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Why the share price of this ASX oil stock crashed by a third today

The Horizon Oil Ltd (ASX: HZN) share price is among the worst performers on the All Ordinaries (Index:^AORD) (ASX:XAO) index during lunch time trade.

The company may be embroiled in a bribery scandal in Papua New Guinea that could see it subject to criminal charges, according to the Australian Financial Review.

Energy stocks are already under pressure today from the falling oil price and worries that OPEC and Russia would not step in to support the commodity through production cuts.

A new dark horizon

The Woodside Petroleum Limited (ASX: WPL) share price dipped 0.4% to $33.73 while fellow PNG-exposed oil and gas company Oil Search Limited (ASX: OSH) tumbled 2.7% to $6.23 at the time of writing.

But that’s nothing compared to the close to 30% plunge in the Horizon share price to 8.6 cents. The company’s PNG ambitions may be thwarted by a nine-year old US$10.3 million payment it made in that country.

The payment was made to an unknown shell company even though Horizon’s management had allegedly been warned that the payment could lead it into troubled waters.

Bribery and corruption allegation

The AFR reported that lawyers working on the 2011 deal highlighted links to PNG’s then petroleum minister, William Duma. They warned an investigation by the US Department of Justice or Securities Exchange Commission was “likely” if details of the transaction were scrutinised.

It’s alleged that Horizon was awarded a lucrative Petroleum Retention Licence 21 (PRL 21) in the just 10-weeks before the payment was made. The payment also followed the settlement of a protracted legal dispute with Mr Duma.

It’s easy to see why some might call the payment a “bribe” and Horizon has strenuously denied any wrongdoing.

Horizon’s defence

In a statement to the ASX, management said it has no actual knowledge of any wrongdoing relating to the transaction.

Horizon explained it (and its joint-venture partners) applied to get a renewal for another area, PRL 5, which was rejected by Mr Duma. Horizon appealed the decision, which was settled in 31 March 2011 where the company was awarded a 70% interest in PRL 21.

“The Minister awarded PRL 21 to three parties: Horizon Oil, and two local PNG companies: Elevala Energy Limited (Elevala Energy) and Dabajodi International Energy Limited (Dabajodi),” said Horizon in its statement.

“Pursuant to pre-existing contractual arrangements, Horizon Oil transferred a 35% interest in PRL 21 to a subsidiary of Canadian multinational oil and gas company Talisman Energy, Inc (Talisman).

“Horizon Oil acquired a 10% interest in PRL 21 from Elevala Energy for $US10.3 million, and Talisman acquired a further 5% interest in PRL 21 from Dabajodi.”

Horizon shareholders will be praying that the explanation holds up to scruntiy.  

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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