…even after Parliament approves a slightly lower amount, new revelations by The Africa Report cast a new shroud over the prudence of the acquisition’s pricing.
Last week the controversy over government’s intention to borrow a total of US$1.65 billion to acquire additional equity stakes in two oilfield exploration blocks and a field about to enter actual development, reached a frenzied crescendo as opposition to the plan intensified based on new information released into the public domain by the highly respected Paris based Africa Report magazine.
Even though Parliament has given the approval needed by government to go ahead and secure the loan – albeit for US$1,45 billion rather than US$1.65 billion as requested by government – opposition based on the new revelations from the Africa Report has put government on the defensive with the Energy Ministry claiming at the end of the week that the structure of the whole transaction has not yet been finalized, this implying that government has not fully committed to the currently proposed, controversial structure
Opposition to the acquisition of a 37 percent direct and indirect interest in the Deepwater Tano/Cape Three Points (DWT/CTP) block from Aker Energy; and a 70 percent interest in the adjacent South Deepwater Tano (SDWT) block from AGM Petroleum is being led by a consortium of 12 civil society organizations, who have the support of a smattering of public policy commentators and some upstream oil and gas industry analyst, both local and foreign.
However government has stood its ground, insisting that the rationale for the acquisitions are genuine. Indeed, its arguments are forcing opponents of the acquisition to beat a retreat from their original position that they are unnecessary to a fall back position that they are over-priced.
The ongoing controversy began when, on July 30, Energy Minister Dr. Matthew Opoku Prempeh – in a 10-page power-point presentation including a thesis on ‘global energy transition’ – asked parliament to borrow US$1.3billion to buy back stakes in two offshore oil exploration licences and another US$350 million for financing development of an oilfield, which is on the verge of being developed, its commerciality having been confirmed and a plan of development already approved by government, although now due to be revised following a new financing structure being put in place which includes greater participation by the Ghanaian state than originally envisaged.
The minister made a case for Ghana to borrow the US$1.65 billion for onward lending – on commercial terms – to its national oil company, the Ghana National Petroleum Corporation (GNPC) so that it can buy higher stakes in two oil blocks operated by two Norwegian companies – Aker Energy and AGM.
The government had wanted to borrow US$1.3 billion to buy back stakes in the exploration blocks, and another US$350 million to cover its share of development costs in the already approved Pecan field.
Prempeh said the government planned to acquire a 37 percent direct and indirect interest in the Deepwater Tano/Cape Three Points (DWT/CTP) block from Aker Energy; and a 70 percent interest in the adjacent South Deepwater Tano (SDWT) block from AGM Petroleum.
A new analysis of the situation by The Africa Report explains that Bottom of Form
Aker and AGM are both controlled by Norwegian shipping billionaire Kjell Inge Røkke, who initially tried to acquire the acreage just before the 2008 elections in Ghana.
To justify why Ghana should take such a financial risk, a strategy paper was circulated at cabinet in Accra excoriating attempts by rich countries to persuade developing economies to leave their hydrocarbon assets ‘stranded’. In justifying the loan for the acquisitions, Prempeh said discoveries already made in the two blocks could add 200,000 barrels per day to Ghana’s capacity within four to five years, more than doubling output. He explained that five agencies had valued the two licenses at between US$2 billion and US$2.55 billion.
Two of these agencies are parties to the proposed deal (Aker and GNPC); two are consultancies in Norway; and the fifth, Lambert Energy, established a reputation from brokering deals in Russia.
But the Africa Report queries, in the preamble to an extensive feature opposing the transaction: “If the government is acting to protect the national interest, why then does Aker want to sell such an apparently lucrative asset?”
It further reveals that Aker Energy is a 50:50 joint venture between Aker, a US$7.5bn Norwegian oil company, and a family asset holding company, TRG.
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Two-thirds of Aker is in fact owned by the same TRG, which in turn is owned by Rokke and his wife. In short, the Rokke family owns more than 80 percent of Aker Energy.”
AGM Petroleum is a somewhat simpler affair. In 2018, through Petrica Holdings, TRG acquired all the shares of AGM from Gibraltar-based investors
Continues the report: “Prempeh’s memorandum was written on 30 July. It reached the speaker of parliament on 2 August and he referred it to a joint committee on finance and energy. The committee met the following day, read essays on the energy transition, and after two hours of deliberations, decided that the most important change to be made was to reduce the spending ceiling for the GNPC from US$1.3bn to US$1.1bn.”
Actually this seems to support the assertion of critics of the transaction that it is overvalued, and that that is why Parliament opted to lower the amount to be spent on the acquisitions. Instructively the US$350 million sought to increase GNPC’s stake in Aker Energy’s Pecan field development has been approved in full but this was never part of the controversy in the first place, since it is to develop an oilfield which has already been confirmed to be commercial and which even has an approved plan of development in place. Indeed it is expected that first oil will be achieved by 2024.
