A raft of government bribery investigations launched into U.S. oilfield companies is likely to spur reform in the industry, but will also preoccupy top executives and slow business in regions such as West Africa.
The U.S. Department of Justice is probing possible violations of the U.S. Foreign Corrupt Practices Act anti-bribery law at large companies including Schlumberger Ltd, Halliburton Co and Transocean Inc, according to filings with the U.S. Securities and Exchange Commission.
All of those firms have said they are cooperating with the government.
A lot of global companies have had to stop and think, 'maybe it's going to be harder' to do business in countries like Nigeria where corruption has been rampant, Marjorie Doyle, a practice leader with consultancy LRN who is a former compliance officer hired by Vetco International Ltd.
High oil prices have triggered a rush to secure access to fields in countries where bribery of officials is often considered as a cost of doing business.
Last year, three wholly owned Vetco units pleaded guilty to violating the anti-bribery provisions and agreed to pay a record $26 million criminal fine.
General Electric Co bought Vetco Gray, a unit of Vetco International Ltd., for $1.9 billion in January.
Under the Foreign Corrupt Practics Act, or FCPA, it is illegal for U.S. companies or their agents to use bribery to win business in foreign countries.
Executives at companies under investigation will be called on to make costly decisions. For example, Doyle said the chief executive officer of Vetco stopped shipments to one country because of the difficulty in finding customs brokers who complied with anti-bribery laws. Deliveries took six months.
We had to tell our customers, sorry we can't get parts to you, Doyle said. It's tough, it's hard.
Ongoing investigations will also eat up a lot of time for top managers, whether those probes are internal or involve the government, Doyle said.
Chad Deaton, the CEO of oil services company Baker Hughes Inc, which pleaded guilty to FCPA violations earlier this year, said his company has good compliance controls in place, but the industry is due for big changes.
It's an ongoing shift in our business, Deaton told reporters at a conference on Wednesday. It's something we as an industry all have to make sure we're doing our part on.
In fact, Deaton said that he has already seen some of Baker Hughes' customers in a lot of areas make positive changes. He cited the Middle East as one of those areas.
MORE TO COME?
The number of prosecutions of FCPA cases has jumped in recent years, spurred partly by the Sarbanes-Oxley corporate reform law and international efforts to combat corruption.
Between 2001 and 2006, the average number of new U.S. FCPA prosecutions by the Department of Justice was over four times the average number in the preceding five years, according to a report from law firm Shearman & Sterling.
This is a hot topic these days, Dan Newcomb, a partner at Shearman & Sterling, said.
I'm sure it will continue for a while, but I expect it to be cyclical. I think we will see even bigger prosecutions than we've seen so far, and they will change people's view of the risk-reward ratio.
And more companies have self-reported possible FCPA violations to the Department of Justice and the Securities and Exchange Commission. Reasons for the jump may be that infractions are uncovered during the due diligence process before a merger, the Shearman report said.
Oilfield services companies that have voluntarily reported their own internal probes to U.S. officials include Tidewater Inc, Pride International Inc, Global Industries Ltd and Noble Corp, according to regulatory filings.
And certainly not all investigations under way will result in prosecutions or government action, Newcomb said.