Buhari slaps Eni down: Legal due process must be allowed to take its course

by Lorenzo Bagnoli

Correspondence between the Italian oil multinational Eni and President Buhari of Nigeria reveals that Nigeria refused to bow to insistent requests by letter to convert Eni and Shell’s exploration license for the Opl 245 field into an oil mining license, insisting that no decision would be taken until court cases relating to the deal had been completed.

Eni and Shell were granted an oil exploration license for the Opl 245 oil bloc in 2011 for a period of ten years. The license expired on 11 May 2021 but, unlike Shell, Eni has (as of 1st March 2022) not written down the asset. This means that according to the Eni financial statement in ten years the value of the asset has never declined.

The correspondence dates back to 2018. The exchange of letters was made public in the Milan trial of Eni and Shell on charges of international corruption. Both companies, together with 11 other defendants, were acquitted by the Court of First Instance in Milan. The acquittal is being appealed by the Milan Prosecutor. All the defendants have denied any wrongdoing.

On 11 December 2018, Guido Brusco, the then chair of Eni’s Nigerian subsidiary, Nigerian Agip Exploration Limited (NAE), wrote to the President of Nigeria noting that NAE had submitted “a conversion request” to the Department of Petroleum Resources on 9 February 2018. The letter requested that the President confirm that Nigeria will “progress and complete . . . the conversion request from OPL to OML”.

On 19 March 2019, the Minister of State for Petroleum Resources, Dr Emmanuel Ibe Kachikwu, responded on behalf of the President. The letter states boldly that Eni’s request that the OPL 245 license be converted to an Oil Mining License “will not be considered”. It further states: “. . . no further correspondence in respect of Opl 245 will be entertained from your good selves until the criminal case initiated by the Italian Prosecutor in Milan and the case in London have been concluded”.

At the time (March 2019), the Court of First Instance in Milan was not expected to hand down its judgment in the prosecution of Eni and others until early 2020. If the judgment was appealed, the earliest that the case would conclude was likely to be end of 2022. Additional appeals to the Supreme Court would extend the likely time to end of 2023. In any event, the case was unlikely to be concluded prior to the expiry of the license in May 2021, as has proved to be the case (Eni was acquitted in March 2021 but an appeal has now been lodged by the Milan prosecutor and the Federal Republic of Nigeria).

As to “the case in London”, two civil claims relating to Opl 245 were being pursued at the time by Nigeria, one involving Eni and the other JP Morgan Chase. The President of Nigeria did not specify which case he was alluding to in his letter. Although the first was concluded in 2020 (thus prior to the expiry of the Opl 245 license), the substantial hearing for the second only began until February 2022.

In July 2020, Shell wrote down its Opl 245 asset. The company had previously disclosed that there was “a high degree of uncertainty” over Opl 245’s operational development, due in large part to litigation against the companies for alleged corruption. In contrast to Shell, Eni has maintained the Opl 245 asset on its books. No impairment was recorded by the company in 2020 or 2021. The Opl 245 property is booked by Eni as an “unproved mineral interest”.

Eni’s 2020 Annual Report records the company’s share of Opl 245 property having a net book value (as of 31 December 2020) of €1,085 million. The valuation, which included capitalized exploration costs and pre-development costs, amounted to 2% of the company’s then total assets (€53.9 billion). In an April 2021 filing with the US Securities and Exchange Commission, Eni justified the retention of the asset on the “assumption that the exploration licence due to expire in May 2021 will be renewed or converted into a mining licence”. Citing “the inaction of the Nigerian authorities”, Eni has taken Nigeria to the International Centre for Settlement of Investment Disputes (ICSID) “to protect the value of its asset”. “In light of the ongoing arbitration at ICSID in Washington, initiated following the Nigerian government’s breach of its obligation to promptly convert the Opl245 license from exploration to production (in the context of substantial investments made by Eni and Shell), Eni is not in a position to comment on the request”, Eni press office replied to the IrpiMedia requests for comments. “In any case, please note that the conversion may still take place, if within a reasonable period of time, also in the future”.

Eni has since stated: “In case of refusal to conversion, a continuing deadlock by the Nigerian authorities or other action suggesting an expropriation, in the next financial reports the Company will consider a reclassification of the asset and the evaluation of the underlying right for compensation.”

In Nigeria, the expiry of the Opl 245 licence has prompted over 50 climate and human rights groups to demand that the oil in the bloc is left in the ground in the interest of combatting harmful climate change. The groups recognise that “for a country such as Nigeria, which relies heavily on earnings from the export of oil”, keeping the oil in the ground would pose a major challenge. However, they argue that an alternative exists. In a letter to President Buhari, seen by IrpiMedia, the groups write: “Brazil is negotiating an agreement with the USA under which it would be paid $1 billion a month to cut forest clearance in the Amazon by 30-40% in the interests of the world’s climate. We would urge Nigeria to press for a similar arrangement to be agreed . . . whereby an international fund would be established that would pay Nigeria $15.6 billion over the expected year lifetime of the Opl 245 field to keep the oil and gas in the ground”.