August 5, 2014 6:04 pm

Cobalt to fight SEC corruption allegations

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US regulators have told Cobalt International Energy that they intend to bring charges against the Goldman Sachs-backed company after a three-year investigation into alleged corruption in its Angola operations.

Houston-based Cobalt’s shares fell by as much as 11 per cent by close of New York trading after it disclosed in a regulatory filing on Tuesday that it had been issued with a Wells Notice by the Securities and Exchange Commission. The notice indicated that staff at the regulator planned to initiate a case against the group – although that does not mean that charges will automatically follow. Cobalt said it intended to respond to the SEC.

“The company has fully co-operated with the SEC in this matter and intends to continue to do so,” Cobalt said in the filing. “The company has conducted an extensive investigation into these allegations and the receipt of the Wells Notice does not change the company’s belief that its activities in Angola have complied with all laws, including the US Foreign Corrupt Practices Act.”

Joseph Bryant, a veteran of BP’s Angolan operations and Cobalt’s chairman and chief executive, said the SEC had made an “erroneous” decision to proceed towards charges. He added that Cobalt would continue to develop its Angolan prospects.

Cobalt’s disclosure of the SEC’s Wells Notice comes as Barack Obama hosts the first White House summit between a US president and African leaders.

Along with Chinese and European rivals, US groups have spent heavily to tap offshore crude reserves in Angola, Africa’s second-biggest oil producer. Access to oil rights is controlled by an authoritarian government that fought a three-decade civil war until 2002.

The SEC and the Department of Justice launched an investigation into Cobalt’s dealings in Angola in 2011 following claims by Rafael Marques de Morais, an anti-corruption activist, that senior officials secretly owned an obscure company called Nazaki Oil and Gaz.

Nazaki had been selected by the authorities to be Cobalt’s local partner when the US group was awarded oil rights, according to Cobalt’s filings.

In 2012, two top officials – including Manuel Vicente, who was head of the state oil company at the time it granted Cobalt its rights and is now Angola’s vice-president – confirmed to the Financial Times that they and a former official had held previously concealed stakes in Nazaki.

US anti-corruption law makes it a crime to pay or offer anything of value to foreign officials to win business. Companies that have fallen foul of that law have paid fines running into hundreds of millions of dollars.

Cobalt, which made a major discovery of crude oil beneath the Angolan seabed shortly after it was placed under investigation, has consistently denied wrongdoing. The SEC declined to comment.

Goldman Sachs and US private equity group Riverstone provided Cobalt with $500m of seed funding in 2005. Goldman and Riverstone remain leading shareholders, alongside another private equity group, First Reserve. Each has sold Cobalt shares worth about $1bn since March 2011 and now holds 8-9 per cent of the stock.

Cobalt also announced on Tuesday a net loss of $95m for the second quarter, compared with a $79m loss for the same period last year. Its shares closed 11 per cent lower at $14.22.

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