GNPC Head office
Quite recently, the airwaves have been taken over by arguments and analysis about an impending petroleum agreement between GNPC and AKER ENERGY/AGM.
I followed the debates passionately, especially any time Bright Simon was involved. Bright keeps my hope for this country alive. I had another bite at the cherry last saturday, on newsfile. I doff my cap off for Bright Simon as always, but I think he should not be left on a lonely journey. Our natural resources are all we have. I think this subject deserves greater public attention and must be made simpler. I will try to do so.
A lot has been said about the economic viability of the transaction and Bright Simon, as usual, has been fantastic on that score. Mine is not to dwell too much on the economics, but to attend to the legal effects of the information that has been put out there, including those pointed out by Bright Simon and the rest. I might also draw some attention to lingering issues that are obscured by technical jargons.
In short, the Minister for energy presented to Parliament a transaction that was brought to him by GNPC for approval.
GNPC is about to acquire 27% out of AKER ENERGY’s 50% interest in an oil block in Ghana called the Deep Water Tano Cape Three Points (DWT/CTP). This, I will call the 1st block.
GNPC also intends acquiring 60% interest out of the 80% interest AGM has in another block called the South Deep Water Tanao Cape Three Points (SDWT/CTP). This, I will call the 2nd block.
It must be noted that GNPC already has 10% interest in the 1st block and 15% interest in 2nd block. GNPC therefore seeks to increase the 10% and 15% interests it already has in these oil blocks to 37% and 70% respectively.
The companies with the remaining interests in the 1st block are: Lukoil, which holds 38 percent interest, and Fuelrade Ghana Ltd which holds the remaining 2% interest. The other company with the remaining 5% interests in the 2nd block is Quad energy.
According to the Minister’s presentation, the targeted interests to be acquired are divided into two: (a) the ones with already proven volumes of recoverable oil (proven/contingent reserves) and, (b) the ones whose recoverable oil have not been proven or known yet (unproven/prospective reserves).
The proven reserves of the two blocks put together have been valued by GNPC to be 1.3 billion dollars whilst the prospective reserves have been valued at 297 million dollars. I must state that this categorization has succeeded in hiding from us the price for each block.
It must be noted that Bright challenged this valuation based on a very cardinal grounds:the price assumption of $67 per barrel of crude oil that was used by GNPC in the valuation as against $50 per barrel which he ably demonstrated is the realistic price to assume over the envisaged period of production.
Nevertheless, from this information, the total value of the interests that GNPC wants to acquire in the oil blocks is 1.597 billion dollars. How GNPC arrived at 1.7 billion dollars as the cost of acquisition alone is mysterious and a bit confusing.
The Presentation also indicated that in addition to the above cost of acquisitions, GNPC is allocated $350 million as its share of the cost for developing phase1 of the 1st block. It is also stated that GNPC relies on the Government of Ghana for an amount not exceeding 1.65 billion dollars for the transaction.
It must, again, be noted here that from the document presented to Parliament, AKER acquired 100% interest in the 1st block from AMERADA HESS in 2018 with 7 wells and 450 barrels of discovered oil, at a 100 million dollars. That acquisition by AKER was possible because GNPC had refused to exercise its right of preemption/first option under the law to acquire it from Hess.
I think I should explain the right of preemption. Under our law, any company which acquires an interest in our oil resources and subsequently wants to reassign it to a 3rd party, that company must first give GNPC the opportunity to acquire it. It is when GNPC refuses the opportunity that a 3rd party may take such an assignment.
It is claimed that AKER alone invested $800m in the 1st block after acquiring it from HESS, and has discovered 100 million barrels more oil. Note once again that Bright challenged this figure on 2 very important grounds, namely: (1) that the accounts/reports on the investment filed by AKER and AGM pursuant to statutory requirements in other jurisdictions reveal far lower investment figures than what the same companies presented to GNPC; (2) that the valuation company (Lambert Advisory) which was jointly contracted by GNPC and AKER categorically admitted that it did not get access to the Qualified (oil) Reserve Auditors or their report on the oil blocks in question.
But why this transaction? AKER and AGM which are the major interest holders in the blocks in question are Norwegian, whilst Quad energy is Australian. According to the presentation, GNPC needs to work in collaboration with AKER in order to learn the technology of exploring and developing Ghana’s oil resources by itself.
This, we are told, is necessary because of how the energy transition policy of the International Energy Agency (IEA) affects the operations of the above-named companies in the fossil fuel industry. IEA is an autonomous International Organization which has, for some time now, been leading a global campaign against the emission of hydrocarbons which largely come from fossil fuel (fuel from crude oil). It advocates a transition from fossil energy to renewable energy.