But it is instructive that Parliament has reduced the amount approve for the exploration blocks by US$200 million and this implies that they can be acquired for less than government asked for. Indeed this is the crux of the controversy – opponents of the deal argue that the stakes are worth much less than government wants to pay, with estimates ranging from half that value to as low as one third.
Asserts the Africa Report:”One of the companies brought in to sprinkle some pixie dust on this dung of a valuation – Lambert Advisory – admitted to having spent just two weeks weaving numbers supplied to it from GNPC and Aker.
“It had no access to any independently audited reservoir data. It relied exclusively on the GNPC and Aker estimates. It made a call on ‘energy transition’ affecting supply but not demand, and thus pegged the long-term average oil price at US$65 per barrel. Its sensitivity analysis was carefully caveated so as not to affect the preferred GNPC-Aker conclusion.
“Though SDWT has only seen one discovery well and the only other well – Kyenkyen-1X – proved so disappointing the partners decided not to report results, Lambert discounted the wild volume estimates made by AGM and GNPC of the unappraised field by only 35 percent (from 60,000 barrels a day to roughly 40,000). Even heavily appraised fields such as ENI’s Sankofa struggle to produce that amount of oil in Ghana’s difficult waters.
“Meanwhile, the Pecan field (in DWT-CTP) and the Nyankom field (in SDWT) that are slated for development in the Aker-GNPC plan are far more distant from shore and in much deeper waters than most of Ghana’s producing fields. In fact, in some respects, their complexity is unparalleled in the immediate neighbourhood.
“All the more surprising then that Lambert would also insist on using the same hurdle rate of 10 percent for both the appraised DWT-CTP and the unappraised SDWT blocks, on the basis that Aker is the driver of both projects and therefore its generic cost of capital should be used in the Discounted Cashflow methodology it adopted for the valuation of the two blocks.
“When Lambert, during a meeting with Ghana’s protesting civil society organisations, was asked about the refusal to use recent transaction pricing data for comparable assets in the region, its analyst insisted that any such benchmarking would be inappropriate.”
Insists The Africa Report:” Allowing this benchmarking would have generated some uncomfortable truths from comparable deals offshore in Angola and Nigeria. Suffice it to say that when proper reserves classification, project risk analysis, and a sensible long-term price of oil is used, the proper valuation gets closer to the US$350m to US$450m range that many in the Ghanaian CSO movement believe would be prudent, given the project history and medium-term picture.”
It concludes that: “The gap between these numbers and the US$1.1bn that Ghana’s government is willing to pay is terrifying this new foray into speculation is using borrowed money. It invokes comparisons not with the careful and methodical strategies of the Saudi Aramcos and Petronases of this world, but with other National Oil Companiess much closer to home: Angola’s Sonangol and Nigeria’s NNPC. After misadventures similar to the ones GNPC seems so desperate to embark upon, Sonangol’s total liabilities are now inching towards US$40bn. It has been forced to rapidly deleverage by frantically divesting itself of burdensome operating assets. NNPC, in a similar situation, has liabilities of more than US$10bn exceeding assets.”
Critics of the transaction assert that the conspiracy theory presented by government about the intention of the West to leave developing countries stranded with their oil assets is meant to divert attention away from the fundamental flaws in the valuation of the assets to be acquired. But while the conspiracy theory may have been exaggerated, its underlying precepts are correct – international oil companies have, over the past couple of years been pulling back from earlier approved upstream investments running into hundreds of billions of dollars. However, point out the CSOs opposing the GNPC loan, billions of dollars are still being spent on new exploration and oilfield development; and besides, none of Ghana’s oilfields – whether already operating or on course towards being developed after confirmation of their commerciality – have projected lifespans that reach or exceed the deadlines for carbon zero energy set by countries spearheading the energy transition.
The Africa Report traces the history of the oil blocks now about to be acquired by GNPC alleging that it is the ultimate result of a well hatched plan by Rokke himself. Asserts the Africa Report”
“Rokke and his Aker Company landed in Ghana in 2008, when – in league with the politically connected Chemu Power – it obtained 85 percent of the SWDT oil lease. However, when the National Democratic Congress won the December 2008 election, the new government felt that Aker had obtained unearned favours from the previous regime – the New Patriotic Party – and latched on to the fact that Aker’s local subsidiary had only been incorporated five days after the oil lease agreement was signed on 24 October 2008.
“The new energy minister declared the SDWT lease invalid on 30 December 2009 (a termination agreement was finally signed on 11 November 2011, in view of which GNPC agreed to pay Aker US$29m for data collected on the SWDT block).
“With SDWT finally unencumbered, legally, the GNPC went on a roadshow with data analytics provided by Zebra Data Services in 2012, in search of a minority joint venture partner that would work closely in the pursuit of the longstanding dream to become an operator capable of leading in the exploration, development and production of oil from Ghana’s petroleum basins.
“Ten companies responded. Three were shortlisted and eventually, the Gibraltar consortium of Minexco; Norway’s AGM; and politically connected MED Songhai were awarded the block following parliamentary ratification in December 2013.
