Government has appointed the Bank of America Securities (BofA) as the transaction advisor for its planned acquisition of 37% interest in the Deep Water Tano Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited and 70% stake in the South Deepwater Tano (SDWT) operated by AGM Petroleum Ghana Limited.
The approval of a request by the Ministry of Finance to use the “Single Source Procurement Method” by the Public Procurement Authority (PPA) on the 11th of August 2021, paved the way for government to engage the Bank of America Securities as the transaction advisor on its new policy direction in the petroleum upstream sector.
As part of efforts by the Finance Ministry to meet the timelines to close the transaction which is the end of the third quarter of 2021, the Finance Minister wrote to the PPA to recommend and procure the services of Bank of America Securities (BoFA) through the “Sole-Source Procurement Method” as the Transaction Advisor.
The planned acquisition of stakes in Aker Energy Ghana Limited and South Deepwater Tano (SDWT) which has received cabinet approval was laid before Parliament on Monday 2nd August 2021 for the input and approval of the house and to mandate the Ministers responsible for Energy and Finance to commence negotiations and agree on a purchase price with Aker Energy and AGM.
Sole Source Request / Approval
The PPA by virtue of the Finance Ministry’s application held its board’s technical committee meeting on the request on the 11th of August 2021, to consider it. The PPA after reviewing same in accordance with section 72 (5) (a) of Act 663 as amended, has approved the request and has since conveyed their decision to the Ministry of Finance.
The approval is said to be valid till the 31st of December 2021. BofA as part of the first steps to be taken per the approval, will be required to provide a fairness opinion/independent valuation and general advisory service on the transaction.
Bank of America
Bank of America is one of the world’s leading financial institutions, serving individuals, small- and middle-market businesses, large corporations, and governments with a full range of banking, investment management and other financial and risk management products and services.
With the depth of expertise, resources and geographic reach of the Bank, they are in a unique position to help promote economic opportunities for many different populations and advance strong economies worldwide.
The Bank partners with non-profits, local governments and cultural institutions that boost job skills, provide affordable housing and improve the economic outlook for their local citizens.
BofA has proven expertise in notable international landmark oil and gas transactions in the last decade and remains one of the world’s leading investment banks and advisory companies with a global presence.
The Bank also has an established and ongoing relationship with the Government of Ghana and has worked extensively on various transactions including the 2021 Eurobond transaction earlier this year.
Background to New Upstream Policy
Ghana has in place eighteen (18) petroleum agreements, many of which have not seen substantial work done as at December 2020. Out of the 18 fields, three (3) are producing fields and four (4) are discoveries.
The Petroleum Exploration and Production Act, 2016 (Act 919) which governs the upstream petroleum industry gives GNPC exclusive rights to undertake its mandate in all open blocks in the country. It requires all persons wanting to undertake upstream petroleum operations in Ghana to partner with the Corporation.
But, the declining number of majors in Ghana and the ongoing energy transition means that if no one else is willing to explore or develop, GNPC may have to develop Ghana’s deep water resources alone. To do so GNPC must have operator capabilities and the technology.
GNPC acknowledges that it will need some capacity building in order to become an operator on its own. The process requires a major oil company willing to travel on this learning route with GNPC. Partnership with AKER Energy and AGM, with proven deep water capabilities, provides such opportunity for the national oil company to develop operator capabilities.
GNPC proposes to partner with Aker Energy/AGM to jointly develop the DWT/CTP and SDWT blocks. The two companies, with a wealth of deep water experience and the requisite technology, are keen to entering into this arrangement with GNPC.
The existing discoveries by Aker Energy and AGM (the Pecan and Nyankom fields) are by far the largest discoveries in Ghana, and the only ones that can be developed as stand-alone developments. This partnership has the potential to add more than 200,000 barrels of crude oil to Ghana’s current production within the next 4 to 5 years.
Financing the Proposal
GNPC Explorco will be expected to fund the acquisition which is not likely to exceed USS1.3 billion and the CAPEX (2021-2024) to First Oil of the Pecan Phase 1 Field of US$350 million, to be spread over three and a half years.
GNPC plans to rely on Government of Ghana to provide it with a loan on commercial terms to meet its payment obligation in respect of the acquisition and contribution to CAPEX for the development of the Pecan Phase I Field to First Oil.
The total loan amount will not exceed US$I.65 billion in a worst case scenario if the acquisition price equalizes the valued contingent resources of USS1.3 billion. The loan provided by Government will be repaid at First Oil through securitization of GNPC Explorco’s crude oil.
“The Attorney General and Minister for Justice has issued a legal opinion confirming that there is no legal impediment to the securitization of GNPC Explorco’s crude oil entitlements under the Petroleum Revenue Management Act, 2011 (Act 815 as amended) and relevant laws of Ghana” the Energy Minister’s memorandum to Parliament stated.
Benefits of the Partnership
The Transaction according to the Energy Ministry, offers significant benefits to Ghana in its quest to develop her petroleum sector. Among others, GNPC gets to build operator capacity at a critical time in history to ensure that the hydrocarbon resources in the country can be fully developed.
Other expected benefits are Ghana’s crude oil production will increase by 140,000 to 200,000 bpd within 3 to 9 years, oil produced may be exported or refined in Ghana for domestic use thereby reducing imports of refined products and conserve foreign exchange, local content agenda can be effectively set by GNPC and a GNPC with operator capabilities will provide enhanced value creation for Ghana.
GNPC Explorco will eventually recoup the capital expenditure as part of petroleum costs and loan offered to GNPC Explorco for the transaction can be repaid at First Oil through securitization of crude oil entitlements.
Additionally, tax expenditures (through exemptions) and initial concessions extended to Aker Energy/AGM will be substantially reclaimed by GoG and assets to be acquired by GNPC Explorco will be done at a discount to current valuation. Royalties, tax revenues and profits to GNPC Explorco will amount to about USS6.5 billion in nominal value over 15 years and substantial foreign exchange inflows will accrue to Ghana which will contribution to GDP growth and expanded job opportunities.