Corruption, cancelled contracts and blue sky deceit: inside Worley’s torrid times
An unsolicited email launched Worley’s saga in Ecuador. It has ended with damning findings and reputational damage – and the headline petrochemical project in Ecuador is now a solar farm.
The email that drew Australian engineering giant Worley into its $700m Ecuadorian corruption scandal popped, unsolicited, into executive inboxes on September 13, 2010.
It started Worley down a dangerous path that included using illicit inside information to finetune bids, showering Ecuadorian government officials with luxury trips and being targeted by criminal investigations – and culminated just before Christmas with a bombshell finding by an international arbitration tribunal that it engaged in illegal and corrupt behaviour.
Details of Worley’s troubles over the next few years are contained in court filings in the US and Australia, reviewed by The Weekend Australian.
Taken together with other evidence pieced together by The Weekend Australian, Worley’s experience with Ecuador helps paint a picture of a torrid period in the company’s history.
A decade ago Worley was also dealing with a spate of cancelled contracts, multiple downgrades that its own chief financial officer attributed to budgets that included “blue sky” revenue projections, investigations into alleged corruption in Bulgaria and a legal stoush with oil giant Exxon.
The email that started the Ecuadorian saga came from George Plummer, a senior executive at Shaw Consultants International, who invited Worley to bid on a project to build a 300,000-barrel-a-day oil refinery in Manabi province named Pacific, after the ocean the area borders.
Pacific would later prove to be a disaster for its backer, a company called RDP that was a joint venture between the governments of Ecuador and Venezuela.
But at the time, Houston-based Worley executive Doug Eberhart was intrigued – even if he was puzzled as to what Shaw Consultants International, then a subsidiary of US company Shaw Group, had to do with it.
“I can see we would be interested in making a presentation for PMC (project management consulting) capabilities but hopefully we can get some good intelligence in advance of spending $ on a bid,” Eberhart wrote in an internal email the same day.
“Shaw looks to be involved but not clear how?”
It turned out that Shaw was working for RDP – but that Plummer was also willing to help Worley by passing on confidential information from RDP, the tribunal found.
Plummer was also willing to pass on internal information from Ecuador’s state-owned oil and gas company, Petroecuador, about a second project – the refurbishment of the country’s biggest refinery, Esmeraldas, which was so run-down it was running at between 80 and 85 per cent capacity.
On both projects, Worley used as its key subcontractor an Ecuadorian company called Tecnazul.
Tecnazul was a subsidiary of Grupo Azul, which was closely connected to the country’s left-wing president, Rafael Correra, who rose to power in 2007 on an anti-establishment and anti-corruption platform.
Azul was owned by William “Bill” Cooper, also known as William Phillips, the husband of Correa adviser Monica Hernandez.
It shot into Ecuadorian headlines in April 2016, when the Panama Papers, a vast trove of data from Panamanian law firm Mossack Fonseca, was released. The leak showed Tecnazul had been sending millions of dollars to offshore bank accounts to bribe officials at Petroecuador.
According to the arbitration tribunal, between 2011 and 2015 Worley also plied Petroecuador and RDP officials with gifts, including art, Formula One race tickets and accommodation, basketball tickets and trips to conferences.
It found some of the inducements to Petroecuador officials were “sufficiently egregious so as to qualify as corruption”.
Worley also paid $5000 a month for eight months to hire as an electrical contractor a man whose qualification was in economics, which the tribunal found was “part and parcel” of the company’s corrupt conduct, and undertook a $US6m “charitable project” to rebuild a school and dock on an island where Petroecuador’s refining division manager, Carlos Pareja, a former minister of hydrocarbons, had his family holiday house. The tribunal made no finding about the island project.
Worley denies doing anything wrong and says it is considering legal options over the ruling.
Tough times
Australian court documents show that Worley’s inducements to Petroecuador officials came amid intense pressure on executives at its operations around the world to meet overly ambitious profit targets set back at headquarters, despite a global slowdown in demand for engineering services because of a commodity price slump.
In May 2013 Worley had a brand new chief executive, Andrew Wood, was already reeling from two profit downgrades, and facing a market that was getting worse – but executives pushed ahead with an ambitious budget that banked on bringing in “blue sky” revenue from new or expanded contracts.
Court documents show that Worley’s other problems in 2013 included dealing with the fallout from Brazilian miner MMX cancelling a mine expansion contract, reportedly worth $US250m, and poor performance in Iraq, Brunei and Britain.
Taking the reins at his first shareholder meeting as chief executive in October 2013, Andrew Wood declared Worley had “zero tolerance for corruption”.
“With our large global footprint, ethical behaviour is paramount to our ongoing success.”
He also paid tribute to its CEO for the previous 40 years, John Grill.Grill, who became very wealthy from his stake in Worley, retired in October 2012 and became chairman of the company four months later.
The arbitration tribunal found that in 2013, at the request of an official at Petroecuador, Worley paid for tickets to NBA games in San Antonio, Texas, hired the unqualified person to work for it and paid for a 20-person birthday party for a second official.
It found that the largesse Worley showered on Petroecuador officials between 2012 and 2014 “had the ultimate effect of securing an undue advantage for Worley”: six new contracts for extra work on the Esmeraldas project, awarded without contest and worth a total of almost $US150m.
But globally, relying on “blue sky” revenue was a failure. Worley failed to meet its profit forecast for financial year 2014, sparking an internal investigation by its chief financial officer and a shareholder class action in the Australian Federal Court.
“Expectations of growth at the senior management level have been too optimistic and have not matched what the locations are seeing on the ground,” chief financial officer Simon Holt said in a company memo in December 2013, filed with the court.
