Five major factors in Erin Energy bankruptcy

by | May 2, 2018 5:43 pm



The bankruptcy of Houston based Erin Energy is not the only straw that broke the camel’s back but also the beginning of more legal woes for the company formerly known as Camac Energy, as it is on the verge of losing its only cash-generating asset, a Nigerian oilfield.

New York and Johannesburg listed Erin Energy recently filed for bankruptcy as it seeks to restructure its debt and regain financial viability, as Allied Energy Plc and Camac International Nigeria Ltd founded by renowned Nigerian-born industrialist Kase Lawal who is also current chairman of Unity National Bank, the only black-owned bank in Texas USA hit the centre of controversy surrounding Erin’s demise.

South Africa’s PIC shady investments

The first alarm bells sounded in 2014 when investigative journalism group, amaBhungane revealed investment losses of South Africa’s Public Investment Corporation (PIC) in a Nigerian oil venture that benefited American-Nigerian oil man Kase Lawal, an ally of then-president Jacob Zuma.

Despite being on the edge of bankruptcy, PIC investment committees headed by then chief investment officer Dan Matjila, now CEO, handed Erin $270-million in 2014 and took a 30 percent stake and a seat on the board.

Shareholders go to court

After the deal, Erin bought what it called the “economic rights” to Nigerian oil mining licenses 120 and 121, which included the productive Oyo oil field owned by Lawal and his family. However Oyo oil field turned out not to be as productive as forecast and Erin shareholders sued CEO and certain directors of Erin over the deal.

The shareholders claim the CEO of Erin Energy overpaid by almost $200 million in the Oyo Field deal that also benefited Allied Energy, another company controlled by Lawal.

The shareholders also claim that certain directors failed to protect the negotiations from the CEO’s undue influence and then sent out the transaction proxy which misleadingly portrays the deal process as pristine.

ENI legal dispute

A legal dispute occurred in 2012 as Allied Energy bought 40 percent of the oil rights from a subsidiary of Italian oil major ENI. However, Allied only paid $100 million of a $270million purchase price, according to court records, putting Erin Energy in jeopardy leading to a subsequent embarrassing scenario for Erin Energy.

Two Nigeria courts and a London court of International Arbitration ruled in favour Eni, instructing Camac International to pay ENI $200-million, a Cayman Islands court issued a winding up order for Lawal’s Camac International who was its chairman, CEO and controlling shareholder.

Court rulings go against Erin

In April this year, things turned from bad to worse for Kase Lawal, as two Cayman Islands court representatives requested all recorded information relating to the company’s property or financial affairs from the Southern District of New York.

The two liquidators want to get to the bottom of the dissipation of nearly $1 billion of assets held by CAMAC’s subsidiaries. The liquidators noted that CAMAC’s two indirect subsidiaries, Allied Energy Nigeria and CAMAC International Nigeria (CNIL) transferred shares they held in American junior Erin Energy, of which Lawal was CEO from 2011 to 2016.

CAMAC factor

Erin’s loan was finalised in January 2017, and it pledged its assets as security, essentially the oil rights that were ultimately owned by Camac, which implies that should Erin not be able to repay the loan, and should the oil well happen to be locked up, the banks could ultimately turn to the PIC for the cash.

“CAMAC is our majority stockholder and it may take actions that conflict with the interests of other stockholders,” Erin said in its 2016 financial report.

Although the then-current market value of Allied Energy’s shares in Erin Energy was approximately $164 million, they were then handed over to two firms, Oltasho Nigeria and Latmol Investment, before their voting rights were bought by Lawal himself for a mere $10. A string of similar cash flow transactions appear to have stripped parent group CAMAC of a total $1 billion.

“116 million shares previously held by Allied Energy Plc were transferred to Oltasho Nigeria, Ltd representing 53.9 percent of ERN shares outstanding; the transaction represented a change in control of the Company,” Cardinal Stone research analysts said in a report then.

Government Intervention

Erin did not describe the outcome of its court application, but it said Nigeria’s department of petroleum resources (DPR) had declined to give it a permit for its scheduled oil off take at the end of March. According to Erin, this was “due to ENI’s improper use of the writ and its interference with Erin operations, as well as its court proceedings”.

However, the government then suspended Erin’s oil processing indefinitely, as its first quarter crude oil off in Oyo field production is still delayed.

 Conclusion

Lawal, founded the Camac Group in 1986 originally exporting American tobacco to Africa. He soon scored a lucrative oil contract in Nigeria worth 55,000 barrels a day in 1999.

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