Tuesday, 24 August 2021

Unearthing the 'real' deal in the Aker-GNPC oil block transaction

 


Adnan Adams Mohammed


 

In recent days, there has been a wave of debate over the Ghana National Petroleum Corporation (GNPC) plan to borrow $1.65 billion to buy two stakes in Ghana’s offshore fields.

 

This intent and subsequent approval of the request of GNPC by Parliament, which approved about US1.2 billion instead of the US$1.65 billion, raised a heated debate among Government officials, energy policy think-tanks, Civil Society Organizations and some individual experts.

 

Section of Ghanaians still find it ambiguous how the whole deal affects or impacts on the country's economic development and fortunes. This has prompted the need to write this article to simplify the terms, impacts and effect of the deal on Ghanaians.

 

We can recall the Energy Minister, Mathew Opoko Prempeh recently submitted a memorandum to the legislature seeking 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.

 

Such partnerships, the GNPC noted, were critical, as 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.

 

GNPC further justified that, with the shift away from investments in oil and gas into renewable energy, Ghana faces the risk of stranded assets and dwindling proven reserves if GNPC is unable to undertake exploration, development, and production alone. Upon these reflections, the parliament approved the request.

 

Implicitly, GNPC, on behalf of Government of Ghana, is buying an interest of an asset in Ghana from a foreign entity that has an imbedded Capital allowance, which the buyer (GNPC) is supposed to be able to claim back from GoG against future taxes derived from production in the future.

 

So, to simplify the above comment: GoG is giving a foreign entity (Aker Energy) up to US$1.2 billion from their coffers and can start collecting that US$1.2 billion back from government, in the future, when production starts and continues.

 

To put this in another way, the deal will be described as a 'Capital Allowance' play of US$1.2 billion that Aker needs to monetize this capital allowance “asset” and nothing more; and According some CSOs, the whole energy transitions spin is a ruse and this whole transaction is a rigmarole with a “kakamimi” valuation.

 

Already, the Alliance of Civil Society Organizations (CSOs) working on Extractives, Anti-Corruption and Good Governance have raised questions on the deal as approved by Parliament. In a press statement issued last week, the CSOs doubted the valuation of the South Deep Water Tano (SDWT) by Aker Energy and subsequent endorsed by GNPC. The Alliance of CSOs, numbering over 15, said, they recognised the many questions that can be raised on the transaction as presented to Parliament. However, we focus on six key questions that expose the transaction to be in the opposite trajectory to the interest of the country as follows:

 

"Are the fields really worth US$2 billion? GNPC's proposal cites valuations from third-party analysts. However, the valuations ignore the possibility that the oil price might not be as high as assumed, that reserves might be less than assumed or that costs might be higher than assumed. Before development, there is very little certainty about these factors."

 

Also, an energy contract expert has said on anonymity that, "Aker has no intention of developing the field but has been able to pull wool over people’s eyes when it creates the impression that it really intends and wants to develop the field and that it was GNPC that approached it to sell its interest for GNPC to spearhead the development, and where they and GNPC will  form a Joint Venture to operate the fields making it sound credible just to keep the negotiation going on and to give Parliament something to hide behind so that they approve a nonsense transaction",

 

“So what does Aker Energy really want as it sincerely has no intention of spending money (about US$3 billion initially minimum) to develop the field(s).

 

“The Pecan field is appraised but the likelihood of Aker getting banks to support the investment is slim as the rate of returns (RoR) is low and project has too many risks, including that Aker is not a tested Operator.”

 

The expert further ranked what Aker really wants:

 

    1.    Aker primarily wants to monetize the capital allowances that it’s inherited from Hess and quantifies what it has spent on the two blocks so far which amounts to about $1.2 billion (this requires an audit)

 

    2.    Aker wants to be able to supply equipment and services for the Subsea development and the FPSO to the project which could amount to over $3 billion

 

    3.    Aker wants to also operate the FPSO for the life of the field,which is about 20 years, the net value to Aker of this would be about $50 million a year

 

    4.    Aker wants to be the lead in this Co-operatorship of the field with intention of teaching GNPC the ropes of being an Operator,  even though Aker is a partner to BP in the recent Aker-BP joint venture in the North Sea, in which BP is actually the operator and Aker is the apprentice learning the ropes

 

As known already, Aker is an Oil-Services company that supplies subsea equipment, and provides other subsea service to the oil industry. But, it’s not known whether it has got the experience, as being an Operator outside the joint venture it has with BP that operates in the North Sea, where it is a co-operator in name only, while we all know that it is BP that is the real operator.

 

So, inadvertently, one will wonder how Aker can coach GNPC into becoming an Operator in the proposed technology and knowledge transfer joint venture.

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