Report 22: Orrön Energy’s defense presentation

Ian Lundin and Alexandre Schneiter’s defense teams have now both presented their respective cases to the Court. During weeks 15-17, there were no physical hearings in the courtroom. Instead, evidence was presented via audio and video recordings and other documents submitted to the Court. After this three-week hiatus from public hearings, it was now Orrön Energy AB’s turn to present its opening statement. The trial was scheduled to begin at 9:30 on Tuesday 7 May, but there was already a noticeable sense of unease outside courtroom 34 at Stockholm District Court. Several climate activists wearing kaffiyehs were gathered in tense anticipation for the company’s defense team to arrive.

Once in the courtroom, Judge Tomas Zander began by noting that Alexandre Schneiter was absent due to flight issues, but his absence would be deemed acceptable if no one had any objections. As no one objected to this, and with the promise that Alexandre Schneiter would be present for the next day of the company’s presentation, the two interpreters left the courtroom as it was determined that their services were not needed.

Thus, the company’s defense began its opening presentation which lasted for two days. On the first day, they presented the history and relevant legal framework to help understand the facts and evidence of the case and concluded with an explanation of the business and consortium structure. On the second day, the focus shifted to the company’s interests in Block 5A and the rights and assets transferred to Petronas.

Corporate restructuring over the years

The defense began by outlining the company’s business and consortium structure from 1997 to 2003. Orrön Energy AB, formerly known as Lundin Energy AB and Lundin Petroleum AB (LPAB), is today a Swedish company focused on renewable energy in the Nordic countries and Europe. In June 2022, it sold its entire oil operations to Aker BP.

On February 6, 1997, Sudan Ltd. entered into an EPSA with the Sudanese state, and in June 1997, a consortium, including Petronas Carigali Overseas, OMV, and Sudapet Limited was formed, with Sudan Ltd. as the operator. The consortium’s assets in Block 5A were divided: Sudan Ltd. held 40.375%, Petronas 28.5%, Sudapet 5%, and OMV 26.125%. Sudan Ltd, initially part of the Canadian IPC group, was acquired by Lundin Oil AB by the end of 1997. LPAB, formed in August 2001, became the new parent company of Sudan Ltd. Sudan Ltd transferred its Block 5A interest to Sudan BV on January 1, 2003, and subsequently, in April 2003, Sudan BV transferred this interest to Petronas.

These structural changes were relevant to the defense’s argument that LPAB never operated in Sudan, but rather was focused on group and strategic matters. According to the defense, LPAB, formed in 2001, did not exist for more than half of the period covered by the indictment. During the period covered by the indictment, Sudan Ltd., operating as a separate legal entity, conducted business in Sudan as the operator in the consortium. Similarly, Sudan BV, albeit for a brief period, also operated in Sudan. Therefore, LPAB’s involvement in the described offences was limited, as it was not operational for a significant portion of the relevant period for the indictment. Sudan Ltd. operated in Sudan until January 1, 2003, when its interest in Block 5A was transferred to Sudan BV. In April 2003, Sudan BV sold its interest in Block 5A to Petronas for over 720 million SEK.

Refuting the prosecution’s claims against LPAB

The company’s defense restated its position that neither Ian Lundin nor Alexandre Schneiter had committed any crimes. They further denied the alleged violations of international law and indicated that they shared the same position as Ian Lundin and Alexandre Schneiter with respect to the case at hand. Moreover, the defense argued that the prosecutor’s two specific claims against LPAB, alleging crimes committed during the course of the company’s business operations, were unfounded due to several factors.

The first of the prosecution’s claims is a request that the Court confiscate an amount of SEK 2,381,300,000 from Orrön Energy, based on the allegation that Orrön Energy AB (formerly Lundin Energy AB/Lundin Petroleum AB), through its business operations, illicitly acquired economic benefits. Secondly, the prosecution has requested that the Court impose a corporate fine of SEK 3,000,000 on Orrön Energy AB for offences committed within the company’s, and previously Lundin Oil AB’s, business activities, based on the allegations that the company’s representatives, who have remained consistent across both entities, failed to take reasonable measures to prevent the commission of criminal activities.

