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Nigerian govt sues Shell,Eni in London over undervaluing OPL 245

The Anglo-Dutch and Italian companies paid $1.3bn for the block, but Nigeria believes the undeveloped deepwater block could be worth at least $3.5bn and damages should now be calculated on that basis

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The Federal Government of Nigeria has filed a suit in a London High Court challenging Shell and ENI of undervaluing the worth of the controversial OPL 245 which had been variously sold by past administrations of the country. The Anglo-Dutch and Italian companies paid $1.3bn for the block, but Nigeria believes the undeveloped deepwater block could be worth at least $3.5bn and damages should now be calculated on that basis.

Already, lawyers engaged by the Nigerian government have filed documents before the commercial division of the High Court in London. The claim in the English courts alleges that Shell and Eni “both paid bribes” either directly or indirectly and senior executives at both companies “received bribes (or were intended to receive bribes)” as part of the 2011 deal. Nigerian and Italian prosecutors have alleged that the companies knew that most of the money would be funnelled to corrupt government officials and executives.

The documents filed in the London court affirms the testimony of a renowned  international oil expert, Stephen Roger from Athur D Little firm in the United Kingdom before a Milan, Italy court which faulted oil giants Shell and ENI for their evaluation of the OPL 245. On Thursday in Milan, 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.”

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 criticized 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.

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