Tag Archives: William Duma

The inside story of a gas deal gone bad

Australian Financial Review | February 15, 2020

Along the Fly River in the remote Western Highlands province of Papua New Guinea, a region best known for coffee plantations and tribal headwear, a gas boom was taking hold.

Chancers and prospectors mixed it with the world’s oil majors, all seeking to transform this region of waterfalls and dense jungle into a new jurisdiction for liquefied natural gas (LNG).

ExxonMobil, France’s Total and Australia’s Oil Search had all staked a claim as the new decade began in 2010. Less well known, but no less ambitious was the ASX-listed Horizon Oil, which was looking to thread together a series of smaller development licences to support a new pipeline and LNG plant.

The pay-off would run to at least eight digits, at a time when natural gas billionaires were being minted from central Queensland to south Texas. For a company like Horizon, which saw its market value hit $550 million as the gas boom peaked, getting to first production in the Pacific nation was always going to be a sizeable task.

Then the politics of PNG intervened.

After early attempts to resist “the bad guys”, as one of its lawyers put it, Horizon chose to engage with the then minister for petroleum and local powerbroker, William Duma – a decision that has come back to bite it nine years later.

The company, which saw its stock price drop 30 per cent this week, is now confronting allegations it repeatedly ignored corruption warnings and paid $US10.3 million ($15.4 million) to a politically exposed shell company.

That company, Elevala Energy Ltd, listed its sole director and shareholder as Simon Ketan, a man with close personal and business links to Duma.

The documents, obtained by The Australian Financial Review and which reveal in granular detail how Horizon operated in PNG, are now being examined by the Australian Federal Police, which said it takes “allegations of foreign bribery very seriously”.

See also: WILLIAM DUMA: FROM MANU MANU TO HORIZON OIL

Point of no return

Horizon has also stood aside its chief executive Michael Sheridan, a 17-year veteran of the company, as it conducts an independent investigation.

It has all the makings of a grubby little scandal.

But at the same time, it’s hard to see how it could have played out any differently from the moment Horizon wrote to then petroleum minister Duma, in November 2010, saying it was “open to any suggestion” on how the “current tension might be defused”.

At that point there was no turning back.

The files document in tropical colour the narrow line Horizon was already walking in PNG, with a seemingly endless list of paid political consultants and community affairs managers, who were chasing rumours about shifting power structures, seeking “per diems” for provincial staff and arranging drinks with the then prime minister Sir Michael Somare and his daughter Betha at Port Moresby’s Airways Hotel.

Then came the task of managing warring villagers, joint venture partners, feasibility studies, and chartering helicopters for access to remote locations.

It was high finance and geoscience meets local politics and the everyday challenges of PNG, a country the World Bank ranks as poorer than Sudan.

Into this environment strode the former investment banker Brent Emmett, who had taken over as Horizon chief executive in 2000 and been joined three years later by Michael Sheridan, as chief financial officer.

Together they had refocused the company’s attention on PNG and by mid-2008 were running hard at this emerging LNG jurisdiction with stakes in three prospective oil and gas licences.

Their timing was good.

By 2009 Morgan Stanley was reporting that land under lease in PNG had increased fivefold over the previous seven years and it predicted a rush of deals and ballooning asset values.

But Emmett was unsure how best to play this boom.

Tricky terrain to navigate

In one email he pondered whether he should prove up the resource and commercialise slowly or go for the land grab.

To make such a call, Horizon, which also had assets in China, New Zealand and the United States, needed to better understand the local political terrain, which was notoriously tricky around licence transfers and renewals.

In an attempt to smooth out these wrinkles, Emmett organised to introduce himself to Duma, while Sheridan was charged with meeting Sir Michael Somare and daughter Betha at the Havanaba bar within the Airways Hotel, famous for its leather armchairs and antique cabinets.

“It was a pleasure to meet you and welcome you as yet another investor in our country even though you have been here before,” Betha wrote to Sheridan in June 2008.

