The big driller was excited about offshore prospects in west Africa, but worried about ‘issues regarding U.S. anticorruption laws’
March 31, 2018//-Negotiators for Exxon Mobil Corp. XOM 2.47% gathered in a London hotel room faced a problem. The government of Liberia suspected that oil rights the energy giant coveted were tainted by corruption.
It was the winter of 2011, and crude-oil prices were surging. Exxon and then-Chief Executive Rex Tillerson were battling rivals to win access to fresh deposits around the globe. They wanted a deal.
The drilling rights the company sought in Liberia, however, appeared to be linked to former officials from the West African nation, according to internal Exxon documents reviewed by The Wall Street Journal and people familiar with the negotiations. An Exxon presentation from the London meeting indicated the company had “concern over issues regarding U.S. anticorruption laws.”
An idea took shape. A Canadian company would buy the rights from a Liberian oil operator whose ownership was murky. Then Exxon would buy a controlling stake in the project from the Canadian outfit, according to the London presentation, documents outlining the deal and people familiar with the matter. Exxon completed the deal for $120 million in 2013.
Complicated Transaction
How Exxon Mobil structured a deal to buy oil rights off the coast of Liberia.
Sources: Loan agreement; sale and purchase agreement; asset purchase agreement; bank transfer receipts; company news releases; Nocal meeting minutes.
There is a growing body of U.S. and European laws aimed at stamping out corruption around the world, and they have been aggressively enforced. The Exxon transaction shows the extent to which companies are structuring deals to try to minimize the risks of government scrutiny.
scrutiny.
This account of what Exxon learned about potential red flags, and what it did in response, is based on interviews with three people directly involved in the negotiations and a review of transaction and bank documents detailing the movement of funds. Some of the documents were provided by Global Witness, a London-based organization that investigates corruption, which released a report on the deal Thursday.
The Journal independently corroborated information from the Global Witness documents.
The bank documents reveal that hundreds of thousands of dollars in payments were made to Liberian government officials involved in the deal, including the son of the country’s former president, Ellen Johnson Sirleaf, who was awarded the Nobel Peace Prize in 2011.
Exxon spokeswoman Rebecca Arnold said the company is “confident that the agreement complies with local Liberian law and international anticorruption laws….Exxon Mobil has an unwavering commitment to honest and ethical behavior wherever we do business. We have a longstanding commitment to compliance with the U.S. Foreign Corrupt Practices Act and the anticorruption laws of the countries and territories in which we do business.”
Mr. Tillerson, President Donald Trump’s recently ousted secretary of state, declined through a spokesman to comment.
Christopher Neyor, who was chief executive of the Liberian state oil company at the time of the London meeting, said “it was comfortable for” Exxon to deal with the Canadian company as part of the transaction. He said the state oil company and the Liberian “government at large did not know the truth” regarding the true owner of the Liberian oil stake.
Robert Sirleaf, Ms. Sirleaf’s son and a former chairman of the state oil company, defended the payments to Liberian officials, saying they were bonuses for completing what was then a landmark deal in an impoverished country.
Global watchdogs see transparency as one of the best ways to reduce corruption, believing that when companies disclose payments to governments, money will be less likely to flow illegally to public officials. The U.K. in 2010 passed a law called the Bribery Act, a close cousin to the U.S. Foreign Corrupt Practices Act, which bars public companies from bribing government officials to gain an advantage over competitors.
In 2010, as Exxon’s chief executive, Mr. Tillerson lobbied against a new federal requirement that required energy and mining companies to disclose payments to foreign governments, arguing that it put U.S. companies at a disadvantage to foreign rivals. Last year, U.S. lawmakers scrapped the requirement, which was part of the Dodd-Frank law.
West Africa Play
Exxon’s interest in Liberia came amid a wave of exploration all over the continent after a major 2007 discovery
Source: Tudor, Pickering, Holt & Co.
Interest in potential oil riches off Liberia’s shores blossomed in the mid-2000s as the country emerged from a long civil war. During a chaotic transitional period before the 2006 election of Ms. Sirleaf, there was a scramble among Liberians, including some members of the government, to get a piece of the possible oil-exploration boom, say people involved in Liberia’s oil industry.
“There were a lot of suggestions that contracts were not signed in the way they would be under a more stable government,” said Jeffrey Wood, a U.S. lawyer who has worked with the Liberian government on natural-resource oversight and helped it with the Exxon deal.
In 2005, when the contest for oil rights was gaining steam, a company called Broadway Consolidated PLC, registered on the Isle of Man, signed a contract with Liberia’s state-run oil company, the National Oil Company of Liberia, or Nocal, for drilling rights to an offshore expanse known as Block 13. Another company, Oranto Petroleum Ltd., also obtained licenses from Nocal. Oranto said in a written statement that “multiple inquiries have concluded that Oranto’s activities in Liberia were carried out in accordance with all laws and regulatory requirements.” Broadway is now defunct.
Broadway investors have included an energy fund operated by RAB Capital, a U.K. investment fund. Several Liberians have also been linked to the company, including David Jallah, a politically connected lawyer listed in corporate filings as a shareholder. Mr. Jallah, the former dean of the country’s law school, didn’t respond to requests for comment.
Adolph Lawrence, a Liberian lawmaker who was chairman of the committee that oversees the country’s oil-and-gas deals, once held contracts giving him the right to buy a stake in Broadway, according to a 2011 document related to a separate, scuttled transaction. He held his position at the time of the Exxon deal, although it isn’t known whether he retained his Broadway interests after he began serving as a lawmaker in 2012. Mr. Lawrence didn’t respond to requests for comment.
