In response to an Australian Financial Review article alleging a $15 million “bribery scandal”, Horizon Oil (ASX: HZN) 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.
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.
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%).”
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%.