From that point, Horizon began to get serious: the company set up an office in Boroko and hired a country manager.

By October 2008, Morgan Stanley’s prediction was already being realised when AGL sold its 3.6 per cent interest in the giant pipeline and processing plant known as PNG LNG for $1.1 billion.

It was a reminder of how much was at stake.

Vulnerable to political pressure

By May the next year, Horizon was also in on the action – selling half of its interests in two licences, PRL4 and PRL5, to Thailand’s P3 Global Energy Co for $US55 million, almost three times more than analysts believed the assets to be worth. The company’s share price soared.

But things weren’t as rosy as they appeared.

Behind the scenes, the Thais were questioning their investment, and Horizon was working overtime to get someone else – Canada’s acquisitive Talisman Energy – on the hook.

At the same time, with increasingly larger amounts at stake, the local politics started to get complicated. And unlike the big diversified players, Horizon couldn’t simply threaten to walk away. Its big bet was in PNG.

The company’s big pay day was contingent on firming up its gas resources to build its own pipeline and LNG-processing plant or tap into one of the existing projects. Even then its resources were on the marginal side, which meant any loss of acreage was potentially fatal for its ambitions.

That left it exposed to political pressure and everyone knew it. Enter PNG’s former petroleum minister and deputy prime minister, Sir Moi Avei, who Horizon hired as an adviser to the board, despite one industry contact warning he may be “implicated in some dubious licence deals etc”.

Those claims were never tested, but the public record shows just a year earlier, Sir Moi was found guilty on three counts of “misconduct in office”. He was fined $1500 and forced out of parliament.

‘You scratch my back …’

That was apparently no obstacle for Horizon as Sir Moi set about working the corridors and securing the company’s licences. In outlining his role to Emmett and Sheridan, he stressed the importance of face-to-face meetings and not stepping on the “turf” of other fixers, managing relationships within the department and at the village level. And when it came to handling Duma, he was clear how the minister operated.

“I’ve been helping Minister Duma out for the past 6 weeks because the LNG project is in my backyard. You know how the system works ???you scratch my back and I’ll scratch yours’,” he wrote.

But Sir Moi, who one source described as the epitome of PNG’s “big man culture”, quickly came to see the political winds shifting against Horizon.

“With regards to the minister [Duma] I can sense he is up to something. He did call me two weeks ago but somehow we have yet to meet in person. I’m still chasing him,” he wrote in November 2009.

He was right. Duma was indeed “up to something”. The trigger for the minister to make his play was a move by Horizon‘s joint venture partner, the South Australian energy giant Santos, to sell out of its interest in one licence. That suddenly became a road-block.

Sir Moi characterised these as “basic” issues, that could be untangled once Horizon understood the “process”. He warned the company’s failure to stay with the “process” would see it become a “political pawn”.

“We need to avoid [this] at all cost. I will elaborate when I see you and Brent,” he said.

Licence in jeopardy

By July, those fears were out in the open, and rumours were swirling. One engineer warned Duma “has done this before”. “[He] rescinded a licence and resold to someone else,” the company was warned. “Duma has a buyer.”

As the reality of losing a licence worth more than $100 million grew, a series of heated emails were exchanged. The Department of Petroleum and Energy accused the operators of failing to keep the site in “good standing” and not having spent the agreed amount.

Horizon and joint venture partner Santos responded with strongly worded legal letters. But on June 28, 2010, Duma served a notice that PRL5 was to be cancelled. Horizon countered by taking the unprecedented step of suing the minister, the department and the Petroleum Advisory Board for an unfair loss of licence. It was taking on a corrupt and broken system.

“I want to convey a message to Minister Duma, that’s he’s got a real dog fight in [sic] his hands,” Sir Moi emailed.

Horizon‘s lawyers at Blake Dawson said the company had strong support in the industry for its stance. “The good guys are all pretty stirred up by these goings on,” the company was told.

Then the company abruptly changed tack with a grovelling letter.

