Nigeria-focused oil producer said it might have been tricked over non-existent Qatari loan
Shares in Lekoil crashed by more than 70 per cent on Tuesday as investors responded to news that the Nigeria-focused oil producer had paid $600,000 in fees for a $184m loan that did not exist.
The Aim-listed company, which Mark Simmonds, the UK’s Africa minister under David Cameron, recently joined as a non-executive director, will now have to find alternative financing from shareholders to fund the development of its key asset, the Ogo field in Nigeria.
Trading in Lekoil was suspended on Monday after the company said it had not secured cash from the Qatar Investment Authority and might have been tricked by individuals “masquerading” as its representatives.
The company, which listed in London in 2013, said it had paid $600,000 to Seawave Invest, a Bahamas-based consultancy, for brokering the loan, claiming it had undertaken due diligence including a third-party report “based predominantly on open source information”.
The potential fraud came to light after the QIA approached Lekoil over the validity of the loan agreement to fund appraisal well drilling — a large step towards commercialisation — in the Ogo field.
It is the latest scandal to hit London’s Aim, which has been criticised by some investors for poor governance among listed companies and its low level of standards and scrutiny.
It seems unlikely that Lekoil will now have time to arrange alternative debt funding to meet its near-term obligations to Optimum and is likely to have to rely on additional equity funding if it is to maintain an interest
Colin Smith, analyst at Panmure Gordon
The website of Seawave, which introduced individuals claiming to be from the QIA, was built by an IT shop in Ghana with a URL registered anonymously via US-based Wild West Domains. It lists addresses in the west Africa nation and the Bahamas.
Several companies listed as partners of Seawave said they had no knowledge of the consultancy when contacted by the Financial Times.
The contact number on Seawave’s website leads to Holowesko Pyfrom Fletcher, a Bahamas-based law firm that provided the consultancy with its registered office. Seawave was incorporated in October 2016 and was struck off by the registrar of companies for default at the beginning of this year, the law firm said.
Holowesko said that it was instructed by directors at Seawave to state that “neither the company nor any of its officers have any knowledge” of the alleged claims, adding that they had no knowledge of the allegations and will cooperate with the Bahamian authorities if necessary.
The signing of the loan agreement on January 2 and the addition of Mr Simmonds and Tony Hawkins, chief executive of another London-listed energy group and formerly of Centrica, to the company’s board last week helped to double Lekoil’s share price from 4.65p to as much as 10.5p.
As part of last week’s board changes, Greg Eckersley, who was the oil producer’s interim chief financial officer and used to work for Abu Dhabi’s sovereign wealth fund, left the company.
Mr Simmonds confirmed he would stay on the board until the facts surrounding the case were established. Lekoil is conducting an investigation and has contacted the authorities in multiple jurisdictions. A spokesperson for the company said it was unable to provide further information until the investigation was complete.
Analysts at Numis, which acts as a joint broker for the group, said “the result is that Lekoil has no funding for the Ogo appraisal on block OPL310, has most likely lost $600,000 in fees it paid related to securing the loan, and we think has serious question marks hanging over it in terms of the lack of permanent chief financial officer and due diligence capacity”.
The energy company said it was seeking alternative funding to develop Ogo but it could sell its stake in the block if it could not secure $10m to pay its local partner Optimum. It also needs to show its ability to raise an estimated $28m by February to contribute to drilling one appraisal well.
Colin Smith, an analyst at Panmure Gordon, said: “It seems unlikely that Lekoil will now have time to arrange alternative debt funding to meet its near-term obligations to Optimum and is likely to have to rely on additional equity funding if it is to maintain an interest.”
Shares in Lekoil fell by as much as 70 per cent before mildly recovering to trade 6.57p lower at 2.83p.
Additional reporting by Bryce Elder