Jonathan Mason, minister of Liberia’s lands, mines and energy department in the 2000s, helped launch several companies in the 1990s whose names included the word Broadway, according to documents reviewed by the Journal. In an interview, Mr. Mason said he worked as a consultant for Broadway Consolidated but never owned a stake in it.
The discovery of an enormous oil field off nearby Ghana’s shores in 2007 touched off a rush to explore for oil off West Africa’s coast, including in Liberia. Exxon, Chevron Corp . and other Western companies angled to gain access to potentially lucrative concessions. They struggled to compete with state-backed firms from China and Russia that often didn’t adhere to the same anticorruption standards as the U.S. and European Union.
Chevron, the second-largest U.S. oil company, struck first in Liberia, inking a deal in 2010 with Oranto for three deep-water blocks. Chevron spokeswoman Isabel Ordóñez said the company applies “full due diligence” to all potential partners and follows all laws in the countries where it operates, which it did in Liberia.
A 2011 investigation by Liberia’s General Auditing Commission found that in 2006 and 2007, Nocal disbursed more than $100,000 to legislators. Some members of Nocal’s board had concerns the payments were made “to influence the passage of the petroleum contracts” of Broadway and Oranto and were “a form of bribery,” the commission said.
Chevron had concerns similar to Exxon’s about securing Block 13, including about the owners of Broadway, which had changed its name to Peppercoast Petroleum, according to a former Liberian government oil minister and a person familiar with Chevron’s review of the block.
Peppercoast, meanwhile, had failed to move ahead on an exploration program. The Liberian government pushed it to sell.
Canadian Overseas Petroleum Ltd. , a Calgary, Canada, oil company, began negotiating to purchase a stake in the block from Peppercoast. But Nocal blocked the bid amid concerns that Canadian Overseas didn’t have experience drilling deep-water wells, according to Mr. Neyor.
Enter Exxon. In December 2011, a team of Exxon officials met in London with several Liberian government officials, including then-President Sirleaf’s son, Mr. Sirleaf, who was soon to be appointed chairman of Nocal, according to documents reviewed by the Journal and people who attended the meeting.
Exxon officials outlined their concerns about potential corruption tied to the block, according to the people and a PowerPoint presentation made by Exxon at the meeting.
Exxon detailed a two-step transaction: Canadian Overseas would purchase the rights to Block 13 from Peppercoast, then Exxon would buy a controlling stake in the block from Canadian Overseas, according to the people and the PowerPoint presentation. Putting Canadian Overseas in the middle of the transaction would allow Exxon to avoid dealing directly with Peppercoast.
Canadian Overseas said in a written statement that it “adheres to the highest levels of corporate governance as a public company,” and that it “carried out meticulous due diligence over a two-year period before completing the Liberian acquisition and sought legal advice in the UK, Liberia, Canada and United States. No evidence was ever found to suggest Liberian government officials were linked to shareholdings in Peppercoast.”
Mr. Wood, who attended the meeting on behalf of the Liberians, said Exxon was “extremely careful to be seen as doing things that were correct” in the deal.
Sixteen months later, the Liberian government approved a deal that public and internal Liberian records show was close to what had been outlined in the London hotel, with an important added detail outlined in the production-sharing agreement.
Exxon insisted that it wouldn’t pay any cash to Peppercoast, nor would partner Canadian Overseas Petroleum. Instead, the money for the deal would go to the state oil company, Nocal, which had agreed to act as an intermediary. Nocal secured a short-term loan from an African bank called Ecobank Transnational Inc. to pay Peppercoast to transfer the oil block. On April 5, 2013, Nocal used the loan to pay $68.5 million to Peppercoast, which transferred Block 13 to Canadian Overseas, which then transferred an 80% stake to Exxon, bank records and deal documents show.
That same day, Exxon paid $120 million from a New York bank account to the African bank used by Nocal, satisfying the short-term loan, the documents show. The Liberian government got $45 million from the deal, Nocal got $5 million as a bonus, and the African bank received $1.5 million in fees, the documents show. A spokeswoman for EcoBank didn’t respond to a request for comment.
Weeks after the money was transferred, Nocal made payments totaling more than $500,000 to more than 100 Nocal employees, according to Mr. Sirleaf and bank records provided by Global Witness. He received $35,000, the bank records show.
There is no indication Exxon, Mr. Tillerson or Canadian Overseas was aware of the payments.
Jeffrey Neiman, a former federal prosecutor at law firm Marcus Neiman & Rashbaum LLP who specializes in white-collar crime and U.S. anticorruption laws, said federal investigators often take interest when corporate money reaches politicians in high-risk jurisdictions such as Liberia. “However, criminal liability only attaches if Exxon or its representatives knew about corrupt payments and somehow participated,” he said.
The Liberian government, under newly elected president George Weah, is reviewing Nocal’s audit reports and the bidding processes that led to the auctioning of oil blocks, said Eugene Nagbe, Liberia’s minister of information, culture and tourism, in an email. “If any corruption activity is found to have taken place, the perpetrators will be brought to justice,” he said.
Mr. Sirleaf, who said he has worked for 24 years in finance for several U.S. banks, stands by the deal.
“It was the right thing to do at the right time, and it still is,” he said. He compared the payments to year-end bonuses and said they were paid to all Nocal employees.
It was ultimately not the right deal for Exxon. The well it drilled to test the site’s prospects came up dry. Exxon gave up its rights to the prospect last year.
By By Scott Patterson, Bradley Olson and James V. Grimaldi, Wallstreetjournal.com