“Minister, we very much regret that this issue [the revoked licence] has led to the current situation [the litigation],” Emmett wrote to Duma. “As always, we remain open to any suggestion from you as how the current tension might be defused.”

The message got through and by March 2011, a sealed settlement had been negotiated and approved by the court. Horizon would keep 70 per cent of PRL5 (now known as PRL21), and the minister would award the other 30 per cent at his discretion.

From the minister’s discretion a 10 per cent stake in PRL21 would be given to the shell company Elevala Energy Ltd, a company without the experience or capital to develop such a complex asset and whose sole shareholder, Simon Ketan, had close personal and professional links to the minister.

In the weeks following this grant, Horizon would ignore repeated corruption warnings and buy out Elevala for $US10.3 million, a price tag which was revealed on Monday by the Financial Review after remaining secret for nine years.

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PNG Prime Minister officially takes on Horizon Oil

  • A saga of corruption and bribery allegations continue for Australian company, Horizon Oil
  • Papua New Guinea’s (PNG) Prime Minister, James Marape, has now publicly taken aim at the scandal — making the issue a priority
  • The scandal involves a AU$15.4 million transaction to a small shell company, reportedly linked to former PNG Petroleum and Energy Minister, William Duma
  • Duma continues to work in the PNG Government and James Marape has denied calls for an immediate sacking
  • Marape and Duma are expected to make a formal statement on the scandal
  • Shares in Horizon Oil continue to devalue on the Australian market, falling 3.61 per cent on Tuesday for a worth of eight cents each

Fraser Palamara | The Market Herald | 19 February 2020

Prime Minister of Papua New Guinea (PNG), James Marape, has publicly taken aim at Australian company Horizon Oil (HZN).

The pacific island leader is backing an investigation into the Australian explorer — spiralling from reports of ‘missed corruption warnings’ and a suspicious multi-million-dollar payment.

News of the saga first reached headlines earlier this month, including allegations of bribery.

Now the investigation has reached all the way to the top order of Papua New Guinea’s Prime Minister, James Marape.

“If there is corruption involved, then find the evidence and due action will take its course,” James Marape said publicly on Tuesday.

“I have sent a request to the highest levels in Australia. I am interested in this matter.”

“The Ombudsman and the police have every right to establish a file on this matter.”

Marape was elected as Prime Minister last year, running a campaign on promises to clean up corruption and hold foreign companies more accountable. He has commented that domestic investigations into Horizon Oil could begin.

The Horizon Oil allegations of corruption spawn from a payment made in 2011, following a denied petroleum licence application in 2009.

Horizon Oil then made a AU$15.4 million payment to an ‘unknown shell company’ — reportedly linked to PNG’s Minister for Petroleum and Energy at the time, William Duma.

Duma’s department was shown in documents to award a 10 per cent stake in a development licence to the same shell company. This company was listed in ownership under Duma’s personal lawyer at the time.

William Duma still works within the PNG Government, but Prime Minister Marape has denied calls for an immediate sacking.

However, Horizon Oil’s Chief Executive Michael Sheridan has faced fallout — being suspended as of last week.

Share prices in the publicly traded Australian explorer also fell 30.8 per cent at the time, lowering to a valuation of 8.3 cents each.

James Marape said on Tuesday that he and William Duma will make a formal statement on the matter in the very near future.

Shares in Horizon Oil continue to shrink, lowering an additional 3.61 per cent on Tuesday. They last closed at eight cents each.

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Horizon Oil denies Financial Review’s $15m bribery scandal allegation, launches independent investigation

The allegations had an immediate impact, with Horizon Oil’s share price closing out the day down over 28% to $0.086.

Lorna Nicholas | Small CAPS | February 10, 2020

In response to an Australian Financial Review article alleging a $15 million “bribery scandal”, Horizon Oil issued an ASX statement saying it “has no actual knowledge” of any wrongdoing.

However, prior to market close today, the company revealed it had initiated “an independent investigation” into the matter, due to the “seriousness of allegations” made in the AFR article.

