The Jubilee Oilfield - Making The Right Decision

Kosmos Energy is said to have entered into an exclusive agreement with ExxonMobil to sell its 30 per cent stake in the Jubilee Oilfield to them.

Since then, one of its partners in the Jubilee Project, the Ghana National Petroleum Corporation (GNPC), has been up in arms, insisting that it is not aware of and has not sanctioned any such deal.

There have been reports of the GNPC and the Energy Ministry preferring the China National Offshore Oil Company (CNOOC), which is a little strange, considering that it hardly has any experience in deepwater offshore drilling.

At some point in the near future, Kosmos Energy, the company that first struck oil in Ghana, and in so doing made it the focus of world attention, is going to be gone and the partnership will be joined by a new player. Hopefully, the Government of Ghana will make the right decision.

After all, exploitation of the Jubilee Oilfield has only just begun with no more than 15 or so wells drilled out of a total of 66. Apart from Vanco, Kosmos has been in Ghana longer than any oil company, drilled 13 wells and is still drilling.

Its success rate is phenomenal because this is what the company focuses on. It will be a shame to conclude that the rules are being changed now that Kosmos has found oil.

So how has Ghana arrived at this point where even before things really get going, the GNPC already has a dispute with a key player which was once considered the darling boy?

Sales process

Much of the current impasse stems from a disagreement over Kosmos’s initiative several months ago to sell its interests in the Jubilee field and two offshore petroleum blocks.

This Kosmos business model of focusing on finding oil and transferring the development to a more suitable party was made clear to GNPC right from the start.

GNPC always knew that Kosmos would be exiting in favour of a bigger party with the wherewithal and technical capability to take over the asset and look after the oil field and ensure its full life.

Kosmos also sought and secured $750 million in financing from seven international banks to fund its share of the Jubilee costs; but for nearly five months, the GNPC and the ministry have refused to approve this loan.

Why would the Government hold its hand out to the ‘work bank’ and slap the hands of Kosmos’s bankers when they are only trying to invest money in Ghana?

After a lengthy process of assessing the various financial options available to it, Kosmos decided in March 2009 to proceed with a sale of its Ghana interests and promptly notified the Government of Ghana and the GNPC.

Bids were invited with a July deadline set for closure but the GNPC asked Kosmos to suspend the bidding to enable it put in its own bid.

That bid process was extended twice to a total of 75 full days to accommodate GNPC because Kosmos was sensitive to their desires and responsive to their request.

However, with no offer forthcoming as well as no progress on the issue of government approval for its $750 million facility meant to fund Kosmos’s share of the Jubilee development costs, Kosmos ended its sales effort and indicated that it had reached an exclusive agreement with ExxonMobil, estimated in the press at approximately US$ 4 billion.

Impasse

Since the Kosmos announcement there have been reports of GNPC’s refusal to accept the Kosmos ExxonMobil deal. GNPC rather insists on offering its own bid. GNPC says it has the money but is yet to make an offer.

With a US$4 billion price tag, many industry experts long concluded that this would be out of the reach of GNPC. More importantly, the capital commitments over the next 10 years or so are considered to be in the region of $10 billion — an amount far in excess of the selling price.

How can it find the money to make the big investments needed to move forward if GNPC cannot find the resources to acquire the stake?

And so a reasonably straightforward business transaction with a major investor is suddenly being complicated with talk about the GNPC’s pre-emptive rights on the part of government to buy the Kosmos asset.

Contrary to other press reports on this, no such pre-emptive right exists. By the way according to the Petroleum laws, Kosmos does not always need the government’s approval to assign its rights to a third party.

What it requires is the Government’s consent that the company in question is considered financially and technically suitable.

What should be happening at the moment is GNPC’s evaluation of whether ExxonMobil is financially and technically capable; which should be a quick study.

ExxonMobil

It seems that apart from the untenable concern now being wafted that the oil super major may not proceed to develop the assets immediately, there is complete agreement by industry specialists that this is the best thing to happen to Ghana’s fledgling oil and gas industry.

In fact, the inclusion of ExxonMobil is more likely to speed up things, given their immense financial, technical and human capabilities.

It is more than 10 years ago since the company bought an asset like this and sources close to ExxonMobil say they cannot afford to delay in bringing these fields on stream.

ExxonMobil operates this way. They have three or four ( FPSOs) Floating, Production, Storage and Offloading vessels currently in Angola — a good example of how they propose to produce oil in Ghana at Jubilee. It seems strange that GNPC should be acting the way it is with the world’s largest public company knocking at Ghana’s door.

It would be hard to find another company with as much experience in deepwater operations. The company is in every major oil-producing country in Africa and is the best suited to transfer skills to the Ghanaian industry and its people as well as prepare the GNPC to lead in the long-term.

GNPC obviously wants to increase its stake, and sources say the Kosmos-ExxonMobil exclusive agreement makes provision for this. The parties must, therefore, sit together in a spirit of mutual respect and iron out any differences.

Suggestions that Kosmos is acting illegally and that the needs of government are not being considered in any clear road map are simply inaccurate.

The GNPC is also on record as saying Kosmos has violated data confidentiality laws, an accusation that Kosmos firmly disputes.

Obviously there is scope here for interpretation but this is a determination that only a third party can make.

There is, therefore, no reason to put the bigger picture on hold.

Numerous industry experts continue to ponder over what the attraction could be with China.

There is also much speculation that the attraction is China’s cash and willingness to provide soft loans for numerous infrastructure projects.

But as an industry analyst put it, “there may be some short gains which cash can bring but this is no alternative to a well considered, long-term partnership for the development of Ghana’s nascent industry.”

In the final analysis, President J.E.A. Mills will have to make a decision on whether the GNPC’s plans for its growth and excluding a company of ExxonMobil’s calibre are really in the best interest of Ghana.