In what industry watchers said was a desperate last ditch effort to cover-up her close ties with the founders of Atlantic Energy, Kola Aluko and Jide Omokore (boss of Energy Resources Group), Nigerian Insight has learned that embattled former Petroleum Resources Minister, Diezani Allison-Madueke dumped her cronies as she undertook a last-minute auction of acreage by Shell (OML 18, 24, 25 and 29), even as the Jonathan administration prepared to hand over an oil sector bedeviled by cronyism and corruption. To deflate attention from her well known ties with Aluko and Omokore, none of the auctioned blocs was awarded to Atlantic or Energy Resources. In the latest auction, OML 18 was awarded to Mart Resources; OML 29 to Aiteo and OML 24 to Pan Ocean Corporation Ltd. The fate of OML 25 remains unknown after its award to Crestar was blocked last year.
The move came as House Reps rejected a report submitted to it by an ad hoc panel that investigated the alleged shady deals involving Madueke and some oil companies. The Ajibola Muraina-led committee was tasked by the Chamber to among others investigate and unravel the alleged shady deals involving Madueke, the Nigerian Petroleum Development Company (NPDC), Shell Petroleum Development Company (SPDC), Atlantic Energy Drilling Concept Ltd, Septa Energy Ltd and some other entities with respect to the allocation of Oil Mining Leases (OMLs) 4, 26, 30, 34, 38, 41 and 42 respectively. The ad hoc committee had in its report made recommendations that exonerated the former minister and the indicted firms. However, lawmakers rejected the recommendations and blocked its adoption after a proposal to that effect was made by the presiding officer, Emeka Ihedioha.
Before leaving her job to a successor, the almighty powerful oil minister ensured that the local companies that picked up 45% of Shell’s license on OML 26, 30, 34, 40 and 42 had their situations clarified before she left office. To which end, Atlantic Energy – Elcrest Exploration & Production Nigeria, whose main stakeholder is Eland Oil & Gas Plc, officially became operator on OML 40. That was to the detriment of state-run NPDC, which was the official operator but had farmed out the role to Atlantic, in return for a share of revenue. However, Atlantic no longer had the cash in its coffers to pay for exploration and development on the block (two wells on the Opuama production well were planned) and so couldn’t fulfil its part of the deal.
Elsewhere, the oil services concern Nestoil and its foreign partner, Kulczuyk Investments, which founded the joint venture Neconde Energy that was awarded a 45% stake on OML 42 formerly owned by Shell, ENI and Total was granted the status of operator on the block at the expense of NPDC and Atlantic Energy. As for OML 26, the company that won the acreage in 2011, FNH may not have the financial muscle to assume the operatorship because of the dramatic financial situation of its parent company, Afren. But a similar fate is unlikely to befall Heritage Oil (OML 30) which has Qatari money behind it.
Madueke’s parting gift is part of the extraordinary story of Nigeria’s $20 billion oil money leakage which offers one of the most comprehensive studies of waste, mismanagement and corruption in the oil industry, which accounts for 95% of Nigeria’s foreign exchange earnings; now down by 20%, while the Excess Crude account has fallen from $9 billion in December 2012 to $2.5 billion at the start of this year, even though oil prices were buoyant over much of that period.
The House ad-hoc committee set out to investigate three key mechanisms which Madueke used to siphon oil revenue into private pockets. The three mechanisms are: no-bid contracts awarded to Atlantic and Seven Energy; which did not supply services but sub-contracted the work; a kerosene subsidy that doesn’t help the people it is meant to; and a series of complex, opaque “swap deals” that short-changed the state. The first of these mechanisms centered on the 2011 sale by Royal Dutch Shell of its interests in five oil fields. The blocks were majority-owned by NNPC. Shell sold its interest to companies in Poland and Britain. But the new owners did not get the same rights Shell had. To promote local control, NNPC gave the right to operate the fields to its subsidiary, the NPDC.
Without any bidding, the NPDC signed “strategic partnership agreements” worth around $6.6 billion with two local firms to manage them; Seven Energy was awarded three fields; while Atlantic got two. Seven was co-founded in 2004 by Kola Aluko, who also co-owned Atlantic with Jide Omokore. Atlantic was incorporated the day before it signed the deals. According to the contracts signed with the NPDC, Seven Energy retained 10% of profits in the three oil blocks, while Atlantic got 30% in its two blocks. Unlike Shell, neither firm pays royalties, profit tax or duties to the state.
Both companies wasted no time sub-contracting to other operators, on terms that were neither disclosed to the NPDC nor the NNPC. Atlantic does not publish accounts, but Seven’s 2013 annual report showed its deal with NPDC helped its revenue more than triple to $345 million. In May 2013, House reps called for investigations into the contracts saying Madueke transferred state assets to private individuals without competitive tender. But Madueke argued no tender was needed because the contracts involved no sale of equity in the oil fields; the probe failed. Seven said on its website its agreement with NPDC pre-dated the Jonathan administration and included an allowance for taxes. The company claimed it had invested over $500 million, more than doubled production from its three blocks, and paid $48.8 million in taxes in 2013.
The second mechanism is the kerosene subsidy. Because of the limited refining capacity, the government imports kerosene and then sells it to retailers at a cheaper price than the import price. This subsidy is meant to make kerosene affordable to the poor. In reality, though, retailers hike prices so consumers pay much more than official prices. Estimated at $100 million a month, the kerosene subsidy is a racket that lines the pockets of kerosene retailers and NNPC staff. In June 2009, President Yar’Adua ordered a halt to the kerosene subsidy but the NNPC told parliament last February that it still deducts billions of dollars a year from its earnings to cover it, admitting it can’t force retailers to sell at the subsidized price.
The third mechanism involves gasoline. To pay for imported products, Nigeria barters its crude oil in what is known as “swap deals” in which importers of refined fuel are given an “equivalent value” in crude oil. How that equivalent value is determined is unclear, and the sheer value of oil that changes hands and the lack of oversight open all kinds of rent-seeking avenues. It is estimated that between 2010 and 2011, traders involved in swap deals effectively bartered 200,000 barrels of crude a day – worth nearly $20 million at average crude prices over the period – for a loosely determined equivalent value in refined products. Even Madueke could not tell if all the refined products were delivered, let alone if the terms were fair.
To say the Geneva-based Aluko is extravagant will be an understatement because that is just his style. Aluko owns a fleet of supercars, including a Ferrari 458 GT2 that he races with Swiss team Kessel Racing. He also owns a $50 million yacht, according to Forbes magazine, and divides his time between a $40 million home in Los Angeles, an $8.6 million duplex on Fifth Avenue in New York, and homes in Abuja and Geneva. Omokore has also become rich from oil and gas. Forbes estimated his annual revenue at Energy Resources at $400 million. His jet-setting lifestyle matches Aluko in equal measure. Aluko owns the Galactica Star yacht, which he acquired in June 2013. The 65m long Galactica is a unique custom built Super Yacht; the newest and largest Heesen yacht ever built and goes for over $100 million! Beyoncé and Jay-Z celebrated her 32nd birthday on one in Italy this year.
When House reps considered the report of the ad-hoc committee, it was evident the committee had been compromised by the former oil minister. Even though Chief Ihedioha attempted to ramp through the report before the new leadership takes over, there were many resounding nay voices, especially from the APC members who called for a new probe into the oil industry. Some reps questioned on what authority Madueke had illegally continued the kerosene subsidy even after President Yar’Adua ordered that it be stopped. Among other things, the Committee had recommended that; a clean bill of health be given to Madueke and her cronies but the house rejected the report, paving the way for a new probe.