A Houston oil exploration firm under scrutiny over suspected bribery overseas will likely have to lay off workers, in part to pay for its legal defense, the company told investors on Thursday.
The one-asset company, Hyperdynamics Corp., disclosed in September that federal prosecutors were scrutinizing it for possible violations of the Foreign Corrupt Practices Act and money laundering violations in the Republic of Guinea — which is now undergoing a troubled return to democracy after decades of dictatorship — as well as its connection to charitable organizations.
The probe is at least the second Justice Department investigation into suspected bribery in Guinea to emerge this year. Federal authorities are also pursuing a fast-moving inquiry into the Israeli-owned mining company BSG Resources Ltd., which in 2008 acquired lucrative iron ore rights in Guinea.
Both companies had dealings with Mahmoud Thiam, who served as Guinea’s mining minister during military rule from 2009 to 2010. The U.S. Embassy in Conakry suspected Thiam of corruption, according to diplomatic cables published by WikiLeaks.
BSG Resources, controlled by the Israeli diamond magnate Beny Steinmetz, and Thiam, who is a U.S. citizen and former UBS banker, have both strenuously denied wrongdoing. A former Steinmetz associate, Frederic Cilins, was arrested in Florida in April on charges of attempting to destroy evidence under grand jury subpoena and faces trial in February.
At an annual shareholders meeting on Thursday, Hyperdynamics CEO Ray Leonard told investors that a consortium of companies including Hyperdynamics planned to begin drilling on a new exploratory well in Guinea in the first half of next year.
Leonard also said the company was preparing to go to trial next year in London in a dispute with the Norwegian oil services company AGR Well Management Ltd. over cost overruns in the drilling of a previous offshore well in Guinea.
But the bribery probe will also be costly, Leonard said.
“We do expect a substantial increase in legal costs as compared to last year and these increased costs are of concern to us. In response we’re implementing cost-cutting measures which include further staff reductions,” he said.
To respond to the FCPA probe, Hyperdynamics retained Nancy Kestenbaum, a former Manhattan federal prosecutor who is co-chair of white-collar defense at Covington & Burling, and Lanny A. Breuer, who is co-chair of the same firm.
Breuer stepped down in January as head of the Justice Department’s Criminal Division, where he had championed the cause of anti-corruption prosecutions.
Leonard said Thursday that the company had reduced staff levels from 60 employees in early 2012 to about 20, following a reduction in exploration activity.
“Starting next year, through a combination of retirements and going part-time, we’re going to significantly reduce that number. We’re going to cut our burn rate as far as possible…to last as long as we can,” said Leonard.
Shares in the company were trading at just above $3.20 by mid-afternoon on Thursday, down more than 30 percent since the start of the year.
Hyperdynamics currently holds a 37 percent stake in a 9,600-square-kilometer concession in Guinea, which is operated by the British explorer Tullow Oil plc. In Uganda, Tullow has taken pains to deny corruption allegations involving its operations there.
In a presentation to investors, Leonard said the three-company consortium planned to begin drilling next year at the so-called Fatala-1 well, which sits at a water depth of about 1.8 miles and will be “the deepest water-depth well that Tullow has ever drilled.”
Three-dimensional seismic studies from a previous exploratory well had revealed that the “prospects with the best chance of success and the highest resource estimates were in the ultra-deep water,” said Leonard.
Prior to Leonard’s arrival at the company in 2009, Hyperdynamics had been engaged in fraught negotiations with Guinean authorities to maintain its contract rights.
With no name, no oil industry experience and no assets, the company in 2006 had been awarded the exploration rights to 31,000 square miles, or virtually all of Guinea’s available offshore acreage, in a deal that State Department officials strongly suspected of corruption and which proved embarrassing for the government of Lansana Conte, who died in 2008.
After Leonard’s arrival, the company agreed to relinquish 70 percent of the concession in 2010, partly in an apparent effort to stave off Chinese competition.
State Department officials expressed strong concerns about the company, ceasing all advocacy on its behalf, and maintained this position after Leonard’s arrival, according to the WikiLeaks cables.
Douglas Gillison
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