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Why Afren CEO Was Sacked
[October 21, 2014]

Why Afren CEO Was Sacked


(AllAfrica Via Acquire Media NewsEdge) Facts have emerged that failure by the Chief Executive Officer, CEO, of Afren Plc, Mr. Osman Shahenshah, to report the company's $400 million payment to Oriental Energy Resources, OER, may have led to his sack.



The transactions that breached the rules were a payment of $100 million in 2012, and another of $300 million in 2013 to Oriental Energy, Afren's partner in the Ebok Field, located in OML67, offshore Nigeria.

According to Nigerian Oil and Gas Intelligence, Afren signed a farm-in agreement with OER to take part in the development of the Ebok field in March 2008. Under the terms of the agreement, Afren would fund appraisal and development costs and recover these from 100 percent of field revenues.


After the cost recovery, Afren and Oriental would share the revenue equally. Shahenshah had described the two transactions as being in the ordinary course of business.

In the first transaction, Afren agreed to pay $100 million to Oriental in lieu of oil. The payment was made in two tranches of $95 million and $7 million, representing five per cent of Afren's market capitalisation.

In the second transaction, Afren paid $300 million to Oriental, representing 12 per cent of its market capitalisation in return for Afren acquiring rights to certain tax allowances, and increasing its share of oil revenues from the Ebok oilfield.

According to an independent review by the law firm of Willkie Farr and Gallagher (UK) LLP, the first transaction "was not, in reality, an agreement for the prepayment of oil, nor was it a way of funding Oriental's costs in developing Ebok in a manner which might be considered to be in the ordinary course of business." The review concluded that: "It was a loan of $100 million to Oriental and was included in Afren's balance sheet for 31 December 2012, under the line 'prepayments and advances to partners'." "Accordingly, it was neither in the ordinary course nor of a revenue nature and should have been announced as a class 2 transaction on 25 July 2012 once the second tranche of $7 million was paid." With regards to the second payment, the review concluded that due to its size and incidence, it should have been declared.

Afren said in a statement that it had notified the Financial Conducts Authority, FCA, of the breaches and will make the full report available to the FCA. They may have to pay a penalty for breaching the rules. Oriental has already begun to pay back some of the money.

Speaking on the issue, executive chairman of Afren, Egbert Imomoh, said: "The decisive and comprehensive actions we have set out today should leave no-one in any doubt about how seriously Afren takes the issues uncovered in July and our commitment to rebuild the confidence of shareholders, partners, staff and our other stakeholders.

"Our focus is now on delivering the significant opportunities we have before us with an open and transparent approach to our business based upon mutual respect, the highest standards of ethics, governance and business conduct." The review was undertaken as part of the company's investigations into illegal payments received by Osman Shahenshah, and chief operating officer, Shahid Ullah, and two associate directors, Iain Wright and Galib Virani.

Shahenshah and Ullah were involved in an arrangement with Oriental that involved Oriental paying 15 per cent of its cash receipts from Ebok for the period from 2013 to 2017 to a British Virgin Islands special purpose vehicle (SPV) Ntiti Ltd.

Copyright Vanguard. Distributed by AllAfrica Global Media (allAfrica.com).

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