As to the first claim, the defense contended that the criteria outlined in the applicable Swedish Penal Code during the relevant period had not been fulfilled. Chapter 36, Section 4 (as it appeared at the relevant time) of the Penal Code stipulates that if economic benefits have arisen for the business operator as a result of a crime committed in the exercise of business activities, the value thereof shall be declared forfeit. However, this forfeiture does not apply if it is deemed unreasonable. Thus, granting the forfeiture request requires, among other things, that a crime was committed in the exercise of business activities, resulting in economic benefits for the business operator, and that the forfeiture is not unreasonable.

The prosecution’s position was that all three parent companies (IPC, Lundin Oil, and LPAB), together with the subsidiaries Sudan Ltd. and Sudan BV, should be considered to have conducted the same business activities, grouping them as one business operator. Furthermore, the profit from the sale of the interest in Block 5A, amounting to over 720 million SEK, constitutes criminal profit in its entirely, with no part attributable to anything but criminal activity. Thirdly, LPAB is alleged to have controlled the rights in Block 5A and the profit from its sale. Fourth, the profit after the sale is alleged to have been enhanced within the framework of LPAB’s operations.

The company’s defense challenged the prosecutor’s claims, highlighting that within the Lundin Oil group, there were three distinct parent companies: IPC, Sand Petroleum AB (formerly Lundin Oil AB), and Lundin Petroleum AB. The defense argued that the prosecution had wrongly conflated these individual parent companies and distinct legal entities into a single group.

Furthermore, LPAB was established in May 2001 and only became the parent company of the Lundin Group in August 2001. Therefore, the company did not exist for more than half of the period covered by the indictment. LPAB was not the business operator in whose operations the alleged crimes occurred. Instead, the business operations during the relevant time period were conducted by Sudan Ltd. and later Sudan BV, a separate legal entity and the operator in the Consortium. LPAB did not become the parent company until 2001 and had never operated in Sudan, dealing only with group-level and strategic issues. During the period when LPAB was the parent company, the subsidiary Sudan Ltd. had ceased operations in Sudan. LPAB only had certain economic and strategic connections with the subsidiary, and the operations were entirely conducted by the subsidiary.

The defense further argued that the profit from the sale was substantially attributable to Thar Jath and unrelated to the alleged crime. The actual value was built up over a long period in two phases around Thar Jath in 1997 and 2001, lacking any connection to the alleged crime. Documentation showed that LPAB did not receive any portion of this profit, which was used to repay loans. Subsequent market developments affected the separate Norwegian subsidiaries, entirely independent of LPAB. The prosecutor’s claims of value enhancement had no connection to LPAB’s value and were entirely hypothetical, based on shareholder interest and compound interest effects, resulting in a tripling of the alleged benefit. Furthermore, the defense pointed out that the prosecution itself had admitted that they could not calculate the enhancement in the strict sense, and had not attempted to do so, but instead had just estimated it.

As to the second claim, the defense argued that that there were no grounds for imposing a corporate fine of SEK 3 million. They again emphasized that no crimes had been committed during LPAB’s operations and that neither Ian Lundin nor Alexandre Schneiter had committed any crimes. Under Swedish law, a corporate fine may be imposed on a company for a crime if a more severe penalty than a monetary fine is prescribed for the crime; if the crime has been committed in the course of business operations, public operations equivalent to business operations, or other activities conducted by the company; and if the crime was intended to result in an economic advantage for the company.

Moreover, the company must have failed to take reasonable steps to prevent the crime, and the crime must have been committed by a person who 1) is in a leading position within the company, 2) who has the authority to represent the company or to make decisions on its behalf, or 3) who otherwise has a special responsibility for supervision or control within the company. Furthermore, “company” refers to individual business operators and legal entities.

Regarding the issue of individual liability, the company’s defense asserted the same position as Alexander Schneiter and Ian Lundin, denying all allegations against them. In conclusion, the defense held that the claim for a corporate fine was unfounded.

