Griffiths Energy International, the African oil company financier Brad Griffiths was working on when he died, filed for a planned initial public offering and disclosed that it has formed a special committee to investigate the "background, propriety and circumstances" of consulting agreements that the company entered into as well as transactions by the company's founders.
The energy company said in its preliminary prospectus that the special committee was formed just three weeks ago for the purpose of conducting an internal investigation of consulting agreements struck between August 2009 and March 2011. The committee hired independent advisers on Nov. 1 to help with the probe, and said that "should the investigations reveal that inappropriate payments or transactions occurred, fines, penalties, and other costs, if any, could have a material adverse effect on the company, its business, prospects, assets, results of operations and condition."
Griffiths set out to raise as much as $300-million, as previously reported in the Globe and Mail
The company wants the money to start a planned drilling campaign in Chad early next year.
The disclosure of the investigation will make the deal a tougher sell. For any investor looking at Africa, the risks of corruption are high on the list of things to consider. Griffiths Energy prominently lists the risk of corruption in Chad as one the things prospective shareholders must consider, saying "corruption in Chad is pervasive at many levels, including government."
The special committee is looking at agreements between the company "with individuals and companies that have direct or indirect relationships with foreign public officials for the provision of services in respect of oil and gas operations in the Republic of Chad"
The committee is also examining "common share transactions by certain founding shareholders," according to the filing. The shareholders are not named.
The company stressed that its management and board have all changed since the period in question, and said that the company believes that its production sharing contracts in Chad are not at risk.
"No previous management or directors remain with the Company. Management believes that, based on its review to date of the Company’s previous dealings, the PSCs are in good standing and will remain so. It is management’s view that the signing bonuses of $40-million (U.S.) per PSC for the first two PSCs it acquired and the signing bonus of $13-million for the third PSC it acquired reflect market prices, based on other contracts and acquisitions seen in the Republic of Chad."
Here are some further details from the prospectus:
"The Company has discussed the investigation and its initial findings with its Canadian legal counsel, Chadian legal counsel and relevant senior officials of the State. Following these discussions, the State’s Minister of Energy and Petroleum provided written assurances that there was no external influence on its decisions with regard to the Production Sharing Contracts (the “PSCs”) assigned to the Company. Based on its discussions and the State’s assurances, as well as opinions from Chadian legal counsel, the Company believes its rights will remain in good standing under its three PSCs, which were acquired in return for initial signing bonuses of $40-million (U.S.) per PSC for the first two PSCs and $13-million for the third PSC as well as work commitments totalling $115-million (U.S.)."
"The Company has advised relevant Canadian and U.S. authorities and has committed to provide all of the Special Committee’s findings and information to them once it is complete. The Special Committee expects to complete its review during the first half of 2012 and will communicate any material findings to shareholders."