“It is important to note that AGM, the largest consortium partner (49.5 percent), would later transform into Petrica, and Petrica would later be taken over by Inge Rokke’s TRG. Moreover, Petrica’s Atle Aamodt Andresen would be a major technical force behind developments in due course. The Norwegians had found their way back in.
“In line with the professed goal of using this arrangement to transform GNPC into an operator, 79 percent of the SDWT block was assigned to GNPC’s newly formed subsidiary, Explorco. Explorco (GNPC) and its Gibraltar-fronted Norwegian technical partners were expected to spend a minimum of US$259m interpreting 750 square kilometres of 3D seismic data; drill two wells to find oil; and prepare any discovery for development
“Once it got over its enthusiasm about owning 79 percent of SWDT, the national oil company GNPC settled for a more level-headed ‘joint operatorship’ model with AGM. Its ‘participating interest’ (exercised directly and through its subsidiary, Explorco) was pegged in this arrangement at 34 percent, with rights to take up an additional 15 percent (and contribute to the proportional costs of exploration and development), meaning a legal entitlement of about 49 percent if GNPC wished to bear the investment burden.
“AGM now had 66 percent (until such a time, if ever, GNPC exercised its rights to take up the 15 percent). Somehow, even this ‘joint operatorship’ thing proved too hard to swallow for GNPC. So, on 21 June 2019, Prempeh caused an amendment to be made to the original September 2013 South Deepwater Tano (SDWT) agreement. The parties to the agreement were AGM Petroleum, GNPC, and a newly introduced Quad Energy; the effect was to reduce the GNPC’s entitlement to 15 percent.
“Quad Energy had come into the picture supposedly to demonstrate ‘local content’, yet its founder was a member of the Aker Board and his co-signer on the agreement was the ubiquitous Atle Aamodt Andresen, the Aker operative who, if you recall, came by way of Petrica. In short, Quad was, to all intents and purposes, an Aker front.
“In the revised agreement stripping GNPC of precious equity, the great prize of operatorship was dangled again, even though at this point the joke must have been getting old, even for its spinners.”
Concludes the Africa Report: “So the decision to borrow over a billion dollars to take the GNPC stake to 70 percent from 15 percent has been a decade in the making. It is a process in which Ghana’s rights have been gradually whittled down to create a basis to spend money to reacquire them.”
The only remaining question is whether over this decade, the value of the asset has improved through investments. Here the Africa Report traces the investment history of the blocks..
“On 1 March 2018, Aker Energy announced a purchase for 50 percent of the DWT-CTP block for US$100m. Its main discovery – Pecan – had already been made, plus a number of minor finds.
In the intervening period, Aker spent US$216m on the block. A considerably lower amount would have been spent on SDWT, where only two wells have been drilled. Based on TRG filings in Norway, the total investments in both assets are in the range of US$310m.
In 2020, Rokke decided to put further development on hold for both blocks, and began cancelling some investment commitments even for Pecan – including for a floating, production, storage and offloading facility (FPSO) it had earlier committed to procuring from a Malaysian contractor. It then quit various properties in Ghana.
But in presentations to the Cabinet and Parliament in Accra, GNPC suggested that Aker and the previous DWT-CTP block owner, Hess, have jointly invested US$811m developing the asset. This is completely ridiculous, and a blatant misrepresentation.
Hess did not report a large impairment after its sale of 50.8 percent of DWT-CTP to Aker for US$100m and Aker’s spending, so far, is a matter of public knowledge. The true level of investments AGM-Aker has made in SWDT and DWT-CTP is in the range of US$310m.
From that calculation, it is clear that Kjell Inge Rokke has successfully plotted a windfall – of as much as $1bn – after cultivating the Ghanaian elite for over a decade. GNPC and Rokke are not transparent about their machinations. Their justification of the valuation of GNPC’s share of the resources to be purchased – US$2bn – is based on fantastical projections of earnings to be made if the petroleum discoveries made in both fields eventually come onstream.”
Interestingly, the original protests by the CSOs and their supporters were based largely on the possibility that there is no guarantee that they will come on stream at all, since the blocks have not been verified as commercial yet. However considering the progress made so far, this is extremely unlikely – the drilling done so far more or less assures that there is lots of oil in the blocks; the question is just how much and how much will it cost to extract it, which in turn would determine the profitability of the fields that most likely will eventually be developed.
This is why the opposition has now turned to the valuation of the assets rather than the prudence of having them at all. Interestingly, both sides in the controversy are relying on conspiracy theories – albeit backed by real data – to make their respective cases: government is using its energy transition conspiracy theory while its opponents in this transaction are presenting a conspiracy theory revolving around the supposed machinations of Rokke.
Instructively, going by the statement from the Ministry of Energy late last week that the terms of the transaction have not been fully finalized, the debate has not ended and the ultimate structure of the transaction is still up in the air.