The defense addressed additional legal distinctions pertinent to the prosecution’s allegations, pointing out that despite the prosecution’s attempt to group together Lundin Oil AB’s parent companies, Swedish law distinguishes between business operators and operations. An active company is a distinct legal entity with a unique registration number. LPAB’s involvement with Sudan Ltd. in 2001 was minimal, with Sudan Ltd. maintaining its own board of directors separate from its parent companies, including LPAB. Sudan Ltd. operated in Sudan from 1997 to 2003 under Consortium United decisions and maintained its unique legal identity throughout this period. Regarding the concept of a corporate group, Lundin Oil AB comprised a parent company and subsidiaries.

The exploration and seismic activities before May 1999 and after January 2001

Sudan Ltd. and the Sudanese state entered into the EPSA on February 6, 1997, for the extraction and production of oil. As it was inherently a risky venture, the risk was shared with other companies. Sudan Ltd. transferred 30% of its interest in EPSA to Malaysian Petronas. In the next step, 27.5% of EPSA was transferred to Austrian OMV. Petronas and OMV were subsidiaries of large international corporations engaged in oil extraction.

The exploration activities in Block 5A began with seismic surveys conducted in 1998 in order to assess the area’s potential. These surveys identified Thar Jath as a promising prospect and provided valuable data for further exploration efforts. Subsequently, drilling operations commenced at Thar Jath in 1999, marking a significant milestone in the exploration process. Over a period of 17 days, drilling reached a depth of over 1800 meters, confirming Thar Jath as a substantial new oil discovery with estimated reserves of approximately 202 million barrels.

However, the company suspended the exploration activities from May 1999 to January 2001 due to security concerns in the area. Despite this, preparatory measures continued during this period, indicating the consortium’s commitment to the project. Drilling operations resumed in January 2001, demonstrating a renewed focus on exploration despite previous setbacks. In mid-2001, operations came to a halt due to the onset of the rainy season. During the same year, it was determined that Thar Jath would receive its own budget. This decision was reached through the consortium’s work programme, with concurrence from the Operating Committee (O.C.). This allocation resulted in the establishment of a distinct budget specifically for Thar Jath. The seismic activity resumed in December 2001 but was later interrupted in the same month due to a helicopter incident and would never be resumed. The Thar Jath field encompassed two completed drilling operations: Thar Jath 1 and Thar Jath 2. These wells yielded commercially viable oil, establishing a discovery well. South of Thar Jath 2, Thar Jath 3 was discovered.

The successful drilling operations at Thar Jath 1 and Thar Jath 2 confirmed the commercial viability of the area, indicating significant potential for future development. Despite challenges such as security concerns and interruptions in operations, the exploration activities in Block 5A yielded valuable discoveries and laid the foundation for further exploration and development efforts in the region.

Environmental Impact Assessment, Community Development, and Corporate Governance
Sudan Ltd. commissioned a firm called Metoc to assess the impact of the Consortium’s operations on the environment and the local population. In June 1998, a review of environmental issues at the former Chevron Bases was conducted. The overarching aim was to minimize the environmental impact of Sudan Ltd. and the Consortium’s operations as much as possible. Metoc outlined its conclusions in a June 1998 report, which found that “no major issues were identified and no safety concerns.”

A subsequent report from Metoc in August 1999 focused on the potential environmental impact of field operations in Thar Jath. The conclusion was that no specific environmental aspects could be identified. In the spring of 2001, another Metoc report aimed to identify potential risks, particularly regarding operations in Thar Jath. The investigation concluded that no significant impacts were identified.

Sudan Ltd. also undertook community development and humanitarian assistance program (CDHAP) work to improve the living conditions of the local population within the area of Block 5A. The objective was to contribute to improved health, hygiene, and education for the local population and foster friendly relations between the Consortium and the local community. Lawyer Christine Batruch was employed as a consultant and later as a full-time employee for the parent company as Head of Corporate Responsibility. Christine Batruch became responsible for delegating, developing, and monitoring the CDHAP work in 2001. Besides Sudan Ltd. and the Parent Company, the CDHAP work was also discussed at Consortium OCM and JMC meetings, with specific actions listed during these meetings. These specific actions consisted of several community development projects focusing on access to fresh water, health, and education.

