Wednesday, March 3, 2010

Is this where the oil disputes begin?

DALLAS - MAY 28: ExxonMobil Chairman Rex Tille... ExxonMobil Chairman Rex Tillerson
Once again the fight for oil and gas has began, this time in my peaceful country Ghana.

A quick recap
As you recall, Kosmos Energy, along with Anadarko Petroleum and Tullow Oil, have been particularly successful in Ghana where they have found oil in all of the eight wells they drilled in recent years. The partners have found four major fields — Jubilee, Odum, Tweneboa and Mahogany — and have identified four more potential prospects.

Jubilee, which was discovered in 2007, should start producing oil by the end of 2010, and is expected to eventually pump about 120,000 barrels a day. Kosmos Energy has estimated that Jubilee could hold recoverable oil and gas reserves of as much as two billion barrels. That puts the field in the same class of discoveries that have been recorded in the Gulf of Mexico in recent years, proving out the entire region as a world-class hydrocarbons basin.


Hopes and Issues
Now since these dicoveries Ghanaians in particular have hopes raised higher than ever before, about how much development the nation will witness over the next few years. Some unfortunate uninformed ones can even be heard sometimes making comments like "They (refering to the government) should share the physical money for each citizen to have their share". (Some of these guys are joking, anyway).

According to a news source, Ghanaians should not be over optimistic as our "enthusiastic efforts to become a major oil industry player in Africa would be short lived, because the country would only mine the Black Gold for just 20 years". Amidst all these, Ghana is particularly aware of the troubles of oil rich nations in Africa like Nigeria, Angola and Sudan, where disputes have led to several loss of lives, destruction of property and underdevelopment. The governement is taking frantic efforts to ensure that the nation does not plunge into the curses that have been associated with the other oil-rich African nations.


The fight

One big issue which is rearing its ugly head up, is how giant multinationals are interested in the oil fields. News from various sources confirm that energy giant ExxonMobil has been negotiating a $4 billion deal, amounting to an acquisition of 23.49 percent of the Jubilee oil field, if the deal goes through. The challenge however, is that Ghana is now being lobbied hard to force the sale of Kosmos to China's state-controlled international oil company Cnooc.

Ghana's headache

As you read this the government of Ghana is now in a fix for two reasons, and maybe many more.

One: it is quite clear that it has regretted the kingly terms granted to the explorers and is looking for avenues to renegotiate or "re-engage" (as they usually put it), the deal. Following from this, there have been several raging misunderstandings between Kosmos and the government.

The government claims that even though letters were sent to them concerning the Exxon-Kosmos deal, their response did not come before Kosmos went ahead and consummated the deal with the U.S. oil giant. However, no clause in the contractual deal with Ghana suggests that under such arrangements Kosmos should give preferential treatment to the country, a catch which could open a chapter on a protracted legal battle. Further compounding Ghana's is that the deal entered into with Exxon Mobil is irrevocable and steeped in international law.

There have also been rumours of freezing of assets including those of the former Chief Executive Officer (CEO) of Kosmos Ghana, George Owusu; the EO Group, the company that facilitated the entry of Kosmos to Ghana; and a minority shareholder in Kosmos Ghana, Kosmos LLC and other companies. Over the past few months Ghana's Attorney-General has commissioned investigations into the activities of the EO Group, citing issues such as the legality of the company. The government is also not comfortable with the abbreviation E.O. (Edusei and Owusu). It is interesting to note that when all hope had been lost about oil discovery in commercial quantities in Ghana, it was the E.O. Group which encouraged Kosmos to come in.


Without considering further information we are not privy, one is tempted to conclude that these are as a result of the government's regret over the terms of the agreement and that leads us to the second issue.

Two: For whom will Ghana approve the deal; ExxonMobil or Cnooc? As it stands now, the Exxon-Kosmos acquisition requires approval from the government of Ghana, but with Ghana's own issues with Kosmos, and the influencing hands behind Cnooc, it is not clear where the deal will go. If Ghana persist in its resolve to abrogate the Kosmos/Exxon Mobil deal, a diplomatic row could break out between the US and the country. The Ghanaian government is definitely not ready for the repercussions of such a diplomatic/business confrontation.


Interestingly, according to several sources, Cnooc has hired Neil Bush, brother of President George W. Bush, to work on its behalf. With Chinese oil companies having announced plans to spend at least $16 billion to gain access to African energy assets since 2006, one can imagine the extent to which they will go to snatch this deal from Kosmos.

News has it already that the government is in favour of the Cnooc deal, but is only afraid to go ahead because of the legal issues, while it also finds several ways to manouvre around its relationship with the US and investors at large.

Ghana is definitely in a fix because, this unfolding legal drama could also be presenting the nation as an investor-unfriendly nation.


Well, the war has began at the top, and I hope it ends there and ends well.


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