Seplat Energy Spent $450 Million On Firms Tied To Founders
Seplat Energy Spent $450 Million On Firms Tied To Founders
Seplat Energy Plc, one of Nigeria’s largest independent oil and gas producers, spent more than $450 million over a 12-year period on products and services from businesses connected to its two founders, the majority of it following the company’s 2014 London and Lagos public listing.
According to the company’s annual reports, Seplat paid the payments to 18 entities connected to former chairman Ambrosie Bryant Orjiako and former chief executive officer Austin Avuru, setting the company up for a potential substantial growth after agreeing to a deal with Exxon Mobil Corp. The businesses provided everything from drilling rigs to gift baskets, and some of them had ties to the two men’s families, according to the reports.
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The transactions, according to Bloomberg News, began in 2010 and came to a stop in 2021 when the board decided to gradually phase out transactions with “associated parties”. In 2014, payments to these businesses reached a height of about $106 million, or 13.6% of total revenue. In 2015 and 2016, they were more than a tenth of overall income, but after that, the amount of transactions decreased, save for a rise in 2019.
Seplat Energy Spent $450 Million On Firms Tied To Founders
In response to questions from Bloomberg, Avuru said he and his business partner founded the two biggest recipients of contracts with Seplat specifically to help the company meet its ambitious drilling targets and reduce logistical costs. Orjiako did not respond to requests for comment. Seplat declined to comment.
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Nigerian Champion
- Orjiako and Avuru, both well-known businessmen in Nigeria, created Seplat through the merger of two of their companies in 2009. After the five international oil majors active in the West African country, the Lagos-based firm competes with Indian-owned Sterling Oil Exploration & Energy Production Co. to be the largest producer of crude and natural gas. It pumps about 50,000 barrels of oil equivalent each day from a portfolio of eight onshore blocks.
- In February 2022, Seplat agreed to buy Exxon’s shallow water permits in Nigeria for at least $1.28 billion, a deal that would almost triple its production. The Nigerian National Petroleum Co. is trying to block the purchase and take over the licenses itself. Last month, President Muhammadu Buhari approved the transaction before swiftly reversing his decision and siding with a regulatory body’s rejection of the sale.
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- Of the $450.5 million of transactions, Seplat has declared for goods and services with companies in which Orjiako, Avuru or their relatives have stakes, $283 million was paid since 2014 when the firm listed on the London and Nigerian stock exchanges, according to its annual reports.
Seplat Energy Spent $450 Million On Firms Tied To Founders
Rig Shortage
- Seplat’s founders co-owned the two largest beneficiaries: Cardinal Drilling Services Ltd, which provided drilling rigs, and Nerine Support Services Ltd, which supplied warehousing space as well as agency and contract workers. Cardinal and Nerine received $137.2 million and $121.5 million respectively, the reports show.
- Avuru, Orjiako and Paris-listed Etablissements Maurel et Prom SA set up Cardinal about a decade ago to address a shortage of rigs in the Nigerian market, Avuru said by email. The new company acquired four land rigs exclusively for Seplat’s use, which enabled the producer to achieve an “aggressive drilling program” and nearly quadrupled output between 2012 and 2015, he said.
- Contracting was done “strictly at arms’ length and the rates were demonstrably competitive,” Avuru said.
- Avuru and Orjiako created Nerine to tackle the “huge costs” and delays caused by using storage and logistical facilities run by a third-party contractor inherited from Shell Plc, from which Seplat had purchased its first licenses, Avuru said. Nerine built a new warehouse and supply base for Seplat that made savings of 60%, he said.
Seplat Energy Spent $450 Million On Firms Tied To Founders
Family connections
- Other companies owned by Orjiako were paid tens of millions of dollars for diesel deliveries, construction work, consulting services and business development, according to the annual reports. A firm where his nephew is a director and shareholder received $59 million for engineering contracts, the reports say.
- One of Avuru’s businesses charged nearly $14 million for transportation services, while companies in which his wife holds shares and where his sister was employed were paid for catering a staff canteen and supplying bespoke gift hampers.
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- In total, Seplat paid $410 million to companies associated with Orjiako and $299 million to those connected to Avuru over the 12-year period, according to its annual reports.
- The savings provided to Seplat from Cardinal and Nerine were “beclouded” by their inclusion as related-party transactions in the company’s annual reports, Avuru said. These “negative sentiments” drove Seplat to eventually buy the rigs and the warehouse, he said.
- Avuru retired as Seplat’s CEO in July 2020 and remained as a non-executive director until March this year. Orjiako stood down as the producer’s chairman in May, and will continue to assist Seplat with “specific and essential external stakeholder engagements,” the firm has said.
- Orjiako and Avuru currently have stakes in Seplat of 6.4% and 8.4%, respectively, according to the annual report. Maurel et Prom is the largest shareholder and declined to comment.
Seplat Energy Spent $450 Million On Firms Tied To Founders
- In March 2021, Seplat’s board, at the time still headed by Orjiako, announced the company would “eliminate” all related-party transactions by the end of last year. The then-chairman wrote that the decision was “a sign of our commitment to the highest standards of governance.”
- Despite that policy change, in October 2021 Seplat transferred $36 million to Access Bank Plc to purchase four drilling rigs previously owned by Cardinal, resolving a lawsuit over defaulted loans filed by the bank against Seplat, Cardinal and Orjiako, according to Seplat’s 2021 annual report.
- The company also paid $509,000 to the British Virgin Islands-registered firm that holds Orjiako’s shares for “consulting services” during the first six months of 2022, the company disclosed in July.
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