Why is Ghana giving $1bn to big oil in Norway?

Read Time: 10 minutes

On 30 July, energy minister Matthew Prempeh – in a 10-page power-point presentation and a rambling thesis on ‘global energy transition’ – asked parliament to borrow $1.6bn to buy back stakes in two offshore oil licences not yet in development.

The minister made a case for Ghana to borrow $1.6bn 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.

READ MORE Ghana must heed energy transition risk in its oil plans

The government wants to borrow $1.3bn to buy back stakes in the blocks, and another $350m to cover its share of development costs.

Prempeh said the government planned to acquire a 37% direct and indirect interest in the Deepwater Tano/Cape Three Points (DWT/CTP) block from Aker Energy; and a 70% interest in the adjacent South Deepwater Tano (SDWT) block from AGM Petroleum.


Complete the form and download, for free, the highlights from The Africa Report’s Exclusive Ranking of Africa’s top 200 banks from last year. Get your free PDF by completing the following formEmail Address * 

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’.

The $1.1bn approved by parliament is being made to look like a grand bargain… But everyone knows this is a ruse.

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 said “five agencies” had valued the two licences at between $2bn and $2.55bn.

Two 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.

If the government is acting to protect the national interest, why then does Aker want to sell such an apparently lucrative asset? Aker Energy is a 50:50 joint venture between Aker, a $7.5bn Norwegian oil company, and a family asset holding company, TRG.Africa InsightWake up to the essential with the Editor’s picks. Sign upAlso receive offers from The Africa ReportAlso receive offers from The Africa Report’s partners

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% 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.

READ MORE Ghana has tried to be responsible with its oil wealth. This is how

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 $1.3bn to $1.1bn.

GNPC has had ample opportunity to acquire the expertise, personnel, technology and credit relationships required for an operator. It has consistently failed.

The minister’s view – on how the energy transition has dampened investor sentiment in the fossil fuel industry thereby forcing national oil companies (NOCs) to become operators themselves – was fully adopted. The $350m investment contribution to the development of the Pecan field – until it produces oil, hopefully in 2024 – was left untouched.

On 5 August, a thin 7-point report was signed off by the committee to enable the government to borrow $1.45bn for its new adventures in the country’s fraught oil story. Parliamentarians then took off for their seasonal break until 19 October.

And that is how a struggling West African country signed off a windfall in hundreds of millions of dollars to one of the richest men, from one of the richest countries in the world.

How did we get here?

Rokke and his Aker company landed in Ghana in 2008, when – in league with the politically connected Chemu Power – it obtained 85% 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.

READ MORE Ghana: Springfield CEO sends oilfield olive branch to Italy’s Eni

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 $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.

The gap between these numbers and the $1.1bn that Ghana’s government is willing to pay is terrifying.

It is important to note that AGM, the largest consortium partner (49.5%), 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.

READ MORE Nigeria: Will oil investors return despite uncertain policy and rise of electric vehicles?

In line with the professed goal of using this arrangement to transform GNPC into an operator, 79% 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 $259m interpreting 750 square kilometres of 3D seismic data; drill two wells to find oil; and prepare any discovery for development.

Becoming ‘an operator’

The key point is that Ghana’s state oil company GNPC was the operator of this block at this point. So the talk today about GNPC needing to borrow large sums of money to ‘become an operator’ is hogwash. GNPC had the opportunity to be the operator of the block nearly a decade ago.

READ MORE Why is Chad is losing 1 million euros a day in oil revenues?

It has been receiving millions of dollars in ‘training allowances’ and ‘technology allowances’ from companies operating in the upstream oil sector. It has had ample opportunity to acquire the expertise, personnel, technology and credit relationships that are the basic requirements for an operator. It has consistently failed.

