PRESS STATEMENT By Alliance of CSOs working on Extractives, Anti-Corruption and Good Governance

Read Time: 7 minutes

Attention:

1. The Rt. Hon. Speaker of Parliament
   Parliament of the Republic of Ghana
   Parliament House, Accra-Ghana
2. The Country Director, IMF
3. The Country Director, The World Bank
4. The Ambassador, Embassy of the Kingdom of Norway
   PARLIAMENT MUST INVESTIGATE THE GNPC TRANSACTION WITH AKER ENERGY
   GHANA
   The attention of the undersigned members of the Alliance of Civil Society
   Organizations (CSOs) working on Extractives, Anti-Corruption and Good
   Governance has been drawn to a proposed transaction between Ghana
   National Petroleum Corporation (GNPC) and Aker Energy for a farm-in to two
   oil blocks operated by Aker Energy Ghana limited.
   The Corporation and Government cite “energy transition” as the anchor for
   the decision. We agree that the energy transition requires an appropriate
   policy response, which Ghana may be running late on, but cannot be a guise
   for poor decisions that threaten the country’s economic and fiscal outlook. We
   are also not opposed in principle Government increasing its stake in natural
   resource ownership. However, we are concerned about this specific
   transaction.
   After analysing the proposals by GNPC and Government, we are clear in our
   minds that the transactions, if approved, will short-change Ghana. Therefore,
   we request Parliament to intervene, given that the deal has gone through all
   the relevant branches of the Executive1, ostensibly glossing over important
   threats of the transaction to the country’s fiscal situation.

Background

Aker Energy made a comeback to Ghana in 2017 through two acquisitions;
South Deep Water Tano (SDWT) block, which Aker exited after its agreement
with Ghana was abrogated in 2009, and 50 percent stake in the Deep Water
Tano/ Cape Three Point (DWT/CTP) block. Subsequently, Aker dominated the
policy environment with enormous demand on Government to amend the
governance architecture of the upstream sector for what it deemed an
importation of efficient strategy that has worked well for the company in its
home country. These demands dominated discussion in the energy sector,
particularly because Aker’s demands became the Government’s call.
Within two years, Aker pushed for and got:

1. The Petroleum (Exploration and production) Act, 2016 (Act 919) and its
   regulations amended to allow companies to hold on to contract areas
   at the Energy Minister’s discretion rather than automatically relinquishing
   part of exploration blocks as practiced before the entrance of Aker.
2. Two Petroleum agreements for Aker amended to limit the regulatory
   powers of the Petroleum Commission (PC) on the activities of the
   company.
3. Reduced the participation of GNPC Explorco on the SDWT block and
   capture the amendments to the law and regulations in the agreements.
   After getting the State to bend to its demand, Aker has for the past year, been
   looking for buyers to sell its stake in Ghana without success. It, however,
   emerged in the second quarter this year that discussions were underway with
   GNPC for “Resource Backed Lending” (RBL), but not much detail(s) were
   available to the public for input. However, the Minister of Energy’s submission
   of a memo to Parliament on 30 July 2021 on the transaction provides some
   information to prompt questioning and investigation into the entire transaction.
   In the Memo presented by the Energy Minister and approved by Cabinet, the
   lawmakers are requested to approve a US$1.65 billion blank cheque for the
   Government to finalize negotiations with Aker Energy to acquire 37 percent
   interest in DWT/CTP and 70 percent interest in SDWT. According to the Memo,
   US$1.3 billion is for acquiring Aker’s interest, and US$350 million is for the
   development cost of Pecan phase 1 to first oil.
   For a US$1.65 billion transaction, any prudent investor in the upstream oil and
   gas business cannot accept the quality and content of the Memo and the
   supporting documents presented to Parliament (the primary investor in this
   case). This generates several questions that should elicit adequate probing to
   safeguard the interest of the country.

Key Questions
We 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:

1. 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.
   For instance, 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 expected, partly due to higher costs. GNPC
   should be familiar with this reality, given Ghana’s experience with all three
   producing fields.
   All good analysts will present different valuations given different prices and
   other assumptions. Instead, this proposal ignores this practice.
2. How much value is assigned to unconfirmed SDWT reserves that may not
   be developed?
   One of the main uncertainties is how much actual oil can commercially be
   extracted from the field. The proposal provides little information on how these
   prospects are being valued because a lot more work that is technical remains
   undone. Why is the GNPC betting on these prospects that have not been
   appraised? The SDWT discoveries risk not being developed if purchased by
   GNPC. According to the Commission, the water depth is currently between
   2700 to 3500 meters with initial discovery information of 127 million barrels of oil
   equivalent. According to Aker in their Appraisal Program submitted to the
   Petroleum Commission in 2019, there is currently no qualified technology for
   such a depth of water and hence will require the development of technology,
   an independent qualification or approval of such technology before use in
   SDWT. This will require further investments by GNPC to improve on reserves that

have not been estimated as part of this deal. In essence, it may not be
commercially viable to develop SDWT, Nyankon discovery, with just an initial
estimation of 127 million barrels. Yet, Aker is selling those resources to GNPC as
part of the transaction with a promise to fast track the development by 2024.