In 2002, Sudan Ltd.’s CDHAP-work resulted in several tangible projects, including the provision of fresh water, health education, and capacity building, which involved the construction of two clinics and the employment of medical doctors. In September of that year, a local team in Sudan assumed responsibility for the ongoing CDHAP work, with both medical doctors and veterinarians overseeing its execution.

Furthermore, Christine Batruch developed a Code of Conduct in February 2001, which was adopted by Lundin Oil. The code articulated several core values, to which both employees and consultants were expected to adhere. It established a commitment to the local community to ensure that the company’s presence also benefited the local population. The Code of Conduct became part of the company’s subsequent employment agreements, including those entered into by Sudan Ltd., and the parent company was responsible for ensuring compliance with it. In the spring of 2002, an annual review of the implementation and adherence to the Lundin Petroleum Code of Conduct 2001–2002 was conducted. This implementation and adherence were subsequently evaluated annually at LPAB board meetings.

In the spring of 2001, Christian Aid published a report titled “The Scorched Earth,” which raised allegations against Sudan Ltd.’s operations. The company took these allegations seriously and conducted a thorough investigation. External parties, including Swedish journalist Bengt Nilsson, were invited to form their own opinions. Christine Batruch and former Swedish Prime Minister Carl Bildt, then a board member, reached out to the EU, UN, NGO and parliamentary representatives from different countries. These various actors reportedly expressed appreciation for the company’s peace efforts and there was no desire for the oil companies to leave the area.  Rather, they wished that the oil companies would use their influence to encourage peace through peaceful measures, as well as increase access to humanitarian organisations. Despite the company’s efforts to engage with the UN Special Rapporteur, no visit to Block 5A materialised. The company refuted the “Scorched Earth” allegations in the “Lundin Oil AB Operations in Sudan” white paper. This report concluded that many of the claims made by Christian Aid were unsubstantiated and based on subjective and biased information. The white paper asserted that Lundin Oil continued to play a positive role in Sudan.

The claims of military operations

Regarding the primary offences, the indictment and included maps illustrated that the primary offences and military operations allegedly commenced in May 1999 and continued to October 1999 in Area One, a vast area covering one-third of Block 5A and including Thar Jath. However, this period was after the seismic surveys and the drilling of Thar Jath 1.

The defense argued that in looking at the timelines laid out by the prosecution, it was clear that the alleged primary offences were related to Areas One and Three, while Area Two was largely distant and mostly outside Block 5A. However, Areas One and Three were extensive areas encompassing Thar Jath. By comparing these areas and the periods when value-building prospecting activities were conducted, it was evident that a significant portion of this work was completed by April, before any allegations of acts of complicity or primary offences. The second period, from January to May 2001, was substantially distant in time from the prosecutor’s claimed military operations.

The sale of Block 5A and interests to Petronas

The defense then addressed the sale of interest in Block 5A from Sudan BV to Petronas. The prosecution had alleged that the profit exceeding 720 million SEK, which Sudan BV received from this sale, constituted criminal proceeds. The defense posed the question: What was valuable in this transaction – what was Petronas paying for? Their response suggested that the purchase price was based on the Thar Jath field.

The defense argued that Thar Jath field, which was yet to be discovered, was identified through the consortium’s seismic surveys conducted between 1997 and 1999. These surveys pinpointed Thar Jath and culminated in the exploratory drilling of Thar Jath. This was the leading prospect and therefore the exploratory drilling of Thar Jath 1 took place in April 1999. This significant new oil discovery was announced in a press release by Lundin Oil on May 20, 1999, leading to a substantial increase in Lundin Oil’s stock price. In addition to the market reaction, investment banks upgraded their recommendations for Lundin Oil from “neutral” to “strong buy.” Ahead of the 1999 year-end financial statements, in its financial communication in February, the company indicated that Thar Jath alone would significantly increase Lundin’s reported oil reserves.