Instead of making core investments in building technical capacity over this period, it:

  • bought a 90% stake in a haphazardly run gold mine (Prestea Sankofa);
  • retained 25% equity in a struggling telecom company (Airtel);
  • acquired 60% ownership in an underperforming hotel in a remote forest reserve;
  • and grabbed a 45% holding in an obscure oil field better known for getting embroiled in Nigerian oil bunkering theft scandals than in producing oil.

This oil field – Saltpond Offshore – is so dilapidated that continuous refusal by GNPC to decommission it (despite nonproduction) has been declared an environmental hazard by analysts. It is not some energy transition or other hifalutin threat that Ghana ought to be addressing with feverish intensity, but the poor governance of the petroleum sector.

It is safe to disregard any claim about GNPC’s recent actions being about the elusive prize of operatorship. What then is going on?

An Aker front?

Once it got over its enthusiasm about owning 79% 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%, with rights to take up an additional 15% (and contribute to the proportional costs of exploration and development), meaning a legal entitlement of about 49% if GNPC wished to bear the investment burden.

AGM now had 66% (until such a time, if ever, GNPC exercised its rights to take up the 15%). Somehow, even this ‘joint operatorship’ thing proved too hard to swallow for GNPC. So, on 21 June 2019, Peter Amewu 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%.

READ MORE Oil: Are Eni and BP going to form an alliance in Africa?

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.

Extracts from the revised GNPC – AGM agreement

So the decision to borrow over a billion dollars to take the GNPC stake to 70% from 15% 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.

  • Firstly, it is worth repeating that GNPC had all the opportunity to retain its rights and contribute to asset development as an operator or joint-operator.
  • Secondly, publicly available information is all one needs to assess the level of investment that has gone into the assets.

On 1 March 2018, Aker Energy announced a purchase for 50% of the DWT-CTP block for $100m. Its main discovery – Pecan – had already been made, plus a number of minor finds.

In the intervening period, Aker spent $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 $310m.

Plotting a windfall

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 $811m developing the asset. This is completely ridiculous, and a blatant misrepresentation.

READ MORE Post-coronavirus: More sorrow for Africa’s new oil and gas producers

Hess did not report a large impairment after its sale of 50.8% of DWT-CTP to Aker for $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 $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 – $2bn – is based on fantastical projections of earnings to be made if the petroleum discoveries made in both fields eventually come onstream.

GNPC’s bumbling on its operatorship efforts can be largely ignored to the extent that it hasn’t saddled Ghana with large debts.

The $1.1bn approved by Parliament is being made to look like a grand bargain. The windfall of nearly $1bn is miraculously transposed from the Rokke side of the ledger to GNPC’s. But everyone knows this is a ruse.

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 $65 per barrel. Its sensitivity analysis was carefully caveated so as not to affect the preferred GNPC-Aker conclusions.

Uncomfortable truths

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% (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.

READ MORE DRC: Is oil exploitation an economic opportunity or an ecological disaster?

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% 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.

Ghana is advised to slow down this mind-boggling plan to increase the wealth of Norwegian billionaires and rack up hundreds of millions of dollars in new debt and financial risk in the process.

When Lambert, during a meeting with Ghana’s 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.

READ MORE Nigeria: NNPC’s privatisation should mimic Saudi’s Aramco

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 classificationproject risk analysis, and a sensible long-term price of oil is used, the proper valuation gets closer to the $350m to $450m range that many in the Ghanaian CSO movement believe would be prudent, given the project history and medium-term picture.

The gap between these numbers and the $1.1bn that Ghana’s government is willing to pay is terrifying. GNPC’s bumbling on its operatorship efforts can be largely ignored to the extent that it hasn’t saddled Ghana with large debts.

READ MORE Angola: Isabel dos Santos to return €422m worth of shares to Sonangol

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 NOCs 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 $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 $10bn exceeding assets.

Ghana is advised to slow down this mind-boggling plan to increase the wealth of Norwegian billionaires and rack up hundreds of millions of dollars in new debt and financial risk in the process.

Leave a Reply

Your email address will not be published. Required fields are marked *