Dirty Oil

forbes.com On The Cover/Top Stories Silvia Sansoni, 04.28.03

Change the administration in a place like Nigeria and ugly accusations bubble up to the surface. Nigeria sits atop 25 billion barrels of high-quality crude. But extracting the oil from the swamps of the Nigerian government can be messy. Nigeria ranks second (after Bangladesh) among the world's most corrupt countries, says Transparency International in Berlin.

Cozy ties between oil multinationals and the government (a partner in all ventures via the state-owned Nigerian National Petroleum Corp., or NNPC) make evidence of mischief hard to find. Until a deal goes sour--and the ugly process spills into view.

A botched joint venture between Royal Dutch/Shell Group and its Nigerian partner, Malabu Oil & Gas, has ended up in federal district court in New York City. Last August Malabu sued Shell, accusing it of colluding with Nigerian officials to snatch its juicy oil prospecting license, OPL 245, a giant block in the deepwater area of the Niger Delta, with estimated reserves of more than 1 billion barrels. The tiny oil concern wants $1 billion in compensation to go away.

The ill-fated venture started in 1998, just before the collapse of General Sani Abacha's military regime. Early that year Abacha's petroleum minister, Dauzia Loya Etete, awarded himself a license to develop OPL 245 and set up Malabu as the license holder. (Though technically not an owner, Etete is widely believed to control Malabu.) After Abacha's dictatorship collapsed, the civilian administration of President Olusegun Obasanjo set up a panel to review oil licenses and revoked a number of them. But Malabu got to keep its claim.

In late 1999 Malabu offered Shell's Nigerian subsidiary 40% of the profits in exchange for bearing exploration and production costs. Soon after, the new government wanted a piece of the action, according to Etete. In a written deposition to Nigeria's House Committee on petroleum resources, which is investigating the charges, Etete claims to have dined in August 2000 with Vice President Atiku Abubakar who, Etete says, demanded a stake as a condition for not revoking the license.

In depositions Etete claims he has taped conversations of meetings he had with Abubakar's middlemen, discussing the payment of bribes to Abubakar, President Obasanjo and Shell managing director Ron van den Berg. Shell maintains it doesn't know who is on the tape. "Conversations between two people nobody has identified in no way establishes any link whatsoever with Shell's managing director," says Tony Okonedo, head of Shell's media relations in Lagos. (The parliamentary committee recently requested a warrant for the arrest of Van den Berg for failing to show up for questioning.) In late 2000, Etete alleges, he received a phone call from an agent of the vice president, asking him to sell Malabu's stake in the block. Etete refused, and in July 2001 the government revoked Malabu's oil prospecting license; Shell lost its stake, too.

Months later the government invited Shell and ExxonMobil (nyse: XOM - news - people ) to bid on OPL 245. Exxon reportedly offered $40 million; Shell won with a $210 million bid, securing 100% of the license. Malabu is crying foul. It says Shell's bid was based on insider knowledge of the block's huge reserves. "Until you start drilling you can't say for sure how much oil there is," says Donald Boham, Shell's spokesman in Lagos, licking his thumb and holding it up to an imaginary gust of wind to make his point. "We bid on the block; Exxon bid on it. We won."

Malabu accuses the president's men of improperly organizing the auction, a function that should have been carried out by the department of petroleum resources. Etete alleges that Shell wooed the vice president with oil services contracts for a company he reportedly has a stake in, Intels. In his deposition Etete claims to have taped conversations between agents of the vice president and Shell discussing such deals. Shell, says spokesman Okonedo, "has a well-established and transparent contracting policy and processes that include [government] supervisory involvement and approval at all levels."

How credible is Etete? The former oil minister in a notoriously brutal and corrupt government, he was known for keeping a couple of lions caged in his backyard, feeding them two goats a day. Currently living in Paris, Etete is wanted by the Nigerian police, reportedly on money-laundering charges.

Shell hopes to settle the dispute via arbitration in London. "It's all speculation," says Boham, of Etete's charges. "The process of law will tease out the actual situation."

Maybe. Fire struck the NNPC offices in December, destroying many documents. Police are looking into arson. Given the history of past investigations into corruption, this trail will probably go nowhere.