The defense asserted that the alleged economic benefits arose prior to the alleged crimes, which supposedly began in May 1999. They highlighted that the purchase price from Petronas included Sudan BV’s share in the Block 5A license rights, which had been granted by the Sudanese state as early as February 1997 through EPSA. The purchase price was substantially based on the Thar Jath discovery, whose value was primarily attributed to the period before May 1999.

Furthermore, the defense noted that the main exploration and drilling activities at Thar Jath occurred in 1998, prior to the criminal activities alleged by the prosecution. They emphasized that the Consortium’s operations were suspended from 3 May 1999 until the end of January 2001 due to security concerns. Thar Jath 1 was reopened for work in January 2001.

From January to March 2001, analyses of the oil discovery at Thar Jath-1 were conducted, including personnel mobilisation, testing, and drilling operations. On March 5, 2001, Lundin Oil issued a press release stating that the oil was of very good quality, leading to a perceived increase in Lundin Oil’s assets by the market. The market and industry experts viewed these analyses and subsequent activities positively.

The defense emphasized that substantial work and value related to Thar Jath occurred before the alleged crimes and during periods of suspended operations, thereby challenging the prosecution’s claim of illicit financial benefit. The essential seismic work took place in two periods, the first in 1998, involving the initiation of new seismic surveys and culminating in the drilling of Thar Jath 1, and the second from January to May 2001, during which testing, additional drilling, and seismic surveys of Thar Jath 1 continued. These were the critical operations conducted at Thar Jath. The defense questioned how these related to the prosecution’s allegations regarding the timing of the alleged acts of complicity and principal offences.

The purchase of Block 5A 

On 5 May 2001, LPAB was established and subsequently became the new parent company of Sudan Ltd. and several subsidiaries on 22 August. This occurred as Lundin Oil was acquired by Talisman and subsequently listed on the new market. Prior to this market listing, Öhman Fondkommission became the sponsor for LPAB. Öhman prepared a prospectus to inform the market and support the listing.

In 2001, Öhman produced the accompanying prospectus, which included a valuation. This prospectus provided valuations for various parts of the group’s operations, including Sudan Ltd. Regarding Sudan Ltd, the valuation was attributed to Thar Jath, with a low estimate of 200 million barrels of oil. The prospectus clearly indicated that the value of Sudan Ltd was entirely based on Thar Jath, as demonstrated when breaking down the different parts of the group. Öhman’s valuation of Sudan Ltd.’s interest in Block 5A confirmed that the value was exclusively attributable to Thar Jath.

In April 2003, Sudan BV entered into an agreement with Petronas for the sale of its rights. Under this sale, Sudan BV transferred its rights under the EPSA to Petronas, including all rights to seismic data. Petronas also assumed obligations such as minimum work obligations, exploration activities, and minimum expenditure requirements. Petronas benefited from not having to incur costs for new exploration and seismic surveys, as these were simply taken over by Petronas.

The purchase price paid by Petronas was reported to be USD 142.5 million. While the exact method Petronas used to calculate this amount was not revealed, Ian Lundin commented on the transaction in the Swedish newspaper “Dagens Industri” stating, “It is a good deal. We have received 2 dollars per barrel for what we have found, and the field is completely undeveloped. We have received full value.”

The expert Canadian consulting firm GLJ, which specialised in the valuation of oil and gas assets, analysed the factors constituting the value of Sudan BV’s interest in Block 5A in the transfer to Petronas.. According to GLJ’s report, Sudan BV’s interest in Block 5A was substantially attributable to Thar Jath. A portion of the value was attributed to the EPSA contract, allowing for cost recovery without additional capital investment. Furthermore, the value of Thar Jath developed in two stages: the first stage involved seismic activities indicating strong potential for commercial oil, the second stage consisted of production testing, 3D seismic operations, drilling, and analysis of Thar Jath 2 during the first half of 2001.

