going to send an SPA” on November 14, 2013 and on November 17, 2013, via SMS, that it was “revising the SPA” later did a 360 degree turn and signed an SPA (now in BusinessDay possession) with SEPLAT consortium.
An energy analyst said last week that the industry and country are being put in disrepute by the outcome of this transaction. He wonders why government and its key officials are keeping quiet over this matter especially as it raises questions around transparency and global best practice.
Questions being raised do not only bother on the shadowy nature of Chevron’s handling of the exercise, but also its willingness to break its own rules with regards to items contained in its bid process documents. The SEPLAT Consortium it signed an SPA with, for instance, from documents seen by BusinessDay, was formed on in November. The first document showed it was formed on November 4, 2013 and the second document showed a revised consortium forming agreement and this was done on November 14th, the same day that Chevron was meeting Brittania-U in Houston, United States where its officials said they would send a SPA for execution the next day. Significantly, in the bid process documents seen by BusinessDay that Chevron released in August 2013, it clearly stated that consortia must be formed and submitted with bids on September 30, 2013, and that anything done outside this date then stood the process on its head, if accepted
as Chevron seem to have done.
The other question being asked, especially in view of the SPA that Chevron entered with Chevron consortium and seen by BusinessDay, is the wisdom behind abandoning the highest bidder at a mutually revised figure of $1.015 billion and go for a bid of $800 million (recall that the initial bid made was $630 million, but following the formation of the consortium, it went up to $800 million), an amount that is $215 million less?
Have there been compromises in this process? Where have these compromises been? Are Chevron’s officials culpable? Do Nigerian government officials, including the NNPC and the Ministry of Petroleum Resources, who are supposed to show interest in this matter but seem to be looking the other way, know something that they are not telling the public?
At Brittania-U, where they have continued to keep sealed lips over this matter, BusinessDay understands that they are baffled by what has been unfolding hence the resort to taking their case to the judiciary. BusinessDay learnt that the company had simply understood that a bid process produces a highest bidder who usually wins the bid until it becomes clear that it cannot back up its winning bid with the amount it had bid.
There had been two stages of the Chevron bid process. Chevron in its handling of stage one had shown remarkable transparency. It had published the outcome of the first stage, which showed those who advanced to the next stage. But it was in stage two that it had completely abandoned its own transparency credentials. It failed to publicly announce the outcome of the bid by publishing the results. It also failed to write the bidders to let them know their position in the bid like it did in stage one.
In going ahead to sign an SPA with a consortium formed after the exercise had been concluded, lawyers say Chevron had wittingly or unwittingly shot itself in the foot. They also argue that even when you look at the deposit made, Brittania-U deposited $250 million, representing 15 percent of its initial $1.67 billion bid, SEPLAT consortium had deposited $147 million as is clearly shown in Clause 2.3 of the SPA Chevron signed with SEPLAT. Why did Chevron choose to go with a bidder whose deposit is less than the higher $250 million? One investment lawyer said this was against international practice.
But the real question that is begging for answer is what exactly does Chevron have against Brittania-U, a company run by a woman, who is well steeped in the oil industry and currently produces 4000 to 5000 barrels per day? Is there a gender conspiracy that is covered with a different cloak to prevent it from coming to the open? Is this one of those glass ceiling placed against women entrepreneurs that prevent them from playing big in certain industries?
More concerns over Nigeria’s image
For a country that has suffered decades long image challenges especially in the international community, many see this controversy over the Chevron asset sale saga as capable of further denting the country’s image. They say it sends wrong signals to the international business community and portrays Nigeria as country where impunity is allowed to reign and simple business transaction such as an asset disposal cannot be trusted to go smoothly.
Indeed, they argue that if Chevron, a multinational oil company, can be allowed to get away with the current situation as regards the sale of the said assets, it could be wrongly interpreted that what they cannot get away with in Europe and North America, other international companies could latch on to this and act without regulators stepping in and getting the process to work to international best practice.
The asset in question is jointly owned by government and Chevron. It is the 40 percent belonging to Chevron that the multinational has put up for sale. But for a country looking for a way to increase its reserve base in the face of dwindling oil prices and heightened insecurity, coupled with the opportunity to get someone who is ready to do the needful, analysts say it would appear as if Nigeria seems to be allowing the opportunity to slip through its fingers due to ensuing litigations.
But the other twist to the matter is that there are those who think that the silence of government and its officials appear to confirm speculation in some quarters that the Federal Government, along with the minister of Petroleum Resources and the Nigeria National Petroleum Corporation (NNPC), are not favourably disposed to giving Brittania-U the three blocks in contention, because according some sources, they do not feel it should go to a single individual.
Brittania-U had gone to court asking for an interim injunction restraining Chevron Corporation of the United States and its Nigerian subsidiary, Chevron Nigeria Limited (CNL) and their agents from negotiating the sale of the said Oil Mining Leases with Seplat Petroleum Development Company (SPDC) Limited or any other bidder, apart from Brittania-U Limited.
The court extended the injunction restraining Chevron and its agents from declaring Seplat Petroleum Development Company or its agents as the preferred bidder for the oil blocks, apart from Brittania-U Limited, which emerged the highest bidder in the process.
But this was challenged by Chevron as it argued that the High Court handling the case has no competent jurisdiction to entertain the case. It eventually went to the Appeal Court. Chevron is yet to put in a defence in respect of the case brought by Brittania-U.
The injunction against Chevron had followed the suit instituted by Brittania-U alleging that Chevron Nigerian Limited (CNL) and Chevron USA Incorporated were making secret moves to ignore the result of the competitive bid conducted for the sale of Chevron’s 40 percent interest in the three oil blocks.
