Sunday, 10 November 2019

KOSMOS to fight gov’t on new AOE calculation as gov’t wants more from the windfall profits

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Adnan Adams Mohammed

Kosmos has threatened the government to going to court of arbitration if Ghana government insists on interpreting the Additional Oil Entitlement(AOE) calculations different from what was written in the Jubilee Oilfield Petroleum Agreement (PA)signed in 2004.

This comes at a time the government has realized the shoddy negotiations it did in the initial agreement and want to correct some mistakes, especially the AOE. According information gathered, the Kosmos-Operated Block WCTP Block PA (2004) has worse AOE provisions for the State than the Tullow-Operated DWT Block PA (2006).

AOE is the sharing of a windfall profit, that is, any additional profits (as ascertained by rate of return of the capital the contractor put in the project) in excess of what was approved in the POD.
An energy and financial expert has explained that, in simple terms if we agree to share the windfall profits equally (50/50), and for instance, the actual oil price was say US$10 above what was approved in the Plan of Development (POD) which was at US$50/bbl; assuming that there are 200million barrels produced over the PA lifetime, then the excess profit for all partners would be US$10x200m = US$2billion. Additionally, for simplicity sake, excluding Royalties and other revenues, government should get 50% of the US$2billion excess revenue or windfall profits, which is US$1.0billion.

Former Ghana National Petroleum Corporation (GNPC), Alex Mould has expressed serious reservations about the weak negotiation about the team who led the country in signing those PAs in 2004 and 2006 and even as at now the country lacks experts with better understanding of AOE calculation and other terms in the industry.

The people who signed that agreement had no clue about AOE calculations nor what they were agreeing to”, he said in a statement as a follow-up explanation after his lecture at the University of East London, UK fortnight ago.  

“Even today as we speak,  the Ghana Revenue Authority /Ministry of Finance and GNPC are still trying to grapple with the calculations, and Kosmos has even threatened government with going to arbitration if Govt insists on interpreting the AOE calculations different from what was written in the agreement at the time of signing the PA in 2004; And between, the Kosmos-Operated Block WCTP Block PA (2004) has worse AOE provisions for the State than the Tullow-Operated DWT Block PA (2006); The PA for DWT was signed in 2006 and that of WCTP in 2004.”

The renowned all-round expert touted his administration as being able to give the country better negotiation and deals in the PAs.  “In subsequent Petroleum agreements the State has better AOE provisions but this will still need to be revisited in the next version of the model agreement.”

Dr Baah Nuakoh, Sustainability Manager at GNPC, when facilitating a training workshop for journalists at NRGI supported event agreed to the challenge in the calculation of the AOE in the Jubilee oilfield PA which generated internal debate among experts within GNPC and other governmental agencies. But was quick to added, the calculations were corrected in the Exxon Mobil PA.

Mr Mould’s presentation at UK was on Greater Jubilee Full Field Development (GJFFD) economics from the POD submitted in 2017; of PAs signed in 2004 and 2006, which sought approval to expand the Jubilee field development to include the Mahogany, Teak, and Akasa (MTA) fields in the Kosmos operated West Cape Three Points (WCTP) Block.

He explained that, the economics of oil exploration and Production (E&P) that the GJFFD POD approved by government in 2017 had projected AOEs of only US$35 million for the life of the project, although we should be expecting something close to US$500 million - US$1 billion over the life of the project, if average oil price exceeded US$70 per barrel versus a Plan of Development projected price of US$50 per barrel.