GLJ assessed that exploration work after May 2001 did not add significant value. Additionally, other prospects and leads in Block 5A did not contribute substantial value at the time of the sale to Petronas. Furthermore, GLJ found that buildings and all-weather roads to Thar Jath did not significantly enhance the sale value, noting that infrastructure primarily gains value through the construction of a pipeline. GLJ also evaluated Petronas’ position as the buyer and determined that Petronas, already a consortium member with access to pipelines for oil transportation, was in a strong position to pay a premium for the interest in Block 5A compared to other potential buyers. Petronas had already accepted the political risk of operating in Sudan and possessed strong financial standing in the industry.

The defense concluded by emphasising the value paid by Petronas was substantially related to Thar Jath and bore no connection to the alleged crimes.

LPAB did not profit from the sale of Block 5A

The defense addressed the prosecution’s argument that the parent company LPAB had control over the interests in Block 5A and the profit from its sale, contending that this was incorrect. They further argued that the prosecution’s statement that the company’s profit was enhanced after 2003 within the framework of LPAB’s operations was also incorrect.

A press release from Lundin Petroleum announcing the sale on 28 April 2003 made clear that Sudan BV received the purchase price from Petronas, as evidenced by previous bank transactions and receipts for the purchase price from Petronas to Sudan BV on 27 June 2003. This sale was reported both on Sudan BV’s income statement and in LPAB’s consolidated income statement. Based on LPAB’s 2003 annual report in the income statement, the profit from the sale of Block 5 in Sudan showed no profit in the parent company since the parent company received no profit. On the contrary, the parent company incurred a loss, largely due to exchange rate losses in 2003.  According to an internal memo, the remaining portion of the sales profit was distributed as dividends to the Dutch subsidiary Sudan BV. The final result was that LPAB transferred the funds within the group to ultimately repay external loans.

As such, the defense argued that LPAB did not receive any part of the profit from the sale. The payment from Petronas was made directly to Sudan BV, which used a small portion to repay loans. The remainder was distributed to a Dutch subsidiary and ultimately transferred to Coparex to repay additional loans. This structure indicated that the transaction did not result in a conventional profit for LPAB. The operations of Sudan Ltd. were not conducted within the parent company, and there was no evidence suggesting that these operations should have been managed by the parent company.

The defense also spent a considerable amount of time disputing the methodology employed by the prosecution to calculate the growth of the profit since 2003. They argued that the calculation lacked a legal basis and represented a purely theoretical example of how profits could have increased within the company. Hence, it was excessive to petition for such a large sum to be forfeited from the company. They highlighted that the calculation erroneously assumed that the entire profit from the sale of Block 5A’s interest was generated through criminal activity and should be assigned to LPAB. Furthermore, they emphasized that the calculation’s reliance on a hypothetical rate of return for an LPAB shareholder was unrelated to the alleged criminality. Moreover, they pointed out that the calculation lacked any legal foundation. They underscored the exceptional time frame involved – over 20 years since the purported initial economic benefits – alongside the prosecution’s incorporation of compound interest over time, leading to an unreasonable forfeiture demand.

Concluding Remarks        

Throughout their presentation, the defense consistently challenged the prosecution’s claims, asserting that the company’s profits were neither legally attributable to LPAB nor did they stem from criminal conduct. They concluded by reemphasising that no crimes had been committed during LPAB’s operations and that Ian Lundin and Alexandre Schneiter had not committed any crimes. Moreover, LPAB had never conducted business operations in Sudan as it did not exist until May 2001. Furthermore, LPAB did not receive any initial economic benefits from the alleged criminal activities. The net profit from the sale to Petronas would have arisen regardless of the alleged crimes, as the purchase price was received and recorded by the seller, Sudan BV.

Furthermore, the defense stated that the prosecutor’s calculations lacked the necessary legal basis for a forfeiture in that it was based on a theoretical model with no connection to the alleged criminal activities, lacked legal support, and, due to the extreme length of time involved, would lead to an unreasonable outcome. Consequently, the defense held that there were no grounds for a corporate fine.

Next report

The defense teams for Ian Lundin, Alexandre Schneiter, and Orrön Energy have now all completed their presentations. Following the company’s defense, the prosecution had the opportunity to complete its presentation, which we cover in our next report. The trial will move into a new phase on 28 May 2024 when the Court hears the testimony of the first of the plaintiffs from South Sudan.