Tuesday, 30 January 2018

ExxonMobil royalty must exceed 15% - energy expert

 Image result for petroleum ROYALTY PAYMENT

Adnan Adams Mohammed

Dr Steve Manteaw, an energy expert and a member of the Public Interest and Accountability Committee (PIAC), is challenging the Energy Ministry and the Petroleum Commission to ensure that, the contract signed between Ghana’s government and ExxonMobil Corp gives Ghanaians the best deal as touted by the Energy Minister.

He said, the royalty payment agreement must exceed 15 percent.

The energy expert explained that, so far Ghana has not gotten a good deal when it comes to royalty payment by the international oil companies. The highest deal by the international companies so far is 13.5% by the Jubilee oilfield partners.

However, Springfield E&P, a Ghanaian owned oil company which owns the West Cape Three Point 2, has signed to deliver 15% royalty payment. This is so far the highest royalty payment agreed.

Dr Manteaw is therefore looking forward to a better deal by ExxonMobil being the latest to sign a contract, and following the experience accumulated so far by the government negotiators.

“I expect the government to negotiate a better royalty payment which should be more than 15%; if a Ghanaian owned oil company has agreed to pay 15% royalty, then an international company must give us more. Again, I expect the negotiating team to give us a better deal due the past experiences gathered so far and with certainty of oil availability in commercial quantities off the shores of the country”, the expert said.
Subsequently, he urged Ghanaians to be cautiously optimistic about the ExxonMobil contract.

He added that, although the terms of the deal had been described as one of the best for the country since the start of its oil production, some fundamental issues with the process had the tendency to override the gains.

At a session to review the 2017 semi-annual report of the Public Interest and Accountability Committee (PIAC) for members of the Institute of Financial and Economic Journalists (IFEJ) in Koforidua, Dr Manteaw highlighted four main issues arising from the deal stressing that, “we should not be excited about it in spite of all the good reasons that have been raised for having a company as big as ExxonMobil coming to Ghana.”

Dr Manteaw, who is also the co-chair of the Ghana Extractive Industries Transparency Initiative (GHEITI), said the default position of the law in respect of licensing was not followed in the deal.

The Petroleum Exploration and Production Law (2016), Act 919 moved the country away from direct negotiation to open competitive bidding as the default process for allocating petroleum rights but with this particular deal, the government resorted to using a direct negotiation.

Secondly, he said the notice of negotiation did not provide convincing basis for the direct negotiation.

“They made an attempt to justify that in accordance with provisions in the Act on why they wanted to do direct negotiations, but they were not convincing enough,” he said.

He said Act 919 was passed in August 2016 and the notice of Direct Negotiation was placed in the newspapers in October 2017. Again, the notice made reference to a Memorandum of Understanding (MoU) signed on April 30, 2015 between the parties. The MoU under reference committed the parties to negotiate an agreement over a period of seven months known as the exclusivity period.

“We see here a clear attempt to create the impression that the negotiations pre-date Act 919 but the MoU technically had lapsed; granted that the MoU indeed pre-dated the Act, then there would have been no need to serve notice, but to continue with negotiations, or at least, the notice should say negotiations were continuing,” he added.

Additionally, Mr Kwame Jantuah, energy sector analyst, also explained that the direct negotiation adopted for the deal was relatively opaque explaining that “As we speak, we do not know what our paid interest is; the royalty level negotiated and others.”

“In spite of the transparency provisions we have in the E &P law, 2016, Act 919, we are still behaving in an opaque manner in the negotiation of contracts. The contract that was negotiated between Ghana and ExxonMobil was negotiated in the name of the people of the Republic of Ghana, and, therefore, they deserve to know what has been negotiated in their name, yet they do not have information,” he said.

Although, Parliament was yet to ratify the agreement for it to be made public, he said, a much deeper analysis of the document should be done as soon as it was ratified.

Among the other issues raised by the experts was the seeming lack of technical competence of the country’s regulators required to deal with big oil giants operating in the country.

Dr Manteaw said Ghana’s regulatory institutions were not that mature enough to handle big players and explained that even in America of all places, there were serious challenges in dealing with such companies.

“We are here talking about a company whose annual turnover is several times the size of Ghana’s Gross Domestic Product (GDP); a company that has the capacity to hire the brightest and best of lawyers.”

“The risk of big players overriding our institutions is compounded even further by the fact that the development of general petroleum regulations are still incomplete. Challenges we have had with Kosmos over proprietary data, spill of light toxic mud, right of first refusal etc. should serve as basis for caution,” he stressed.
The Deepwater Cape Three Points block contract gives ExxonMobil 80% interest, with the national oil company, the Ghana National Petroleum Corporation (GNPC), having 15 per cent stake. A third party, which is supposed to be an indigenous Ghanaian entity, is expected to hold the remaining 5%.

Dr Manteaw, however, explained that it was unclear how the fourth party had or would be selected before the agreement could make its way to Parliament and, therefore, urged the media to take keen interest in that process.
He has therefore called on government to ensure transparency in the process leading to selection of a local partner.
Dr. Manteaw said the process for selecting the local partner must be made open and transparent – in a way that avoids any situation of fronting and rent-seeking.

“There is a way we can get value for money by getting the right local investor to partner the lead operator.”

With the agreement subject to ratification by parliament, the PIAC member stated that should ExxonMobil not find any suitable local partner, the remaining five percent of the interest in the oil field should be ceded to the Ghana National Petroleum Corporation (GNPC).

“If we are unable to identify that local partner, in my view, the option will be to assign that five percent to GNPC so as to increase its equity in the project – and that would also count for local content,” Dr. Manteaw added.

 The Energy Minister Boakye Agyarko, speaking at the agreement’s signing, said the deal is among the best compared to other agreements signed in the past, as it is a culmination of lessons learnt in the ten years of the sector.

The minister defended government’s decision for going into direct negotiations with Exxonmobil, instead of opening the block to tender which the law gives preference to, by insisting that Exxonmobil is about the most competent in ‘ultradeep’ exploration.

In any case, government has argued, the block has been relinquished twice – by Vanco Energy and Lukoil – which has increased its risk profile.

Besides, it argues that the DWCTP is one of the ultra-deepwater blocks; and aside from Exxonmobil, not many oil companies have the technological and technical wherewithal to work that deep beneath the ocean.