Malabu: Nigerian law expert explains the illegality of OPL 245 deal to Italian court

Nigerian lawyer and oil law expert, Dr Dayo Ayoade has explained the illegality of the Malabu deal to the court in Milan on Thursday during the ongoing trial of oil giants; Shell and Eni.

Shell and Eni have been accused of participating in shady deals that led to their acquisition of Oil Prospecting Lease(OPL) 245 in Nigeria from a company called Malabu, owned by former Petroleum Minister, Dan Etete.

Ayoade, who is a lecturer at the University of Lagos, was a consultant hired by Italian prosecutors in the case

According to Barnaby Pace of Global Witness, who was at the court, Mr Ayoade was hired by Milan prosecutors to determine whether the two oil giants met corporate and legal obligations in securing the controversial block.

“Dr Ayoade explains that under a 2010 Nigerian law, in place before the 2011 deal Nigerian owned companies must be considered first in receiving oil licenses. Eni and Shell’s subsidiaries NAE and SNEPCO would not be considered Nigerian owned.” Pace said.

He also explains that after the civilian government came to power in 1999 the military rule-era system of discretionary allocations of oil licenses was stopped because of its abuses and lack of transparency. A competitive bidding system was put in.

“Discretionary allocations are still allowed in “marginal fields” but Dr Ayoade explains that these small fields can’t be compared to OPL 245, which has two oil fields ZabaZaba & Etan estimated to hold over 500 million barrels of oil. Making it one of the biggest in Nigeria.” Pace continues

Dr Ayoade said that in his view is was anomalous that the Nigerian Government chose to conduct this settlement in this case when Malabu had failed to pay the $210m signature bonus to acquire the OPL 245 license in the first place. Nigeria could have revoked the license.

He also considered it strange that the Minister of Petroleum was not closely involved, instead the deal centred on the Attorney General. Yet the deal gave exemptions from taxes, awarded an oil license outside the usual process and restricted government rights.

According to Barnaby Pace, Dr Ayoade was asked about the role of Department for Petroleum Resources. He highlight the letter from the DPR Director objecting to the deal just before it was signed. The letter called the deal “highly prejudicial to the interests of the Federal Government”

Dr Ayoade explained that tax exemptions are built into tax laws or can be given by Executive orders, directives by the President which have to be recorded in the Federal Gazette. The deal is not in line with the law as the FGN cannot give an exemption without an order or law.

According to Pace, Dr Ayoade told the court that Shell and Eni’s deal resembles a sole risk contract. Under Nigerian law sole risk deals in deep water are only allowed where the license holder is a Nigerian owned company. OPL 245 is an exception to this.

Dr Ayoade also explained that under production sharing contract you have Royalty Oil, Cost Oil, Tax Oil and Profit Oil. Shell and Eni’s production sharing deal does not include cost oil or profit oil split with the government so its not in line with Nigerian law.