The bankruptcy of Houston based Erin Energy is not only the straw that broke the camel’s back but also the beginning of more legal woes for the company formally known as Camac Energy as it’s at the verge of losing its only cash-generating asset, a Nigerian oilfield.
New York and Johannesburg listed Erin Energy filed for bankruptcy last week as it seeks to restructure its debt and regain financial viability, as Allied Energy Plc and Camac International Nigeria Ltd founded by renowned Nigerian-born industrialist Kase Lawal who is also current chairman of Unity National Bank, the only black-owned bank in Texas USA hit the centre of controversy surrounding Erin’s demise.
The first alarm bells were rang in 2014 when Investigative journalism group amaBhungane revealed investment losses of South Africa’s Public Investment Corporation (PIC) in a Nigerian oil venture that benefited American-Nigerian oil man Kase Lawal, an ally of then-president Jacob Zuma.
Despite being on the edge of bankruptcy, PIC investment committees headed by then chief investment officer Dan Matjila now CEO handed Erin $270-million in 2014 and took a 30 percent stake and a seat on the board.
After the deal, Erin bought what it called the “economic rights” to Nigerian oil mining licenses 120 and 121, which included the productive Oyo oil field owned by Lawal and his family. However Oyo oil field turned out not to be as productive as forecasted as Erin shareholders sued CEO and certain directors of Erin over the deal.
The shareholders claims the CEO of Erin Energy overpaid by almost $200 million in Oyo Field deal that also benefited Allied Energy, another company controlled by Lawal.
The shareholder’s also claims that certain directors failed to protect the negotiations from the CEO’s undue influence and then sent out the transaction proxy which misleadingly portrays the deal process as pristine.
A legal dispute occurred in 2012 as Allied Energy bought 40 percent of the oil rights from a subsidiary of Italian oil major ENI, however Allied only paid $100 million of a $270million purchase price, according to court records, putting Erin Energy in jeopardy leading to a subsequent embarrassing scenario for Erin Energy.
Two Nigeria court and a London court of International Arbitration ruled in favour Eni instructing Camac International to pay ENI $200-million, a Cayman Islands court issued a winding up order for Lawal’s Camac International who was its chairman, CEO and controlling shareholder.
All attempts by BusinessDay to get Erin Energy side of the story prove abortive as the company refused to respond to emails forwarded to the email found on their website.
In April this year, things turned from bad to worse for Kase Lawal as two Cayman Islands court representatives requested all recorded information relating to the company’s property or financial affairs from the Southern District of New York.
The two liquidators want to get to the bottom of the dissipation of nearly $1 billion of assets held by CAMAC’s subsidiaries. The liquidators noted that CAMAC’s two indirect subsidiaries Allied Energy Nigeria and CAMAC International Nigeria (CNIL) transferred shares they held in American junior Erin Energy, of which Lawal was CEO from 2011 to 2016.
In 2016, the PIC’s investment committee agreed to secure a $100-million bank guarantee so that Erin could borrow for drilling and other expenses at the Oyo oil field.
Erin’s loan was finalised in January 2017, and it pledged its assets as security essentially the oil rights that were ultimately owned by Camac which implies that should Erin not be able to repay the loan, and should the oil well happen to be locked up, the banks could ultimately turn to the PIC for the cash.
“CAMAC is our majority stockholder, and it may take actions that conflict with the interests of other stockholders,” Erin said in its 2016 financial report.
Erin continued, “CAMAC beneficially owned approximately 56.7 percent of our outstanding shares of our common stock and continues to own a majority interest.”
“CAMAC controls the power to elect our directors, to appoint members of management and to approve all actions requiring the approval of the holders of our common stock, including adopting amendments to our Certificate of Incorporation and approving mergers, acquisitions or sales of all or substantially all of our assets, subject to certain restrictive covenants,” Erin said.
Although the then-current market value of Allied Energy’s shares in Erin Energy was approximately $164 million, they were then handed over to two firms, Oltasho Nigeria and Latmol Investment, before their voting rights were bought by Lawal himself for a mere $10. A string of similar cash flow transactions appear to have stripped parent group CAMAC of a total $1 billion.
“116 million shares previously held by Allied Energy Plc were transferred to Oltasho Nigeria, Ltd representing 53.9 percent of ERN shares outstanding; the transaction represented a change in control of the Company,” Cardinal Stone research analysts said in a report then.
“However, in July 2017, Oltasho signed a 10-year voting agreement with Kase Lawal, the Company’s former Chairman and CEO, authorizing Lawal to vote the foreclosed shares at future meetings and via proxy. As such, the voting agreement represented another change in control of the Company,” Cardinal Stone research analysts said.
According to Erin: “On January 31, 2018, ENI’s entourage, including armed personnel with weapons drawn, forced their way into safety restricted areas of the Floating Production Storage and Offloading Vessel (FPSO) Armada Perdana and chained and counter-locked the vessel’s main export valve.
“ENI’s use of weapons and flash photography in this area was a significant violation of industry safety procedures; ENI asserted that the Erin crude oil stored on the FPSO was being seized pursuant to the Nigerian court writ.”
Erin sought an order setting aside the writ. It said: “Erin is the owner of the crude oil on the FPSO, the writ did not authorize ENI to attach Erin’s crude oil, and the attachment of Erin’s crude oil interfered with its constitutionally protected property rights, among other things.”
Erin did not describe the outcome of its court application, but it said Nigeria’s department of petroleum resources (DPR) had declined to give it a permit for its scheduled oil off take at the end of March. According to Erin, this was “due to ENI’s improper use of the writ and its interference with Erin operations, as well as its court proceedings”.
However, the government then suspended Erin’s oil processing indefinitely as its first quarter crude oil off in Oyo field production is still delayed.
Lawal, founded the Camac Group in 1986 originally exporting American tobacco to Africa. He soon scored a lucrative oil contract in Nigeria worth 55 000 barrels a day in 1999.
His business interests in SA grew during Jacob Zuma’s presidency.
Zuma accompanied Lawal to his alma mater – Texas Southern University – to accept an honorary doctorate shortly after making a commitment in 2010 to pay R5-million to Zuma’s Education Trust.
Camac then scored the R3-billion contract with the country’s PIC.
DIPO OLADEHINDE