Norway and Australia are member-states of the IEA and are therefore bound by its regulations and policies against hydrocarbon emissions and fossil fuel production. In a nutshell, AKER, AGM and QUAD, having been companies of member countries of the IEA, are affected by IEA’s policy on energy transition- from fossil energy to renewable energy. According to the presentation, AKER and AGM have been stopped from any further exploration for fossil fuel from 2021.
The fear therefore is that, these companies may abandon or relinquish our oil fields to us at a time we are not technologically prepared to develop and produce them ourselves. We therefore need to learn the technology from them, and that also means (I am still trying figure out the connection) we should also acquire a significant part of their licensed interests.
The presentation ended with, among others, that:
GNPC should acquire 37% of the 1st block and 80% of the second block;
a loan of not more than 1.65 billion dollars be taken by the Government of Ghana (GoG) and re-lent to GNPC at a commercial rate for the transaction;
and,
that (interestingly) the Ministers of energy and finance be mandated to agree to the consideration of the transaction.
Parliament, after the presentation, set a cap or ceiling of 1.1 billion dollars for GNPC to go and negotiate with the oil companies. This means, GNPC may acquire the interests in question at 1.1 billion dollars or less but not at any price more than cap.
As already indicated, a lot has been said about the economic viability of the transaction but I think the legal questions have not been asked, let alone answered. Some of the legal questions are as follows:
- Is it constitutional or legal for GNPC to refuse a 100% of an oil block with 7 wells and 450 million barrels of discovered oil, only to pay over 1 billion dollars for only 27% of the same block after just two years and the reason is that an additional 100 million barrels of oil has been discovered in the bock?
- Could it be true that the alleged cost of 800 million dollars incurred in the additional 100 million barrels discovery was borne by only AKER when LUKOIL holds 38% interest? Does it mean LUKOIL held 38% but contributed nothing to the additional discovery? Or the discovery was done before Lukoil farmed in?
- Has GNPC fulfilled its duty under the law to protect the interest of Ghana when it accepted AKERS’s investment figures without verifying with the other jurisdictions as done by Bright or IMANI?
- Has GNPC fulfilled its duty under the Law protect the interest of Ghana when it failed to verify the information of AKER/AGM on the reserves from the Qualified Reserve Auditors Report and ensuring that same was available to Lambert Advisory?
- Why is AKER accepting to bear more than twice the cost of LUKOIL ($740m) in developing phase 1 of the 1st block when LUKOIL will be the majority interest holder in it after the transaction?
- How can the transaction be substantially justified on the fear that AKER and the others might be leaving soon and yet the Minister and GNPC say Aker can be a permanent partner?
- Why is GNPC interested in acquiring more of the 2nd block (60%) whose reserves are largely unproven as against the 1st block(37%) whose reserves are largely proven?
- Why is GNPC recommending that both the energy and finance Ministers be mandated to agree to the consideration under the transaction when that is legally the sole preserve of GNPC with the approval of only the energy Minister? Can the two ministers legally supplant GNPC in such transaction?
- Does parliament have the power to mandate the Ministers to take the place or act for and on behalf of GNPC under a Petroleum contract?
- Does Parliament have the power to set a price ceiling or cap for GNPC in a negotiation of petroleum agreement? And is the ceiling of 1.1 billion dollars in the interest of Ghana? and does it have any justification?
- Is it legal or constitutional for the value of unrecovered oil reserve (still vested in the President) to be used in determining the price or value of licensed interest in oil block?
- Does GNPC require Parliamentary approval to enter into an international transaction?
- Why is GNPC not considering Lukoil for the technology transfer partnership that it wants to enter into with AKER when Lukoil is a Russian company and Russia is not a member of the IEA?
- Why is AGM allowed by GNPC to retain 20% interest in the 2nd block whilst knowing that both AKER and AGM have been stopped from any further exploration for fossil oil? Is GNPC going to bear the cost of any further exploration on the blocks all alone?
- Why would GNPC want to “Partner” a company for technology transfer in the oil and gas industry knowing that such a company has been stopped from exploration in the industry and also stand the risk of being stopped from development, production and disposal fossil fuel?
- Does it mean GNPC cannot get any oil company other than AKER to engage for oil and gas technology transfer if AKER is allowed to eventually relinquish its oil blocks to us under the law?
- Are the powers of government being exercised in this transaction for the welfare of the people of Ghana as the law requires?
- Is the interest of Ghana being protected in this transaction as required by the law?
- Should GNPC be allowed to proceed with transaction on the proposed terms?
I will attempt answers to these questions subsequently.
Watch out!
OSMAN N. ALHASSAN.
