Point of no return
Horizon has also stood aside its chief executive Michael Sheridan, a 17-year veteran of the company, as it conducts an independent investigation.
It has all the makings of a grubby little scandal.
But at the same time, its hard to see how it could have played out any differently from the moment Horizon wrote to then petroleum minister Duma, in November 2010, saying it was open to any suggestion on how the current tension might be defused.
Horizon’s former CEO Brent Emmett refocused the company on PNG.  YouTube
At that point there was no turning back.
The files document in tropical colour the narrow line Horizon was already walking in PNG, with a seemingly endless list of paid political consultants and community affairs managers, who were chasing rumours about shifting power structures, seeking per diems for provincial staff and arranging drinks with the then prime minister Sir Michael Somare and his daughter Betha at Port Moresby’s Airways Hotel.
Then came the task of managing warring villagers, joint venture partners, feasibility studies, and chartering helicopters for access to remote locations.
It was high finance and geoscience meets local politics and the everyday challenges of PNG, a country the World Bank ranks as poorer than Sudan.
Into this environment strode the former investment banker Brent Emmett, who had taken over as Horizon chief executive in 2000 and been joined three years later by Michael Sheridan, as chief financial officer.
Together they had refocused the companys attention on PNG and by mid-2008 were running hard at this emerging LNG jurisdiction with stakes in three prospective oil and gas licences.
Their timing was good.
Simon Ketan is the key player in the corruption allegations around Horizon Oil. 
By 2009 Morgan Stanley was reporting that land under lease in PNG had increased fivefold over the previous seven years and it predicted a rush of deals and ballooning asset values.
But Emmett was unsure how best to play this boom.
Tricky terrain to navigate
In one email he pondered whether he should prove up the resource and commercialise slowly or go for the land grab.
To make such a call, Horizon, which also had assets in China, New Zealand and the United States, needed to better understand the local political terrain, which was notoriously tricky around licence transfers and renewals.
In an attempt to smooth out these wrinkles, Emmett organised to introduce himself to Duma, while Sheridan was charged with meeting Sir Michael Somare and daughter Betha at the Havanaba bar within the Airways Hotel, famous for its leather armchairs and antique cabinets.
It was a pleasure to meet you and welcome you as yet another investor in our country even though you have been here before, Betha wrote to Sheridan in June 2008.
From that point, Horizon began to get serious: the company set up an office in Boroko and hired a country manager.
By October 2008, Morgan Stanleys prediction was already being realised when AGL sold its 3.6 per cent interest in the giant pipeline and processing plant known as PNG LNG for $1.1 billion.
It was a reminder of how much was at stake.
Vulnerable to political pressure
By May the next year, Horizon was also in on the action selling half of its interests in two licences, PRL4 and PRL5, to Thailands P3 Global Energy Co for $US55 million, almost three times more than analysts believed the assets to be worth. The companys share price soared.
But things werent as rosy as they appeared.
Behind the scenes, the Thais were questioning their investment, and Horizon was working overtime to get someone else Canada’s acquisitive Talisman Energy on the hook.
At the same time, with increasingly larger amounts at stake, the local politics started to get complicated. And unlike the big diversified players, Horizon couldnt simply threaten to walk away. Its big bet was in PNG.
The companys big pay day was contingent on firming up its gas resources to build its own pipeline and LNG-processing plant or tap into one of the existing projects. Even then its resources were on the marginal side, which meant any loss of acreage was potentially fatal for its ambitions.
That left it exposed to political pressure and everyone knew it. Enter PNGs former petroleum minister and deputy prime minister, Sir Moi Avei, who Horizon hired as an adviser to the board, despite one industry contact warning he may be implicated in some dubious licence deals etc.
Those claims were never tested, but the public record shows just a year earlier, Sir Moi was found guilty on three counts of misconduct in office. He was fined $1500 and forced out of parliament.
‘You scratch my back …’
That was apparently no obstacle for Horizon as Sir Moi set about working the corridors and securing the companys licences. In outlining his role to Emmett and Sheridan, he stressed the importance of face-to-face meetings and not stepping on the turf of other fixers, managing relationships within the department and at the village level. And when it came to handling Duma, he was clear how the minister operated.
I’ve been helping Minister Duma out for the past 6 weeks because the LNG project is in my backyard. You know how the system works you scratch my back and Ill scratch yours’, he wrote.
But Sir Moi, who one source described as the epitome of PNGs big man culture, quickly came to see the political winds shifting against Horizon.
With regards to the minister [Duma] I can sense he is up to something. He did call me two weeks ago but somehow we have yet to meet in person. Im still chasing him, he wrote in November 2009.
He was right. Duma was indeed up to something. The trigger for the minister to make his play was a move by Horizon’s joint venture partner, the South Australian energy giant Santos, to sell out of its interest in one licence. That suddenly became a road-block.
Sir Moi characterised these as basic issues, that could be untangled once Horizon understood the process. He warned the companys failure to stay with the process would see it become a political pawn.
We need to avoid [this] at all cost. I will elaborate when I see you and Brent, he said.
Licence in jeopardy
By July, those fears were out in the open, and rumours were swirling. One engineer warned Duma has done this before. [He] rescinded a licence and resold to someone else, the company was warned. Duma has a buyer.
As the reality of losing a licence worth more than $100 million grew, a series of heated emails were exchanged. The Department of Petroleum and Energy accused the operators of failing to keep the site in good standing and not having spent the agreed amount.
Horizon would ignore repeated corruption warnings and buy out Elevala for $US10.3 million.
Horizon and joint venture partner Santos responded with strongly worded legal letters. But on June 28, 2010, Duma served a notice that PRL5 was to be cancelled. Horizon countered by taking the unprecedented step of suing the minister, the department and the Petroleum Advisory Board for an unfair loss of licence. It was taking on a corrupt and broken system.
I want to convey a message to Minister Duma, thats hes got a real dog fight in [sic] his hands, Sir Moi emailed.
Horizons lawyers at Blake Dawson said the company had strong support in the industry for its stance. The good guys are all pretty stirred up by these goings on, the company was told.
Then the company abruptly changed tack with a grovelling letter.
Minister, we very much regret that this issue [the revoked licence] has led to the current situation [the litigation], Emmett wrote to Duma. As always, we remain open to any suggestion from you as how the current tension might be defused.
The message got through and by March 2011, a sealed settlement had been negotiated and approved by the court. Horizon would keep 70 per cent of PRL5 (now known as PRL21), and the minister would award the other 30 per cent at his discretion.
From the ministers discretion a 10 per cent stake in PRL21 would be given to the shell company Elevala Energy Ltd, a company without the experience or capital to develop such a complex asset and whose sole shareholder, Simon Ketan, had close personal and professional links to the minister.
In the weeks following this grant, Horizon would ignore repeated corruption warnings and buy out Elevala for $US10.3 million, a price tag which was revealed on Monday by the Financial Review after remaining secret for nine years.