Simplified: Why CSOs want Parliament to investigate $1.65 billion Aker Energy deal

Ghana will be shortchanged if the government goes ahead to fork out $1.65 billion for shares in two oil blocks, the Alliance of civil society organisations working on Extractives, Anti-Corruption and Good Governance, has warned.

The Ghana National Petroleum Corporation (GNPC) wants to acquire stakes in two oil blocks—a 37% share in the Deep Water Tano/Cape Three Points (DWT/CTP) operated by Aker Energy and a 70% stake in the South Deep Water Tano( DWT/CTP) field operated by AGM Petroleum.

The deal, according to the Ministry of Energy, will result in the formation of a joint operating company with Aker Energy, AGM and GNPC Explorco, the operating subsidiary of the state oil company, as partners.

The GNPC is counting on Norway’s Aker and the United State’s AGM to build the muscles of  GNPC Explorco, to become a profitable operator–exploring and drilling  oil.

Over the years, there have been waning interest from western investors in pumping money into the hydrocarbon (petroleum) industry considered as one of the many catalysts for climate change. It’s at a time a time there is a demand for a cut down in carbon emissions. With the increasing consciousness about cleaner energy, the GNPC fears that as the funding sources for the sector dry up,  Ghana will be left with billions of barrels of crude underground and without the financial and technical capacity to drill.

The World Bank and the Bank of England have already raised red flags about the serious risk climate change posed to trillions of dollars of fossil fuel (petroleum) investments.

But it is not deterring the GNPC. By this deal, the 38-year-old national oil company wants to position itself for the global energy transition at a time the national budget is heavily dependent on funds from oil and gas.

However,  the CSOs, who appear to be on a rescue mission say Parliament remains the last hope for stopping the deal, which they say has no value for money.

Although Parliament’s Joint Committee on Energy and Finance has recommended approval of the government’s request for a loan to seal the deal, the 15 CSOs say the lawmakers need to step in, given that the executive has failed the due diligence test, “ostensibly glossing over important threats of the transaction to the country’s fiscal situation.”

A breakdown in a memo the Ministry of Energy sent to Parliament shows while US$1.3 billion is for acquiring Aker’s interest, US$350 million is for the development cost of developing one of the blocks –Pecan phase 1.

However, the Committee slashed down the amount requested by the government from US$1.65 billion to US$1.45 billion. They also asked the GNPC to go back and further negotiate the cost down.

The CSOs, including the Africa Centre for Energy Policy (ACEP), Ghana Anti Corruption Coalition, Integrated Social Development Centre, Institute for Energy Security (IES), Civil Society Platform on Oil and Gas (CSPOG) and Imani Centre for Policy and Education, want the lawmakers to “institute a full-scale investigation into the transaction.”

The purpose, they say, should be 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.”

In 2018, Aker Energy bought the deepwater Tano Cape Three Points block from Hess Energy for $100 million, announcing plans to embark on a “significant” oil exploration and production in Ghana, Reuters reported.

When Aker took over the oil blocks, it triggered what would become major amendments in the Petroleum (Exploration and production) Act, 2016 (Act 919).

The CSO say two amendments to Akers agreement tamed the regulator—the National Petroleum Commission—limiting its regulatory powers on the activities of the company.

The consequence was not lost on energy experts, who believed that the changes reduced the state’s share in the partnership with Aker, and snuffed out GNPC Explorco’s involvement in the deal in a manner that would build its operating capacity.

But by May 2021, the plans went south as Aker announced plans to offload part of its 50% shares.

Oil and gas news portal, Africa Oil+Gas reported that after the COVID-19 wreckage, the Norwegian oil and gas giant struggled to come up with funds to continue the project, which it was so passionate about almost three years ago.

After baiting interested investors around the world with no success, Aker found a buyer in the GNPC

However,  the CSOs believe the deal is a waste of state resources.

In a five-pointer, the CSOs concluded that GNPC had failed to examine the issues in the transaction properly.

Making a case for the GNPC’s lack of capacity to be an operator, they pointed to a billion dollars sunk into the company’s operations in the last 10 years in anticipation that it would become an operator.

According to them, the investment does not reflect on the field or GNPC’s balance sheet.

“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,” they said in a value-for-money analysis of the deal.

They continued: “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 short-changing the country deliberately.”

While Aker is blaming a global economic downturn, fueled by the COVID-19 pandemic to sell its interest, the CSOs insist that Ghana has more to lose than gain.

“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,” the CSO said in a statement.

The GNPC proposal, the CSOs say, cited valuations from third-party analysts as the basis for okaying the transaction.

But the sceptical CSOs are not impressed.

“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,” the statement said.

To lend credence to their argument, the CSOs cited an Ernst & Young study that 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.”

That was not all. They also took issues with Aker claims it had invested about US$800 million so far on the blocks in a document submitted to Parliament.

While GNPC claims it has verified the expenditures, the CSOs have doubts about the figures, insisting that it “appears inflated if juxtaposed against the amount of work done by Aker and the value of its acquisition three years ago.”

The CSOs then went into the viability of Aker and GNPC’s figures.

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.

Before it lost interest, Hess drilled 12 wells (seven exploratory wells and five appraisals well).

According to Ministry of Energy figures, Cape Three Points holds an estimated 550 million barrels of oil with a potential extra 400 million barrels in its bowels.

“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, the CSOs said.

Crunching the figures again, they said:

“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 CSOs are demanding more transparency and have asked for the US$280 million  to 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.”

GNPC’s response

A source in the GNPC, who did not have the right to speak officially told  The Fourth Estate that the deal was worth every cent as it would give the GNPC a muscle in a sector dominated by foreign interests.

The source said the GNPC wanted to tap into the offshore capabilities of Aker and AGM to develop its operator capabilities which for years has been latent.

Bright Simmons enters fray

A Vice President of Imani Africa and Founder of mPedigree, Bright Simons, has described the development as “strange.”

In a series of tweets, he said, “the shockingly hollow 10-page memo[sent to Parliament] contains none of the technical info lawmakers need to understand why Ghana should bear this risk at this time.

“For eg[example] the entire memo is premised on the idea that Ghana borrowing this money to buy stakes in the fields from Aker & AGM will lead to [the] acquisition of technology & more skilled personnel for Ghana. But how exactly? The money will go to Aker & AGM. What tech is 2 be transferred?”

He was not done yet: “The twists & turns regarding the AGM block are particularly strange. Ghana was initially entitled to ~43%.

“The Government attempted to reduce this to ~18% to make it “more attractive” to investors. It retreated to ~34%. Why borrow now to increase stake to 70% b4 appraisal is complete?” he asked in another tweet.

It will not be the first time Ghana’s  CSOs in the extractive industry are going after a deal the government is signing.

In 2020, it took the CSOs to scuttle the implementation of the Agyapa deal.

In that transaction, Agyapa Royalties Ltd wanted to trade 49% of its shares for $500 million in a company registered in Jersey, a tax haven. But the processes leading to the transaction were described as opaque.

With the CSOs up in arms against the Aker Energy deal, it remains to be seen if Parliament will be willing to give them a listening ear or sit in the corner of the GNPC, which has been making a case for more state involvement in the upstream oil and gas business in Ghana.