According to the AFR, Horizon “repeatedly ignored” corruption warnings and paid US$10.3 million ($15.4 million) to a shell company in Papua New Guinea nine years ago.

The AFR purports the payment was made 10 weeks after Horizon secured a development licence in PNG after an ongoing legal dispute with PNG’s Minister for Commerce and Industry William Duma.

In documents the AFR obtained including emails, faxes, letters and legal briefs, the deal revealed links between the company and Mr Duma, with lawyers warning investigations would be “likely” if the transaction was “scrutinised”.

The revelations have pressured Horizon chairman Mike Harding, who joined Horizon’s board in 2018, to investigate the allegations.

Although the deal was before Mr Harding’s time, the AFR claims Horizon’s chief executive officer Michael Sheridan is “named extensively” in the files along with former chief executive officer Brent Emmett.

Both Mr Sheridan and Mr Emmett have declined to comment on the allegations. Meanwhile, Mr Duma told the AFR the allegations amounted to “political witch hunting and malicious intent” to make him look bad.

Background

The situation arose in 2010 when Mr Duma accused Horizon of breaching its licence.

In an internal email leaked to the AFR, Horizon’s then chief executive officer Mr Emmett said it “smells like someone is setting the scene for a handout for a problem that doesn’t exist”.

By the end of 2010, Horizon and Mr Duma were embroiled in a legal battle, with Mr Duma opening up a tender process to develop the gas field.

The AFR noted that Horizon then wrote to Mr Duma stating it was “open to any suggest” on resolving the issue, which was the trigger for a settlement which eventually occurred in March 2011.

Horizon’s response

The allegations involve the $15.4 million payment to acquire an interest in Petroleum Retention Licence 21 in PNG’s Western Province, which is known to be in an area hosting condensate and gas discoveries.

According to Horizon, it and its co-venture partners applied for renewal of PRL 5 in PNG, which was not granted.

“Horizon commenced judicial review proceedings in respect of the Minister’s decision to protect its commercial interests,” the company stated.

“As announced on 31 March 2011, the proceedings were settled including on terms providing for Horizon to be granted a 70% interest in a new PRL 21, covering the same area as the former PRL 5,” Horizon explained.

PRL 21 was subsequently awarded to Horizon and two local PNG companies – Elevala Energy and Dabajodi International Energy.

Under a pre-existing contract, Horizon then transferred a 35% interest in PRL 21 to a subsidiary of Talisman Energy.

Horizon then acquired a 10% interest in the PRL from Elevala for US$10.5 million and a further 5% stake from Dabajodi.

“Following these transactions in 2011, PRL 21 was held by Talisman (40%), Horizon (45%) and Kina Petroleum, which was formerly Dabajodi (15%).”

AFR’s allegations

The AFR has pointed out that PNG lawyer Simon Ketan became the sole director and shareholder of Elavala four days before the licence was granted.

Ashurst lawyers that worked on the deal under the legal firm’s previous name of Blake Dawson noted “close connections” between Mr Ketan and government officials, with sources informing the AFR Mr Duma and Mr Ketan were “associates”.

Mr Ketan told the AFR the files for a “private commercial deal” were closed as they occurred more than seven years ago.

He added he “did not recall” any “alleged concerns”.

The AFR’s probe has unearthed no record of Elevala operating any business, providing grants or dividends, or employing staff.

At the time, Elevala’s registered capital was just $0.88.

Horizon’s share price plunged on the news – with the company closing out Monday at $0.086 – down 28.3%.

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MCC heavyweights in PNG to protest lack of profits and seek further subsidies

MCC's Ramu mine headquarters in Madang

MCC’s Ramu mine headquarters in Madang

A delegation of senior MCC officials from China have been in Papua New Guinea this week to protest about the lack of profits from the Ramu nickel mine and seek further concessions from the government on top of their existing 10-year tax holiday and government subsidies for vital infrastructure and landowner negotiations.

