THE Gulfstream GIV jet touched down on a hot, bright day in Boca Raton, Florida, sending whirls of vaporised rubber into the air as the wheels met the baking runway.
A convoy of black SUVs pulled on to the tarmac to meet the weary travellers. Mohammed Indimi, a Nigerian oil tycoon, stepped gingerly down the folding stairs. Behind him was a stout, bespectacled executive who stood out among the African travelling party.
Born in Bangladesh but educated in Texas, Shahid Ullah was the head of operations at Afren, the London-listed oil producer that was the key partner of Indimi’s private oil company Oriental Energy Resources.
It was May 2012. Indimi had flown to Florida to receive an honorary doctorate from Lynn University. He was not being honoured by the obscure university because he had sent six of his children to study there. Rather, the gala was held to recognise Indimi’s business and philanthropic achievements. Less than a year later he became the lead donor of Lynn’s newest college, the $14m Mohammed Indimi International Business Center.
Ullah’s presence at the week’s events — immortalised in a bizarre 49-minute video that includes footage of a group outing to the Miami Seaquarium — was hardly surprising. Afren had been Oriental’s partner for four years in the Ebok reservoir, located 30 miles off Nigeria’s hydrocarbon-rich coast.
The field, discovered in 1968 by Exxon, had not been developed because the Texas giant deemed it too small. For Afren and Oriental, however, Ebok was their making. By 2012, Afren had rocketed from a London penny stock to an Africa-focused powerhouse worth £2bn thanks to record production, mainly from Ebok.
Oil was then selling for $90 a barrel. Afren and Oriental, chaired by Indimi and staffed by his children, were making money hand over fist. Ullah, Afren’s chief executive Osman Shahenshah and Indimi had grown very close. Too close, as it turned out.
Three years on from those halcyon days, Afren stands on the brink of collapse. Creditors led by American bond giant Pimco are this weekend considering whether to throw it a fresh financial lifeline, just three months after handing it $200m in emergency funding.
Last week the company abruptly postponed a shareholder vote on a rescue fundraising. The reason: production from its star asset, Ebok, had unexpectedly plummeted, rendering useless the profit and loss assumptions underpinning the bailout deal. Worse, it has already blown the cash that creditors injected in April.
The sudden fading of Afren’s prospects raises uncomfortable questions for Afren’s new management and their advisers, turnaround specialist Alvarez & Marsal and Morgan Stanley, sponsor of the aborted rights issue. A creditor said: “We’re going to have to put a lot more money in to get a lot less money out.”
Afren is a penny stock again. Its shares have lost 99% of their value, undone by huge debts, the weak oil price and greed.
The meltdown began on March 26, 2014, when company secretary Elekwachi Ukwu sent a memorandum to the board questioning whether three financing deals that Afren had done with partner companies in Nigeria, together worth $500m, should have been disclosed to the market. The board brought in law firm Willkie Farr & Gallagher to investigate.
What they found shocked them — a secret financing arrangement that Ullah and Shahenshah had set up with Oriental that would have paid them and other executives up to $200m over four years. The cash was set to flow into a British Virgin Islands vehicle, called Ntiti, that the duo created in October 2013.
The timing of Ntiti’s genesis was interesting. Just four months earlier investors had delivered a stinging rebuke. About 80% had voted against the compensation of Shahenshah and Ullah, who were paid £3.4m and £2.6m, respectively, the previous year. The vote, though not binding, was embarrassing. Investors had voted down the previous year’s remuneration report as well.
Ntiti offered an enticing alternative. Oriental, which owned 60% of Ebok, had agreed to funnel 15% of its cash flows from the reservoir until 2017 into the British Virgin Islands vehicle. Based on Ebok’s expected production and $100-a-barrel oil, analysts estimated the deal could have paid out up to $200m.
Finally, Shahenshah and Ullah would get a taste of truly fabulous wealth. They had done well, but not nearly as well as their partner Indimi, whose fortune had swollen to $550m, according to Forbes magazine.
By the time Willkie Farr uncovered Ntiti, a clique of 11 Afren executives, including Shahenshah and Ullah, that was known internally as “the A team”, had already collected millions from the scheme.
Indimi claimed the arrangement was a simple incentive scheme designed to retain key Ebok managers. Oriental had agreed to it just two months after Afren lent Oriental $300m. The purpose of that deal is a matter of dispute between Afren and Oriental.
Indimi also claimed he thought that the Afren board knew about the pay arrangements that followed. He dismissed the Willkie Farr report as a “collection of suppositions and unsupported innuendos”.
Afren took a different view. It fired Shahenshah and Ullah in October. Two months later, on New Year’s eve, it snuck out an announcement: Shahenshah and Ullah had agreed to give back $17.1m. In return Afren promised not to prosecute.
By that time, however, Afren had bigger problems. Amid the upheaval the oil price had halved. The collapse threw Afren, which was then being run by stand-in chief executive Toby Hayward, a former banker who sat on Afren’s board, into dire financial straits. If the low crude price persisted, the company wouldn’t be able to pay its interest bills on its $1.6bn debt. Afren needed to be rescued.
In April, it appeared the company was ready to turn over a new leaf. It hired a seasoned oil man, Alan Linn, to right the ship and secured a $200m lifeline from bondholders. The moves, the company said, “set ‘New Afren’ on a decisive path to address the operational and governance issues it has faced”.
The financing was the first step in a complex bailout that was set to finish last Friday, when investors were to vote on a £49m deeply discounted rights issue that would leave them with as little as 10% of the company.
The deal was contingent on Ebok, which accounts for 22,000 barrels a day of Afren’s projected 2015 production — about two-thirds of total output. Sources said that Linn’s team recently discovered that delays to a new platform meant output would fall “well short” of that projection. Worse, water is understood to be building up in the reservoir, which experts say could be because of overly aggressive production under the previous managment regime.
With oil at $55 a barrel, even a 1,000 barrel-a-day drop-off equates to a $20m hit to annual turnover, which Afren can ill afford.
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