Investigation Report into Hydro Oil & Energy's International Operations Submitted to Norwegian Authorities
Consultancy agreements related to Norsk Hydro’s earlier activities in Libya contain issues which could be problematic in relation to Norwegian and US anti-corruption legislation.
The external investigation into Hydro Oil & Energy’s international operations has now been completed and its results submitted today to the National Authority for Investigation and Prosecution of Economic and Environmental Crime in Norway (Økokrim).
Tore Torvund and Morten Ruud are resigning from their present posts and StatoilHydro’s corporate executive committee (CEC) with effect from today. The background for these resignations is the conditions addressed in the investigation report. Øystein Michelsen and Helga Nes have today been appointed acting executive vice presidents for Exploration & Production Norway and Projects respectively. Both will join StatoilHydro’s CEC.
The investigation report finds that Hydro failed to disclose problematic issues to Statoil in the due diligence of the two companies operations prior to the merger.
Statoil was informed on 26 September 2007 of possible consultancy agreements and transactions related to activities by the former Hydro Oil & Energy business in Libya which might be in breach of Norwegian and international anti-corruption legislation.
Chief executive Helge Lund resolved in consultation with the Statoil board then in office to mandate an external investigation of these and other conditions.
The Simonsen DA and Sidley Austin LLP law firms, based in Norway and the USA respectively, have now completed an external investigation into these and other issues related to Hydro Oil & Energy which posed a high risk that corruption was involved. Their investigation covered operations in 33 countries.
The investigation report was submitted today to Økokrim at the same time as Norsk Hydro ASA submitted their report. StatoilHydro’s report will also be submitted today to the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC).
Work on the investigation has been far-reaching, with investigators reviewing more than 1.4 million documents in addition to interviewing and receiving information from 76 witnesses. An extensive forensic accounting examination has also been conducted. The investigation teams for the two companies collaborated on data gathering and interviews.
The report presents the facts about issues which could be problematic pursuant to Norwegian and US anti-corruption legislation. In accordance with its mandate, the investigation team has drawn no legal conclusions in its report.
Along with certain conditions in Kurdistan and Angola, the report addresses five different issues related to activities by the former Hydro Oil & Energy business in Libya.
Gammudi and Vexol agreements
In connection with its acquisition of Saga Petroleum, Hydro was informed about two consultancy agreements shortly before the merger on 1 January 2000:
•an agreement with Abdularazzag Khalifa Gammudi to pay USD 75,000 per year for “advice and assistance”, with a termination payment of USD 700,000;
•an agreement with Vexol SA, a company controlled by Gammudi, to pay a success fee of USD 6.5 million related to the award of two blocks by the Libyan National Oil Corporation (NOC).
Two days before the merger with Saga was implemented, on 30 December 1999, Hydro was informed by the NOC that the exploration and production sharing agreement for the two blocks was ready to be signed.
According to the investigation report, “Hydro ... believed that there was a high probability that Gammudi was an intermediary for one or more Libyan government officials”. Hydro accordingly resolved – without informing the Libyan authorities – that it would not accept the blocks and launched instead a process to sell out of Libya. That would require the approval of the NOC.
Hydro concluded a new agreement with Vexol to pay it USD 6.5 million for “past services”. However, the investigation report observes that “evidence relating to the internal discussions at Norsk Hydro ... reveal that an important purpose – if not the overriding purpose – of the agreement was to secure Gammudi’s assistance in getting (the) NOC to approve Norsk Hydro’s divestiture of its Libyan assets” (in the Mabruk and Murzuq licences).
Such approval was obtained by Hydro from the NOC, and a total of USD 6.5 million was paid to Vexol in the period up to March 2001. However, the assets were not sold.
Hydro reassessed its position in Libya in 2001, and its board of directors resolved in September of that year to retain the assets in the country.
The consultancy agreement with Gammudi was cancelled after a total of USD 925,000 had been paid, with the final installment in August 2001. Hydro paid a total of USD 7.425 million under its agreements with Gammudi and Vexol.
The Mabruk licence
In connection with its entry into the Mabruk licence in 1994, Saga concluded a side agreement which committed it to pay the operator USD 5.5 million for “data acquisitions and studies costs”.
When Hydro acquired Saga, about USD 1.7 million was outstanding. This was paid by Hydro in September 2000 together with USD 250,000 for “overhead costs”.
The report states that “the available evidence indicates that the operators of Mabruk and Murzuq also used (Libyan) consultants in connection with the award and operations of those licences”, and that Hydro was aware of this.
The Murzuq licence
The operator of the Murzuq licence had agreed to pay a consultant registered in the British Virgin Islands a success fee of USD 1.5 million after the NOC approved an expansion of the licence.
This approval was given in July 2000, and Hydro paid USD 300,000 as its share of the consultancy fee in December of the same year.
In late 2001, the operator proposed the payment of USD 4.5 million to another consultant registered in the British Virgin Islands to secure the approval of field development plans.
This was opposed by Hydro. The company was informed by the operator in June 2002 that the consultancy agreement had been concluded, and it later received an invoice for USD 900,000 to cover its share of the deal. Hydro refused to pay.
Payments to management committee members
All licences in Libya have a management committee with three members, of whom two are employed at and appointed by the NOC. By no later than 2001, Hydro personnel learned that these committee members received compensation paid to accounts outside Libya. Hydro protested against such payments in 2005 and refused to pay. Compensation payments to management committee members were formally approved by the NOC in 2006.
Due diligence before the merger
In connection with mutual due diligence of the companies’ operations prior to the merger, the two sides exchanged information relating to compliance with the anti-corruption provisions of Norwegian and US legislation.
The conditions described in the inquiry report were not disclosed to Statoil during this process despite ample opportunities to do so.
Assessments and consequences
On the basis of the conditions described in the report, StatoilHydro has assessed consequences for the group and for the individuals who have been involved.
Possible consequences of deficiencies in the information from Hydro to Statoil during the merger process remain an outstanding issue between the companies.
Agreement has been reached with Mr Torvund and Mr Ruud that they will resign from their positions in the CEC, and the group will work with Mr Torvund and Mr Ruud to define future assignments for them in the group.
Anders Kullerud, who currently heads the corporate staff for integrity and social responsibility, will continue in the group, but has asked to be relieved of his current post and will move to a different role in StatoilHydro.
Further information from:
Ola Morten Aanestad, Vice President Media Relations,
+47 48 08 02 12 (mobile)
Kjersti T. Morstøl, Public Affairs Manager,
+ 47 91 78 28 14 (mobile)