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Ruling on Ghana’s Maritime Border Dispute with Cote d’Ivoire Is Credit Positive for Ghana

01.05.2015 LISTEN
By Moody

Last Saturday, the International Tribunal for the Law of the Sea ruled that Ghana (B3 negative) can continue production at the Tweneboa-Enyenra Ntomme (TEN) oil field, but must not start new exploration until Ghana’s maritime border dispute with Cote d’Ivoire (B1 positive) is resolved, an outcome most likely to come in late 2017. The tribunal’s decision to allow the TEN project to continue is credit positive for Ghana because it removes a threat to Ghana’s growth and revenue projections over the next two years.

Operated by a consortium led by Tullow Oil plc (B1 negative), the TEN oil field is Ghana’s second-largest oil field. It is more than 55% complete and is scheduled to start production in mid-2016 with capacity to reach 80,000 barrels per day. Ghana’s first oil field, the Jubilee, currently produces 100,000 barrels per day, with capacity of up to 120,000, and is not involved in the border dispute. Based on our forecast of an average oil price of $72 per barrel during 2016-19, we expect the government’s annual oil receipts from the TEN field to total 1.0-1.5 percentage points of GDP.

Together with the Sankofa offshore gas project, which is also not involved in the border dispute and is scheduled to commence production in 2017, we expect increased oil and gas production to ease downward pressure on Ghana’s foreign exchange buffers and support growth prospects over the next five to seven years in our base-case scenario (see Exhibits 1 and 2). Had the tribunal fulfilled Cote d’Ivoire’s request to immediately cease all activity in the disputed region until the resolution of the border dispute, it would have prevented TEN from reaching its production targets.

That risk was a factor, albeit a less significant one, in the negative outlook we assigned when we downgraded Ghana to B3 from B2 on 19 March. In terms of exploration, the tribunal’s decision to suspend new drilling in the disputed waters does not affect our oil and gas production base case because it only includes the development of the TEN field in the disputed area. However, it limits any potential upside that may have come from any oil discoveries over the next few years.

Moreover, until the tribunal rules on Cote d’Ivoire’s claim, uncertainty over Ghana’s oil production and government revenues will persist. The tribunal’s order to suspend new drilling speaks to the tribunal’s judgment that Cote d’Ivoire’s claims on the area are at least plausible. An ultimate ruling in favour of granting partial or full ownership of the disputed area to Cote d’Ivoire would likely require the division of past and future revenues from the field between the two governments.

Potentially significant compensation payment claims on Ghana in the event of an adverse ruling risks jeopardizing part or all of the government’s receipts from the TEN oil field.

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