Party feuding, jarring personalities and tax deals – not rivalry with China – have kept ExxonMobil out of Ghana’s oil fields

The announcement on 17 August by ExxonMobil that it is abandoning its campaign to buy a 23.5% stake in the Jubilee field, Africa’s biggest offshore oil field, is likely to precipitate a bid by the Ghana National Petroleum Corporation (GNPC), backed by the China Offshore Oil Corporation (CNOOC), Africa Confidential has learned.

Although some interpret the move as another tactical victory for China against big Western oil companies, ExxonMobil’s problems are due more to Ghana politics than geopolitics. CNOOC, along with several other international companies – and even investment banks such as Goldman Sachs – were warned off the deal by ExxonMobil’s lawyers, who sent letters threatening action against them in the Texas courts for ‘tortious interference’ (unlawful interference with trade) should they try to propose a rival bid.

Last September, ExxonMobil signed an ‘exclusive and binding agreement’ to buy a 23.5% stake in Jubilee, owned by Kosmos Energy of the United States. The stake was valued by ExxonMobil at around US$4.3 billion. However, Kosmos has been locked in a dispute with the Ghanaian government over data-sharing and unproven claims of criminality against its local partners in Ghana (AC Vol 51 No 15). This exclusive and binding agreement between ExxonMobil and Kosmos foundered on the concerted opposition of the GNPC, Minister of Energy Joe Oteng-Adjei and ultimately, President John Evans Atta Mills.

Within two weeks, GNPC officials are due to meet and open negotiations for the purchase with private equity companies Blackstone Group and Warburg Pincus, which have a majority stake in Kosmos Energy. GNPC has retained US bankers Morgan Stanley and British lawyers Freshfields as its advisors.

CNOOC has guaranteed a $5 bn. bridging loan facility to Ghana, a senior GNPC official said in Accra: ‘Under the arrangement, CNOOC would take 10.1% of the asset, GNPC would keep 3% and market the remaining 10.4% to a credible technical partner.’

In late July, John Atta Mills set up a committee to review the transaction and suggest a way to resolve the dispute. Chaired by ex-World Bank vice-president Gobind Nankani (AC Vol 47 No 22), with several senior politicians and international civil servants among its members, it took just over two weeks to talk to all the companies (including ExxonMobil) and report back to Mills in early August, before his summer holiday. It advised Mills to reject the Kosmos sale to Exxon and instead back the GNPC’s efforts to raise finance, either through CNOOC or a consortium of Western banks, to buy the stake direct from Kosmos and select its own technical partner for the Jubilee project.

Ghana insists it has no intrinsic opposition to ExxonMobil, the world’s biggest oil company, and says that another unit of the company is interested in a field currently operated by Amerada Hess, further out to sea. While in the USA on holiday, Mills met Assistant Secretary of State Johnnie Carson in Washington to dampen concern there that Accra was showing a preference for business with Beijing.

Exxon’s statement livened up the markets in mid-holiday season as bankers jostled to propose financial and management structures for an alternative transaction. The leading contenders as technical partners in the consortium are Norway’s Statoil ASA, BP (which had proposed an attractive joint development and training programme to Ghana, despite its crisis in the Gulf of Mexico) and Royal Dutch Shell.

Kosmos recently told GNPC that there was a ‘tiny window’ in which it would accept a ‘realistic market-based bid’ from Ghana, according to an official source in Accra. We hear that Blackstone and Warburg Pincus, which stand to make a fourfold profit on their backing for the Ghana oil development, would prefer Kosmos to sell soon if it could secure a market price. Kosmos is an exponent of the ‘find and sell’ business model: it is set up to explore, locate and bring oil wells to production and then quickly sell on to a bigger international oil company. Kosmos insists that it can stay put: after its investment of some $1.5 bn. in Jubilee, it can expect an income of $1 bn. a year once production starts.

ExxonMobil’s entreaties to Accra have dragged on since last September, when a top delegation of the company surprised President Atta Mills, then in New York for the United Nations General Assembly, by telling him its company had secured a 23.5% stake of the Jubilee field in secret negotiations with Kosmos.

This infuriated GNPC officials, at loggerheads with Kosmos. Moreover, the governing National Democratic Congress (NDC) is deeply suspicious of Kosmos’s local partner, EO Group, which brought the company to Ghana and secured from it a 3.5% stake in the West Cape Three Points block (AC Vol 51 No 15).

EO’s directors, George Owusu and Kwame Bawuah-Edusei, are supporters of the opposition New Patriotic Party and close to former president John Kufuor. They stood to gain $200-300 million if Kosmos was able to sell its stake to ExxonMobil. NDC officials were convinced that a substantial part of this would find its way into the NPP’s campaign coffers before the 2012 elections.

Ghanaian officials call Kosmos’s deal with EO Group ‘the original sin’. They see the association as politically tainted and question why Kosmos was able to secure fiscal terms that were $3.8 bn. better on its West Cape Three Points field in 2004 than the terms secured a year later by its counterpart, Ireland’s Tullow Oil, on Deepwater Tano, an adjacent field of similar prospectivity.

Both Kosmos and EO Group emphatically deny any malfeasance and point to a nine-month investigation by the US Department of Justice into the arrangement, which concluded there was no evidence of breaches of the US Foreign Corrupt Practices Act. In Accra, the political sting persists and Attorney General and Minster of Justice Betty Mould-Iddrisu is still preparing a case to prosecute Owusu and Edusei for fraud in the Ghanaian courts.

Agreement on sale price could be more problematic following an announcement last month from Tullow of a big new discovery in the Owo field, in which Kosmos also has a stake. According to Kosmos, the ExxonMobil offer of $4.3 bn. was already well under the stake’s market value, so it would now be looking at $5-6 bn. Although GNPC says it will match the ExxonMobil offer, it would be reluctant to go much beyond it and eat into funds needed for project development, such as refineries and gas pipelines.

Another complication is the status of the EO Group’s 3.5% stake. Although the contract between Kosmos and EO Group has not been disclosed to them, GNPC believe that Kosmos will have an obligation to protect and accommodate Owusu’s and Edusei’s interests in the sale.

Time is pressing. Once commercial production of oil starts, all the stakeholders (including EO Group) will have to pay their share of the production costs on the field. The parties will also face a new petroleum tax regime. Although Kosmos may fend off an excess profits tax on its capital gains from the sale of its Ghana assets, due to stabilisation clauses in its current contract, it would be liable for capital gains tax under a new schedule following the start-up of commercial production later this year, according to the GNPC.

A resolution of the dispute would help the government to bring in new partners for the second and more expensive phase of development. The campaign for the next general election will start in 18 months’ time. With that kind of background noise, the next round of negotiations over Ghana’s oil assets may not be much more congenial than the last. The difference this time may be that it will be in everyone’s interest to reach a speedy conclusion.

Source: http://www.africa-confidential.com/news