3. Do Aker’s cost claims add up?
   Aker claims it has invested about US$800 million so far on the blocks in a
   document submitted to Parliament. While GNPC claims it has verified the
   expenditures, it still appears inflated if juxtaposed against the amount of work
   done by Aker and the value of its acquisition three years ago. Aker Acquired
   Hess’s interest in the DWT/CTP for US$100m in 2018. Before selling its interest to
   Aker, Hess had appraised the field with estimated recoverable oil of 450 million
   barrels. In total, Hess drilled 12 wells (seven exploratory wells and five appraisals
   well). With that amount of work done, the highest valuation Hess got was
   about US$400 million in 2016 when it farmed out 40 percent to Lukoil and Fuel
   Trade for the entire field. Akers claim it has spent about US$420 million on five
   well drilled on the two blocks. In another document presented to the country’s
   Economic Management Team (EMT), the US$420 million relates only to the
   three wells on DWT/CTP. Given that the DWT/CTP cost is shared among the
   partners of the block the total expenditure claims for the wells could be in the
   region of US$600 or US$750 million compared with US$400 million by Hess for 12
   wells, depending on which of the documents used. This is very high regardless
   of which of the information is used.
   The remaining US$280million must be accounted for properly. GNPC claims
   that money was used for “certain activities essential for establishing resource in
   the blocks”. This is overly ambiguous and cannot be accepted as a cost with
   this kind of description which questions the distinction between that activity
   and data acquisition and studies done as part of exploration and appraisal.
4. Is Aker getting a great deal at the expense of Ghana?
   It is worth asking why Aker has struggled to find investors to develop these fields.
   If few others find the fields attractive, why should GNPC? GNPC is providing a
   better deal to Aker than it could find elsewhere to raise capital to invest and
   bear risk. This proposal gives Aker the funds to procure an FPSO at US$600
   million and lease to the project for risk-free benefits, finance its development
   cost for the minimal stake at US$140 million and keep US$560 million in the bank.
   With these high-cost claims, Aker makes a profit of about US$500 million on the
   proposed acquisition value of US$1.3 billion. If the cost is imposed at US$965
   million as presented to the EMT, Aker still makes about US$350 million of profit
   for selling part of its stake in the blocks. The gains for Aker increase
   astronomically when analyzed on additional information we have, which
   suggest that the cost of US$420 million being pushed on GNPC is the cost
   available to the Commission for the entire field, and the prorated cost for
   GNPC should instead be about US$155 million for the stake.
5. Whose money is it any way?
   One of the main costs that the proposal ignores is the cost of capital. By
   lending this money, the government is increasing the national debt by 5 per
   cent and could increase Ghana’s sovereign debt costs while redirecting
   money that could have benefited other sectors of society. Some of these may
   have greater long term growth potential and more ability to transform
   Ghanaian’s everyday lives and economic prospects than oil and gas, which
   creates relatively few jobs for citizens and provided the biggest benefit to a
   relatively small group of people—for instance, those who work for companies
   that receive “local content” subcontracts on projects.
   The government could charge a high interest to GNPC, but the proposal
   ignores this cost. GNPC is making a risky bet, but betting the public’s money,
   not their own.
6. Is it worthwhile, realistic—or even advisable—for GNPC to pay so much
   public money for the chance to become an “operator”?
   GNPC is attempting to convince Parliament that it will learn to become a
   world-class upstream operator through this acquisition. However, the structure
   of the transaction only makes GNPC Explorco a relatively passive “joint
   operator”, with limited opportunity to learn by doing. The proposals we have
   seen don’t accurately detail how Aker would transfer the needed skills,
   knowledge or technology into Ghanaian hands. Instead, it proposes setting up
   a Special Purpose Vehicle (SPV), which Aker will control with 60 percent
   interest, and GNPC Explorco will have 40 per cent. This structure cannot make
   GNPC the operator it wants to become as the SPV is not the same as Explorco.
   Conclusion
   The Memo to Parliament is a significant eye-opener for well-meaning
   Ghanaians to closely monitor the relationship between Aker and the State.
   GNPC has failed to examine the issues in the transaction properly. The decision
   to support GNPC to become an operator is not a new conversation. Ten years
   ago the country decided to support GNPC to become an operator by
   allocating a portion of oil revenue. So far, about US$1 billion has been given to
   the Corporation, but it has failed to drill one well. The country needs a clear
   pathway for supporting the national oil company, rather than using billions of
   dollars of the public’s money in risky bets that might instead go to support
   Ghana’s health, education and economic development. Otherwise, the guise
   of the energy transition will only be a smokescreen to waste more resources
   and line the pockets of foreign companies and people who may be shortchanging the country deliberately.
   We, therefore, request Parliament to institute a full-scale investigation into the
   transaction to verify the actual cost incurred by Aker so far on the Blocks, clarify
   the inconsistencies in the presentations by GNPC and allow for open
   consultation and hearing to provide opportunities for independent expert
   opinions. We also urge the media to provide adequate space and time for a
   thorough examination of the issue in the country’s supreme interest.
   Member Organisations:
7. Africa Centre for Energy Policy (ACEP)
8. Centre for Extractives and Development Africa (CEDA)
9. National Coalition on Mining (NCOM)
10. IMANI Centre for Policy and Education
11. Integrated Social Development Centre (ISODEC)
12. Publish What You Pay Ghana (PWYP)
13. Ghana Anti-Corruption Coalition (GACC)
14. Institute for Energy Security (IES)
15. Civil Society Platform on Oil and Gas (CSPOG)
16. CSOs Open Licensing Monitoring Group
17. Natural Resource Governance Institute (NRGI)
18. Chamber of Petroleum Consumers Ghana (COPEC)
19. TAMA Foundation
20. Oil Watch Ghana
21. Institute of Energy Policies and Research (INSTEPR