Afren share price rises after firing CEO Osman Shahenshah and COO Shahid Ullah

 
Caitlin Morrison
Follow Caitlin
A review at oil company Afren revealed that directors were receiving unlawful payments
Afren's share price climbed by over 3.5 per cent yesterday after the oil company announced that its chief executive and chief operating officer (COO) had been sacked for gross misconduct following an independent review.
The company had suffered a 30 per cent share slump when it suspended CEO Osman Shahenshah and COO Shahid Ullah in July this year after the review, conducted by law firm Willkie Farr & Gallagher (WFG), found evidence that both men had received unlawful payments, which eventually totalled $17.1m (£10.8m) from Nigerian oil producer Oriental Energy Resources. Both men admitted receiving the payments.
As well as dismissing Ullah and Shahenshah, along with two assoc­iate directors, Afren has started disciplinary actions against the additional employees who were involved in receiving unauthorised payments. In addition, the firm has instructed counsel to begin legal proceedings to recover sums in respect of unauthorised payments and resolved to make the group’s internal reporting and controls more effective. It will also inform the Financial Conduct Auth­ority (FCA) of WFG’s findings.
Egbert Imomoh, executive chair­man of Afren, said: “The decisive and comprehensive actions we have set out today should leave no one in any doubt about how seriously Afren takes the issues uncovered in July. Our focus is now on delivering the significant opportunities we have before us with an open and transparent approach to our business based upon mutual respect, the highest standards of ethics, governance and business conduct.”
Sanjeev Bahl, analyst at Numis, noted that, although the transactions had resulted in limited financial loss to the company, “it seriously undermines the credibility of Afren’s internal controls”.
Meanwhile, analysts at VSA Capital said it remained unclear if the company would still risk possible fines after notifying the FCA of these breaches.

WHAT WAS FOUND?

■ As well as the unauthorised payments, the review revealed that on two occasions the firm failed to comply with reporting obligations in relation to transactions.
■ A 2012 payment of $100m to Oriental Energy Resources, which Shahenshah told Afren was in the ordinary course of the company’s business, was held to be, in actual fact, a loan, and one that should have been announced as a class 2 transaction.
■ In December 2013, Shahenshah arranged a second payment, this time worth $300m, to Oriental. He directed the company to frame the transaction as being in the ordinary course of the firm’s business. The payment was to be made in return for Afren acquiring the rights to certain tax allowances and increasing its share of oil revenues from the Ebok oilfield. WFG deemed this to be a further loan.

THE MEN BEHIND THE SCANDAL: SHAHENSHAH AND ULLAH

Osman Shahenshah, previously chief executive of Afren, was a co-founder of the company. He has also held positions at International Finance Corporation, Dresdner Klein­wort Wasserstein and at independent oil and gas advisory firm Taylor-DeJongh.
His colleague, Shahid Ullah, who served as chief operating officer until last summer, had been with Afren since 2008, and before that served as managing director at investment bank Jefferies, as well as stints at Western Atlas and Baker Hughes.
Shahenshah and Ullah lost their jobs over unauthorised payments they received from Oriental in October 2013.
Both men entered into an agreement with Oriental that involved the company paying 15 per cent of the cash it was due to receive off the back of the Ebok oilfield between 2013 and 2017 to British Virgin Islands vehicle Ntiti BVI.
Ntiti BVI was owned by Shahenshah and Ullah, who received $17.1m (£10.8m) in the form of extraordinary bonuses of the $45m already paid out by Oriental. A total of 11 current and former Afren employees gained from this arrangement, which Shahenshah and Ullah initially denied entering into, although they have both since admitted to receiving these payments.
Statements made to the stock exchange also show that Ullah sold 600,000 shares at a value of £1.41 each on 1 July, weeks before the review was announced, while directors Galib Virani and Iain Wright sold 203,775 and 104,423 respectively at £1.42 per share, just days later.

Related articles