MCC vice president Xiao Xuewen and chairman of Ramu NiCo management Zong Shaoxing spent Sunday and Monday meeting with Government ministers, including  Mining Minister Byron Chan, Environment Minister John Pundari and Transport and Infrastructure Minister William Duma, in Port Moresby.

China Metallurgical Corporation (MCC), is the major financier and shareholder in the Ramu nickel mine.,

MCC is looking for further government support as the Ramu mine is yet to deliver any profits since construction started 10 years ago and losses are expected to increase this year as world metal price slump and many mining companies around the world are shutting down operations

Xuiwen told the government that in order to prevent mine workers, contractors and suppliers from losing their jobs, it was necessary for “MCC Group and Government to put a joint effort to ensure survival and development of the project”.

MCC says Minister Chan assured that his office and the Mineral Resources Authority would be doing their best to help the Chinese.

Environment Minister John Pundari told the Chinese his department would continue to assist and support the development of the Ramu mine – clearly forgetting that his department’s role is supposed to be as an environmental watchdog ensuring the highest standards and protecting the people and environment rather than providing a support service for foreign mining companies!

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Minister’s sacking linked to Solwara 1 experimental seabed mine?

The real reasons why Duma and Polye were sacked #PNG

Photo credit: PNG Blogs

Photo credit: PNG Blogs

Martyn Namorong 

The sacking of William Duma was not related to the Oil Search shares deal. Despite the fact that Duma is Minister for Petroleum, his sacking may actually be related to dealings with the Solwara 1 experimental seabed mining project and the acquisition of the State’s interest. Duma would have most likely opposed the deal.

The state’s interest in the Solwara 1 project is held by Eda Kopa, a subsidiary of the state owned entity Petromin. The Minister for Petroleum is in charge of Petromin.

Duma was seen as an obstacle to the deal and so he had the rug pulled under his feet. The reason why Duma would have refused to agree is that the Solwara 1 deal is a bad deal in which the state is expected to make massive losses. Money that could be used to improve delivery of goods and services to Papua New Guineans will be sunk down the abyss in the Bismarck Sea.

Don Polye’s sacking on the other hand is linked to the Oil Search deal. As Minister for Treasury, Polye would have signed up to a large loan that was being made outside of the budget process and the accountability mechanisms associated with that. The Executive arm of government has committed the state to a A$1.239 billion loan without Parliament’s consent i.e. the consent of the people of Papua New Guinea through their elected representatives.

According to the cabinet’s decision made on the 6th of March, the loan facility being bankrolled by Swiss bank UBS will consist of A$ 335 million bridge loan and a A$ 904 million collar loan facility. The Kina today is worth around 40 Australian cents so the loan is worth around K3 billion.

To put this loan into context, government revenue for 2014 is expected to be K12.7 billion against a budget of K15 billion. The 2014 budget deficit was budgeted at K2.3 billion but as we’ve seen lately with Ok Tedi’s dismal performance and problems at Hidden Valley, there may be a deficit blowout.

Add the UBS loan to the budget deficit and one sees the level of government debt shooting through the roof. [Expect the government spin-doctors to tell you it doesn’t add to the budget deficit. What they won’t tell you is that this loan adds to overall national debt.]

Oh but in case you think it’s illegal, it isn’t. You see folks during the budget session last year, your horrible Members of Parliament amended the Fiscal Responsibility Act to raise the debt ceiling above 30 per cent of GDP. This basically allows the government to send national debt sky-rocketing. And that’s exactly what they are doing with this UBS Loan.

Having sidelined Don Polye, Prime Minister Peter O’Neill as Treasury Minister can now clear the approvals for the UBS Loan. Polye’s elevation as IMF Chairman must have had some influence on him. Unlike the World Bank and the Asian Development Bank the IMF encourages nations to save mineral wealth and not to spend it all. By borrowing, the O’Neill government is essentially spending LNG Revenues before they start flowing.

The terms of the loan agreement are also not publicly available. There is a lack of transparency surrounding this deal as there is no Parliamentary scrutiny of this loan nor is there any public scrutiny. However, the sacking of Don Polye indicates that this loan is so bad for the country. No responsible Treasurer would have signed up to the UBS deal.

