Govt studying Exxon-Kosmos deal: State-run Ghana National Petroleum Corp (GNPC) is studying an agreementby Exxon Mobil to buy Kosmos Energy’s stake in the Jubilee field in Ghana before passing it to the energy ministry for its perusal, a Ghanaian government source said on Wednesday.
‘GNPC is required to look a the entire deal as negotiated — the idea is to ensure that it is the best offer not only in monetary terms but also it should come with the technical expertise,’ the government source involved in the energy sector told Reuters.
There are a number of comments on this article at GhanaWeb that provide more information and insight:
MKO explains in more detail how this works:
1. The Ghana govt granted Kosmos (together with other companies, forming a consortium)exploration rights for a fee, which was paid to the govt. The license (exploration rigths) – comes with some conditions attached.
2. Kosmos as the holder of the equity (by virtue of it contribution to the consortium) has the right to sell its sake to any buyer of its choice.
3. Kosmos is owned by a private equity (PE) group. PE generally operate on short / limited time span on projects. Typically what they do is acquire companies, add value (sometimes thru restructuring or other means), and the sell the company to make profit for the investors who gave them the money to buy the company/ run the project in the first place. The PE group then takes a % of the profit and a commision as reward for their “”management wizardry”” (usually 2% of the total investment commited and 20% of profit realised)
For this reason PE’s are not interested in hanging around unnecessarily – projects usually have a timeline of say 3 to 7years which contractually binding. So if they do not sell before the time they usually lose thier commission and their profits become jeopardized (sometimes zero)
4. Now GNPC on behalf of the governmant of Ghana, has the right of refusal to any deal that KOsmos enters into based on an earlier contract that they have with the Govt of Ghana. The reason for objection would have to be leagally justifiable. (could include lot of issues for example some aspect of the Govt’s contract with Kosmos is being circumvented/ altered in the Kosmos sale to Mobil, Mobil’s business operations has violated Ghana statues in the past and was not resolved, etc, etc,
5 So GNPC has to look at the sale agreement between Kosmos and Mobil to make sure that no clause of the original agreement has been violated.
6. This process is usually just a formality – govts don’t block such sale unless there are other factors such as effect on local competition, monopoly, unfair advantage etc.
7. The main reason why the Govt has to go for these arrangements is because we lack the technical expertise, but more importantly we usually lack the capacity to raise funding for such projects independently on the worlds finance markets.
Kay includes that the:
… State of Ghana gives its natural resource to Kosmos for processing while we share profits at 90% Kosmos and 10% Ghana. Please note that we share only profits, and as a nation, we do not even know what kind of investments the oil companies are making into the project.
That is why today, Kosmos says they have spent $800 million and as a nation, we have no way to verify this. Kosmos has used our own reserves to push their stock market prices to the roof. Now, out of the blue, Kosmos decides to sell the reserves for $4,000 million. What that means is that over time, our profit margins will reduce because Exxon Mobil will have to recoup these investments each year, reducing profit margins that should accrue to Ghana. Kosmos and Exxon are part of one and the same clique. This arrangement then makes it impossible to carry out any form of future re-negotiation with Exxon Mobil.
What is the basis for Kosmos selling the oil for $4,000 million? Only three months ago, they had put it for sale at $3,000 million. …
MKO responds to a number of comments:
To be frank with you I don’t think Kosmos give a toss about GNPC, Exxon or the Chinese. They are only interested in making the maximum return for their investors. Unless of cause there is US governmental influence encouraging them to favour Exxon Mobil. If that is the case, it would also come with a premium (=more $$) so why would they not take it, earn more cash and also earn brownie points in high places. And you would not be able to fault them because they would have brought a globally reputable company with the technical know how and expertise to the table for Ghana to tap into, and would have made their investors tons of money and their govt presumably happy because they’ve created jobs thru Exxon.
Currently there is so much competition for money for oil and gas projects worldwide (this my surprise you, but there is not enough money to go round for every project!! in spite of Sino-dollars)
Bare in mind that there has been significant new finds in Uganda-Kenya, several in Brazil, Liberia/serraloene, Sudan, Gulf of Mexico, North Sea, even Lybia amongst others. The owners of all of these are looking for investments. So do not think that just because we’ve found oil every body will queue to beg to invest with us.
The position of the jubilee fields may be strategic for the US. That I can understand; for example it would be cheaper to transport oil from West Africa than form the Mid-East; like-wise bringing equipment and services.
We’ve been told that production may start in Q3 (jubilee). Why such a wait? There are so many reasons, one of them being that the vessel required for production is now being fitted/ refitted in Singapore. And I understand that it really took a while to secure because of funding constraints.
We need private Ghanaians who would inspire confidence in investors and or collaborators and understand the mechanics of operations – We need to develop local competencies and capabilities, PERHAPS this George Owusu could be a catalyst.
With regards to the Chinese, What I can say is because of forecasted growth in their economy they seems to have adopted the policy of acquiring sakes in sources of energy where ever they can. This also I can understand. However from a business perspective we know that fore casts are usually wrong. Which would raise a few questions
1. If the Chinese because of their wealth acquires so many oil field around the world, would they develop these fields at the same pace? My answer would be No, since it would not make economic/business sense.
And what criteria would they use to develop these fields that they now own? I don’t know. What I know is they are interested in oil for local consumption and not necessarily for trade.
2, What would be the competitive advantage to the Budding Ghana oil industry by having Exxon or Chinese? I would not be able to do justice to this question now.
Finally in my opinion, I think we can have the both. Estimates suggests that there’s lot more oil lying off-shore on our coast. The chinese should perhaps also acquire exploration licenses or buy into other exiting exploration groups …and get to work!
In these things the terms of contracts are related to the risks involved. Relative good terms where there are huge risks, and vice versa. One would therefore expect that going forward terms of contracts should be more favorable to the Country.
Prior to the Kosmos (Tullow, Anadarko) finds, the risks involved were very high – but not so now!
It would therefore worry me if the Chinese want to muscle their way into the Tullow-andarko setup through Kosmos simply because they want to benefit from the terms of contract that these guys have ….which the chinese thinks looks very “Yummy”
Besides …I would not put the Chinese and Tullow-Anadarko (UK, US) together. This combination may lead to inefficiency of operations – to the disadvantage of Ghana. I would rather they compete independently.
I know the US State Department and AFRICOM want a close connection with Ghana. Ghana is strategically located on the coast of West Africa amidst oil finds and other natural resources. Ghana is a working democracy and a congenial place to visit as President Obama found. AFRICOM has been very busy trying to insert itself into Ghana and the Ghanaian military. One Ghanaian comment I read called Ghana the center of the world, the country closest to the intersection of the Equator and the Prime Meridian. I don’t know how relevant this last is, but I like the image. So I think it is entirely possible that there has been US governmental influence encouraging Kosmos to favor Exxon.