Afren fires CEO and COO after illegal payments

Nigeria focused oil and gas producer, Afren has dismissed its chief executive, Osman Shahenshah, and chief operating officer, Shahid Ullah and two associate directors, Iain Wright and Galib Virani for gross misconduct after receiving various unauthorised payments. The shares rose 5% to 102p on the news with relief that there had been “no material loss to the company as a result of these transactions” and the vast majority of the loans have been repaid. The shares originally dropped around 40% on the news of the fraud investigation by the company and are still down heavily from the 170p level reached early this year.

The independent review by KPMG and Willkie Farr & Gallagher has resulted in the company instructing counsel to commence legal proceedings against Shahenshah and Ullah, if necessary, to recover sums in respect of such unauthorised payments. The illegal payments encompassed three transactions between the company and its partners in 2012 and 2013 with the CEO and COO offering two loans to its partner Oriental Energy Resources totalling $400 million which should have been announced to the stock exchange as Class 2 transactions, but were not.

In October 2013, Oriental paid $45 million to a British Virgin Islands company Ntiti Limited, controlled by Shahensah and Ullah in exchange for facilitating the loans. Following this payment, Shahenshah and Ullah, with the help from the business development manager, Faiz Iman, paid themselves and other employees $17.1 million in bonuses.

Afren has always had somewhat of a dubious reputation and perhaps with Shahenshah and Ullah out of the way the company has a real chance for a clean break with the past and the opportunity to impose gold standard corporate governance. It has been an ugly chapter seeing the CEO and COO receive these significant unauthorised payments but it has been reassuring to see the company deal with the issue so effectively. In addition it has been interesting to see SAPetro and South Atlantic Petroleum buying the shares.

Contrarian Investor UK

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