Given the influence of ExxonMobil and Anadarko with the Bush Administration - Anadarko VP Greg Pensabene is married to Senate Energy Committee Republican Chief Counsel Judy Pensabene, and both went to school with the probe's initiator, Democrat R. Dobie Langenkamp, at Tulsa University School of Law - the request is likely to be received with open arms.
But how the United States can investigate the bilateral relationship encountered in the Nigeria-Sao Tome Joint Development Zone, except through a possible SEC inquiry aimed at ERHE, an Over-The-Counter Bulletin Board issue, is unknown.
The alleged wrongdoing appears to involve a failure to follow certain rules and procedures set up by the Nigeria-DRSTP Joint Development Authority rather than genuine securities-related issues.
The report does bring up the issue of payments to Sao Tome officials that were widely discussed in 2003. ERHC Energy was obligated to make certain payments to Sao Tome under a contract it signed in March 2003, and those have become controversial time and again as the years pass. The comapny also made a legal campaign contribution to President Fradique de Menezes of $100,000 in 2002. The company has not had any contact with Sao Tome offficials in the Second Round, which started in November 2004, ERHC Energy CEO Ali Memon said.
Nonetheless, the request promises another round of "buying opportunities" and new delays in the signing of PSCs, which were expected in December but now are likely to be delayed for many months.
The Bid has fallen from $0.445 a few hours ago to $0.37 now, wiping out long-awaited and hard-won gains.
At 1:57pm, the Bid was $0.351 and the Ask $0.354. Volume is 5,721,860.
Here is the Reuters account of the probe request:
REUTERS Sao Tome to ask U.S. to probe ERHC oil contracts
By Zoe Eisenstein
SAO TOME, Dec 12 (Reuters) - Sao Tome will ask U.S. authorities to investigate contracts awarded to Houston-based ERHC Energy following a probe into alleged
irregularities in an oil exploration licensing round.
A report by Sao Tome's Attorney General's office said there were repeated suggestions that Nigerian-controlled ERHC made improper payments to officials and their families during the award of oil blocks in a joint development area shared with Nigeria.
"Key officials in the past have been reported to have solicited bribes, and ERHC has provided known benefits to the families of key decision makers," said the report, a copy of which was obtained by Reuters.
"Such payments would be a violation of Sao Tomean law and make the contracts voidable," the report said.
"The office intends to refer this matter to the U.S. Department of Justice and the Securities and Exchange Commission and to seek their assistance in investigating whether violations of U.S. law have occurred."
U.S.-listed ERHC, which Sao Tome says is controlled by Nigerian company Chrome, was the biggest winner from the licensing round for five blocks, gaining the joint control of two blocks and stakes in the three others.
Asked about the report, ERHC President and CEO Ali Memon said his company had acted at all times in consortia with U.S. companies.
"Whatever we have done from the time of the submission of the bids, we have acted in consortium with other major U.S. companies," Memon told Reuters. "ERHC has had no contact with any Sao Tomean officials whatsoever through the bid process."
The round, which concluded in May, was the second held in the Joint Development Zone (JDZ) shared by the two neighbours in
The Nigerian attorney general's office had not cooperated in the probe and no Nigerian officials had testified, the report said.
The preferential rights granted to ERHC would, if executed, result in a loss of $58.6 million in revenues for Sao Tome, the investigation concluded.
Separately, the attorney general's report noted the conditions of ERHC's agreement were so favourable they might violate Sao Tomean law by "alienating" -- signing away control over -- its natural resources.
"Apart from fraud, Sao Tome and Principe should again reexamine whether there are grounds for terminating the contract," the report said.
Expressing concerns over the financial and technical qualifications of some of the companies awarded blocks by the Joint Development Authority (JDA), the inquiry suggested some of their partners might simply withdraw.
"One immediate challenge to the JDA may be the partial collapse of the second round itself," the report said, noting none of the groups awarded blocks had finalised production sharing agreements with the JDA.
The report said top U.S. independent oil producer Devon Energy Corp. and Noble Energy Inc. had already withdrawn from two groups where ERHC was a partner.
The investigation recommended the JDA should simplify the bidding process, making it more transparent and reducing the number of variables open to bidding.