He said there was an expectation by senior management that Worley would grow by a certain amount every year, regardless of market conditions.
“In order to meet these expectations, the most common response is for locations to simply include a greater level of ‘blue sky’ revenue in the second half of their budget period,” he said.
“In essence, locations are ending up budgeting on the hope that work will materialise, rather than any real expectation that it will.”
In December last year, the Federal Court found that Worley misled the market in August 2013 when it forecast its profit for the 2014 financial year would be more than $322m.
Three months later, in November 2013, it admitted profits would be far lower, sending the share price tumbling by more than a quarter.
However, Justice Ian Jackman dismissed the shareholder class action, saying the plaintiffs hadn’t done enough to prove the contraventions caused a loss to them.
Shine Lawyers, which represents the shareholders, is considering an appeal.
By late 2013, Worley was also at loggerheads with a crucial customer for any engineering company, US oil and gas giant Exxon.
In a blistering attack lodged with a court in the US in December 2013, Exxon accused Worley of “unprecedented” contract breaches in a deal where it was supposed to design the platform of an oil rig off the coast of Sakhalin Island in Russia’s far east.
Exxon told the court Worley promised it knew how to build a platform, including the drilling rig, production facilities and crew quarters, in an area where temperatures can reach -19C in winter.
But instead of delivering an “A team” of specialists, “WorleyParsons staffed the project with its ‘C’ team and used substandard resources”, causing a delay of two years, Exxon told the New York Supreme Court.
Worley denied the claims and demanded $US20m, saying Exxon withheld the money even though it agreed to pay it on a cost-plus basis.
The case was settled in May 2015 with Worley paying Exxon $US55m and withdrawing its counterclaim. Worley’s announcement of the settlement surprised some observers because they weren’t aware there had been a stoush over the contract. The lawsuit was covered by the Wall Street Journal but doesn’t appear to have been disclosed to investors by the company.
Eastern bloc fallout
Adding to the company’s 2013 and 2014 woes was the failure of a series of nuclear power contracts, particularly in eastern Europe.
Since the mid-2000s Worley had pursued a role in the build-out of new nuclear power stations across the Middle East and Europe, winning consulting and project management contracts in Egypt, Jordan, Poland, Bulgaria and other developing – or former Eastern Bloc – countries.
But by 2013 those contracts had also begun to sour, with some cases also including corruption allegations.
US government officials flagged concerns about Worley’s closeness to allegedly corrupt Bulgarian energy bosses as early as 2006, according to diplomatic cables released by WikiLeaks in 2011. The relationships, the cables say, dated back almost a decade.
But in 2013, after mass protests about high electricity prices and poverty forced early elections in the country, Bulgaria’s energy sector exploded as a political issue. The country’s plan to expand its Belene reactor had been cancelled in 2012, but Worley – and its subcontractors – were still being paid by Bulgaria’s state-owned electricity company 18 months later.
Local media reports said that the chief executive of Worley’s Bulgarian subsidiary had been arrested and questioned over alleged corruption involved in the contracts – along with executives of the company’s subcontractor – but he was released without charges.
No corruption allegations were sustained against the company by any courts, as far as the Australian is aware, and Worley denied any wrongdoing to the Bulgarian press at the time.
Adding to the company’s woes, however, was the loss a year later of key nuclear consulting contracts in Poland, amid a dispute over who was responsible for delays in work to help select a site for a new reactor in the country.
Worley has said it is still pursuing arbitration claims against the Polish government, although the company has not disclosed the amount it believes it is owed, or even what contract the dispute relates to.
Panama papers
Back in Ecuador, the Panama Papers leak in 2016 provoked an immediate reaction from president Rafael Correa.
He issued a memo ordering government bodies to cease payments to Tecnazul and other Ecuadorian companies named in the Panama Papers.
Worley claims this order also unfairly stopped payments to it, leaving about $US80m it was owed unpaid.
After two terms in office, Correa was replaced by his hand-picked successor, Lenin Morena, who won elections in 2017.
But the bribery scandal continued to reverberate.
Tecnazul’s Cooper was convicted of bribery in absentia and sentenced to eight year jail in 2020 over $US165,000 he gave to Correa’s party, Allianza Pais, in 2012 and 2013.
Correa was also convicted and given an eight-year sentence, but didn’t attend the court hearings and was last seen living in Belgium.
Ecuador has also hit Worley with a wave of audits, income tax bills and investigations that the company complains amounts to a campaign of harassment.
It also complains that Ecuador tried to get Interpol to issue a red notice for the arrest of its local program head, Raymond Falcon, as part of at least 24 criminal investigations of its employees.
Four criminal cases against Mr Falcon have been dismissed and charges against him laid in another investigation dropped, Worley told the tribunal.
In another blow, a separate tribunal found that despite Tecnazul’s corrupt practices, Worley still had to pay it more than $US10.5m it had been withholding, plus $US2.5m in costs.
“The fight against corruption cannot go as far as allowing corruption to be invoked indiscriminately as a means of disrupting contractual relations in no way tainted by corruption,” the tribunal said in a 2021 ruling.
Worley has asked a court in Chile to set the decision aside.
Meanwhile, the refinery project that got Worley into Ecuador in the first place never got off the ground, stalled by the corruption allegations surrounding it and the death of Venezuelan president Hugo Chavez in 2013, which cut off the flow of cash from his country.
The site, cleared from the local forest, instead became a landing strip for the violent drug gangs that plague Ecuador.
It is now to be turned into the country’s biggest solar farm.
