Oil, gas, coal and other energy companies have been the subject of many securities fraud cases and the subject of whistleblower investigations for violation of the Foreign Corrupt Practices Act (FCPA). A few common violations are:
Publically Overstating Reserves
A public company engaged in the business of developing energy-related natural resources such as oil, gas and coal must estimate its “reserves.” In the oil industry for example, oil reserves are the amount of crude oil that are recoverable from a given development project. Industry standards have developed to measure, quantify, and disclose the amount of the oil reserve. Additionally, different categories of an oil reserve have been established by the SEC. Reserve fits into a specific category based on a probability of actually realizing the oil in a reserve. A reserve may actually be a “reserve”, or it may be a “contingent reserve” if the probability of realizing the oil is less.
How an energy company then discloses to the investor public the nature of its reserves can have a dramatic effect on that company’s stock price. One such examples would be if an oil exploration company improperly disclosed its reserves, which had the effect of artificially inflating the stock price.
Bribing Foreign Officials For Lucrative Contracts
Over the past decade, emerging countries such as Nigeria and others throughout the world have begun developing their respective energy-related natural resources. Many of these countries do not have the resources, including the capital and know-how, to properly and efficiently develop their country's natural energy resources. Often, these developing countries contract with companies within the energy industry to manage this process.
As the result of this, the FCPA docket is beginning to fill up with investigations relating to alleged bribes and kickbacks paid from companies to foreign officials that aided in securing contracts to develop these energy resources. These natural resources can be off-shore, such as drilling rights within the territorial waters of a country. These natural resources obviously can also be under the territorial boundaries. Often the foreign government owns the land or rights to develop the energy-related resource. However, bribery can still occur when a private party owns the rights to develop the resource, but needs government approvals and licenses in order to proceed.