International observers should be invited to observe the process and members of the JDA should be made to disclose any interests, the report concluded.
Next is the latest report available on the same topic, which comes from Oil Daily via the Energy Intelligence Group, publishers of Energy Compass and courtesy of I-Hub poster stockhocker:
Sao Tome Report Slams Upstream Round as 'Seriously Flawed'
Tuesday, December 13, 2005
An investigation by the attorney general of Sao Tome and Principe into the controversial second licensing round held in the Joint Development Zone (JDZ) shared with Nigeria has concluded that the process was "seriously flawed and failed to meet minimum acceptable standards for the award of licenses," Oil Daily can reveal.
In the as-yet-unreleased report -- a copy of which was obtained by Oil Daily -- Attorney General Adelino Pereira criticizes the licensing process and partner Nigeria, stating that the whole process "has been to the financial detriment of Sao Tome … and may be responsible for the inability of the Joint Development Authority (JDA) to actually enter into development agreements with the awardees."
Pereira recommends that the JDA require all block signatories to sign modified production sharing agreements by a fixed date, with awards rendered void if they fail to meet this deadline.
The second bid round for the JDZ was launched in October 2004, and after a long bidding process, contract winners were announced by the Joint Ministerial Council (JMC) in June 2005 -- swiftly followed by the resignation of the Sao Tome prime minister over the bias shown toward Nigerian firms (OD Jun.27,p6). So far no contracts has been signed for any block in the second round, and two US independents, Devon and Noble Energy, have withdrawn from the process.
The round was subject to "serious procedural deficiencies and political manipulation, including the award of interests to many unqualified firms or firms with inferior qualifications, technically and financially," says this month's attorney general's report. It goes on to argue that the manipulation deterred qualified companies from bidding, and diminished the value of any license in the eyes of those that did. Furthermore, awards went to companies that had neither the "technical or financial capacity for deepwater drilling," with no due diligence performed on bidders until after the final awards were determined. The various ties identified in the report "strongly suggest the importance of political and other connections."
The document -- authored by Pereira, with aid from US-based nonprofit organization International Senior Lawyers Project -- says that some companies were given interests in blocks even though they had not been the high bidder, while in other blocks operators' interests were diluted through the "forced partnering" with companies inserted by the JDA. It also says some companies were given the opportunity to rebid during the selection process, and that several JDA and JMC representatives -- from both countries -- "had financial conflicts of interest in the process because they held stock in companies bidding for and receiving awards."
The report confirms suspicions that senior members of the Sao Tome government came under severe pressure from Nigerian representatives to accede to the "insertion" of companies that appeared to be under the control of Nigerian nationals, "some of whom are closely associated with the Nigerian government."
Sources close to the process previously alleged that the Nigerian government -- keen to collect JDZ signature bonuses -- only managed to persuade Sao Tome President Fradique de Menezes to approve the award recommendations by threatening to withhold Sao Tome's share of the signature bonus on Chevron-operated Block 1, the only award in the first licensing round in 2003-04.
However, a number of the "inserted" companies have so far been unable or unwilling to provide the funds needed to advance the negotiation of license agreements with the JDA.
Sao Tome's problems during the second round were exacerbated by the presence of Environmental Remediation Holding Corp. (ERHC) -- a Nigerian-owned, US-listed firm -- and its preferential rights to stakes in six blocks under an earlier bilateral accord between Nigeria and Sao Tome. The report claims ERHC's participation discouraged more qualified companies from bidding because of "reputational, financial and technical concerns," resulting in the loss of nearly $60 million of signature bonus money that would otherwise have gone to the Sao Tome government.
Although previous attempts to nullify the ERHC contract have failed, the attorney general suggests that as "improper payments" or "benefits" to government officials or their families may have helped secure the deal, his office intends to refer the matter to the US Department of Justice and the Securities and Exchange Commission, "to seek their assistance in investigating whether violations of US law have occurred."
In a footnote to the report, Pereira notes that his investigation was based solely on the basis of the JDA documents available to the Sao Tomean authorities and voluntary individual statements. He requested the assistance of the Nigerian attorney general's office, but "no answer was received."
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