Details in the Cabinet decision indicate that the State’s 149 million shares in Oil Search shares will be held by Petromin. What is unclear though is who guarantees the loan – Petromin, National Petroleum Company of PNG (NPCP), or the State? However, this may be hinted to in a paragraph of the cabinet’s decision which notes the

“execution of a Payment Direction Deed as one of the Transaction Documents by National Petroleum Company of PNG (Kroton) Limited concerning payments from Papua New Guinea Liquefied Natural Gas Global Company LDC…”

The above paragraph may be interpreted to mean that perhaps the loan is being secured against NPCP’s dividend flow from the PNGLNG project. This sounds almost like it was taken out of the textbook of PNG’s Cayman Island’s deal in the 1990s where financial deals were being done using PNG’s mineral revenues.

The irony about this is that Oil Search shares were sold to the Arabs to ensure NPCP held the state’s shares in the PNGLNG project. Now the dividends flows to NPCP are being used to purchase Oil Search shares.

So what does this mean for the average Papua New Guinean working class person? If you take a look at the 2014 budget figures Personal Income Taxes are the number one (No.1) contributor to government revenues. Papua New Guinean workers will be forking out K2.8 billion in tax contributions to the 2014 budget. Company taxes lag behind second at K2.6 billion. PNG workers are the biggest losers who will be sweating their guts off to repay the O’Neill government’s debts.

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Clive Palmer PNG mine mate sacked

Rowan Callick | The Australian

CLIVE Palmer’s gas tenements in Papua New Guinea — which he has claimed to be bigger than the North West Shelf — are likely to be reviewed following yesterday’s cabinet reshuffle in Port Moresby that removed his ally William Duma from his job as petroleum and energy minister.

Prime Minister Peter O’Neill said the new minister, Nixon Duban, had been instructed to ensure that “policy and regulatory issues are immediately addressed to the satisfaction of all stakeholders”.

Three years ago, Mr Palmer flew to Port Moresby to speak at a fundraising dinner for the United Resources Party founded and led by Mr Duma, which raised $600,000 for the election campaign in 2012.

Mr Palmer, whose close connection with Mr Duma goes back at least to 2008, said: “It’s all happening in PNG. This is the promised land, and with a stable government, and support from the community, it can do anything.”

He obtained from PNG’s Petroleum and Energy Department, with strong support from Mr Duma, gas exploration tenements in and offshore from the Gulf province to the northwest of Port Moresby.

A resources expert in PNG said yesterday that such tenements were allocated without cost, but on the condition a set amount of work was conducted during a certain period — or else their control was resumed by the government. Mr Palmer — who did not respond yesterday to calls — said last August that he had already spent more than $50 million exploring his PNG leases, and that one gas field there, 12km off the coast, could be worth more than $US35 billion, rivalling Australia’s North West Shelf — with its value many times that, once in production. He said the deposit had the potential to power a city the size of Brisbane for at least 100 years.

“It won’t make much difference to my life, but it should be good for the people of PNG,” he said.

Mr Duma has stayed with Mr Palmer when visiting Brisbane. Their relationship has become politically controversial in PNG.

It is understood that Mr Duban, who was formerly police minister, has been asked by Mr O’Neill to review oil and gas exploration leases, with a view to ensuring that development is promoted as rapidly as possible.

Mr Palmer’s leases — held through Palmer Petroleum and Chinampa Exploration, of which he owns 50 per cent — are among those that will come up for assessment.

Mr Duban will take charge of PNG’s official role in the commissioning later this year of the $19bn ExxonMobil-led PNG liquefied natural gas project, and in the development of the Elk Antelope field in Gulf province recently bought by French oil giant Total from PNG-based Interoil.

Mr O’Neill also dumped higher education minister David Arore, replacing him with Delilah Gore — thus creating the first cabinet in PNG history to have more than one female minister.

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