International Expert Exposes Under-Valuation Of OPL 245 Oil Block By Shell, ENI

A renowned international expert Stephen Roger from Athur D Little firm in the United Kingdom has faulted oil giants Shell and ENI for their evaluation of the OPL 245 block that is currently being probed by an international court.

On Thursday in Milan, Italy, Rogers told the court: “It is my opinion that the commercial value of the OPL 245 Licence as of April 29, 2011 can reasonably be placed at US$3.511m.” The Nigerian authorities had hired a lawyer, Lucio Lucia, who in turn had brought the British for his expert opinion.

Expert opinion on economic valuation and fiscal consideration of the OPL 245 block are crucial to determining cases of sleaze and malpractices linked with controversial transactions.

Under examination by Lucio, Rogers said: “In my view, Shell’s 2010 valuations using an oil price of US$60/bbl are too low to appropriately represent the value of Block 245 on April 29, 2011. Between March 2010 and April 29, 2011, the Brent oil price increased from around US$80/bbl to more than US$110/bbl, with the forward curve also rising in the same manner.”

The prosecutors were told that the industry developed clear expectations of progressively higher oil prices at the period. The jurists heard that it is reasonable to conclude that if Shell had diligently valued Block245 as at 29 April 2011, it would have applied an oil price assumption much higher than US$60/bbl to reflect the prevalent higher oil price environment.

It was argued that it is reasonable to conclude that the average Shell valuation in 2010, assuming a US$60/bbl oil price (US$1.619 million), was too low to represent a reliable value indicator for Block 245 at 29 April 2011. 

Nigerian rights group Human and Environmental Development Agenda (HEDA) Resource Centre had launched a probe into the deal, calling for global investigations. HEDA’s campaign is supported by a string of international anti-corruption groups Cornerhouse, Re:Common and Globalwitness. In 2018, the four groups blew the lid off, saying there were infractions in the valuation of the deal.

The submission of the British expert came after the Federal Government had hired Lucio, who took the British expert contracted by the lawyer on behalf of the Federal Government through the presentation of his written expert report and oral reaffirmation, leading to logical conclusions drawn by Arthur D Little on the economic terms under which the Resolution Agreements were drawn and signed between the oil companies and Nigerian officials.

Rogers proficient opinion confirmed the findings and conclusions of Dr. Don Hubert of Resources for Development Consulting as prejudicial to the interest of Nigeria. This was equally observed in earlier Department of Petroleum Resources (DPR) official letter on the Resolution Agreement.

In 2017, HEDA Resource Centre instituted legal action against Office of the Attorney General of the Federation and Minister of Justice to seek the Order of Mandamus from the Court to compel the Attorney General for a discharge of his constitutional responsibility as the Chief Law Officer and revoke the oil licence unconstitutionally allocated to Malabu in 1998. 

HEDA said the allocation represents an abuse of office and a violation of the Code of Conduct for Public Office Holders by former Minister of Petroleum Resources, Mr. Dan Etete, at the time of the allocation. The legal action, which the two oil companies and Malabu have individually applied to be joined to as interested parties with application granted, recently awarded cost against the office of the Attorney General for failure to file necessary process within required time. 

An excited Chairman of HEDA, Suraju Olanrewaju, who was in the Milan court to monitor the hearing, said: “The submission of the renowned expert is not only a validation of our expert’s previous finding but a vindication of our stand on the corruption and rip-off the allocation represents. The amount involved is sufficient to change the status of Nigeria from the world’s poverty capital.”

Rogers explained that he adopted a three-pronged approach to valuing the OPL 245 licence: an industry standard discounted cash flow analysis, examining Shell and ENI’s valuation at the time of the deal, and the price paid per barrel in comparable deals at the time.

“The market value of OPL 245 was $3.511 billion in 2011,” he said.

In his oral submission, he said: “ENI’s expert had apparently valued the block even higher, at $4.543 billion. They argue that despite this, the price paid ($1.3bn) is reasonable because of various risks.”

Rogers criticised this conclusion by ENI, saying: “ENI expert’s method is double discounts for risk.”

He further evaluated the value of gas, which ENI experts failed to include in the economic value of the block, at $167m and the value of additional exploration opportunities at $653m, using Shell and ENI’s data.

There was no cross-examination from the prosecutor or lawyers to Shell and ENI but the President of the court sought further clarification on the model and other conclusions of the expert. Lawyer to one of the suspects, Paolo Scaroni, challenged the experts on some findings.

Some Nigerian experts and other foreigners contracted by ENI and Shell are expected to present their expert reports to the court in writing and orally from April 17.

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