The Ghana National Petroleum Corporation (GNPC) has said its proposal to acquire stakes in Aker Energy and AGM Petroleum will save the state oil company $700 million and cause it to inherit a capital allowance of $1.2 billion.
The corporation recently asked parliament to approve a loan of $1.65 billion for the acquisition of the stakes in Ghana’s offshore fields.
Energy Minister Mathew Opoku Prempeh submitted a memorandum to that effect to the legislature.
In the memoranda, GNPC said it seeks approval to purchase a 70% stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited and a 37% stake in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited.
“Provision of a loan not exceeding US$1.65 billion to finance the acquisition at a price to be negotiated which might not exceed US$1.3 billion and GC Explorco share of capital expenditure (CAPEX) to Pecan Phase 1 First Oil of US$350 million.”
Such partnerships, the GNPC noted, were critical.
It explained that it has become even more imperative as a result of the exit of some major oil companies from Ghana.
In the current scheme of things, the GNPC said it has to shore up its capacity and take up a large part of the exploration activities before Ghana’s oil reserves hit a level of terminal decline.
“With the shift away from investments in oil and gas into renewable, Ghana faces the risk of stranded assets and dwindling proven reserves if GNPC is unable to undertake exploration, development, and production alone”, the document said.
“A declining industry undermines growth, diminishes revenue expectations for Ghana and makes redundant the stock of skilled labor in the industry which Ghana has rapidly built up over the decade.”
It added that the move is “all the more needed and urgent”.
GNPC believes the partnerships, which have the approval of the Cabinet, can add extra 200,000 barrels of crude oil to Ghana’s capacity in the next few years.
However, some 15 CSOs in the extractive industry expressed opposition to the deal, saying, among other things, that the GNPC’s valuations “ignore the possibility that the oil price might not be as high as assumed” and that “reserves might be less than assumed, or that costs might be higher than assumed”.
According to the CSOs, “before development, there is very little certainty about these factors”.
For instance, they said “globally, Ernst & Young found that 65 percent of big upstream projects ran over budget—and by a hefty 53 percent on average”.
“Another study noted that all successful new oil producers in Africa, Ghana included, netted less revenue than they had expected, partly due to higher costs. GNPC should be familiar with this reality given Ghana’s experience with all the three producing fields. All good analysts will present different valuations given different prices and other assumptions. Instead, this proposal ignores this practice”, the CSOs’ statement said.
In a response to this and many other concerns raised by the CSOs, GNPC said in a statement: “The valuation was carried out by an independent expert, Lambert Energy Advisory, proposed by GNPC and jointly commissioned by GNPC, Aker Energy, and AGM. This is a well-respected and recognized oil and gas specialist based in the UK”.
“Lambert valued the stake that GNPC is looking to acquire a $2 billion, compared to the $1.3 billion which was the mandate requested for in Parliament. The valuation considered all the risks cited in the comments section of this document. A call with Lambert will address these issues”, the oil company noted.
GNPC said the “$1.3 billion limits anticipates a minimum $700 million saving for GNPC vis-a-vis the valuation of $2 billion”, adding: “It is worth noting that the capital allowance to be inherited by GNPC under the transaction is approximately $1.2 billion”.
“This would have remained with Aker/AGM as a tax-deductible amount and repatriated abroad. With the acquisition, this amount stays in Ghana. In essence, GNPC gains because of the capital allowance it inherits”, the company argued.
The CSOs believe the deal “cannot be a guise for poor decisions that threaten the country’s economic and fiscal outlook.”
“We are clear in our minds that the transactions if approved, will shortchange Ghana,” the CSOs argued.
“Therefore, we request parliament to intervene given that the deal has already gone through all the relevant branches of the Executive, ostensibly glossing over important threats of the transaction to the country’s fiscal situation,” it added.
GNPC, through its GNPC Explorco, is allowed to participate in the upstream petroleum sector and it plans to purchase a 70 percent stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited and a 37 percent stake in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy Ghana Limited.
About Aker Energy
Aker Energy Ghana Ltd, a subsidiary of Norwegian-based oil exploration and production firm Aker Energy AS, is an exploration and production company and the operator of the Deepwater Tano Cape Three Points (DWT/CTP) block.
It holds a 50% participating interest in the license, and the partners are Lukoil Overseas Ghana Tano Limited (38%), the Ghana National Petroleum Corporation (GNPC) (10%), and Fueltrade Limited (2%).
The block holds discovered resources of between 450-550 million barrels of oil equivalent.
Aker Energy aims to become the oil and gas operator of choice offshore Ghana, by maturing and producing resources in a safe, efficient, and reliable manner to the benefit of the company, partners, and the people of Ghana.
Aker Energy AS is part of the Norwegian Aker group of companies, with Aker ASA and TRG AS as its majority shareholders. Aker Energy has offices in Ghana and Norway.