How the Government of Ghana and GNPC should ......

approach a possible deal on the Jubilee Oil prospect

Ohene Aku Kwapong

As Ghana strives to develop its oil find and bring it to market, it should never lose sight of the fact that there are other comparably sized economies trying to do the same. Access to markets, technologies, future contracts, and competitive forces already well established will determine how successful the country’s oil fortunes will end up making a difference in the life of the average Ghanaian. The partners you do not select today will be your competitors tomorrow, so the government should really think through carefully how it decides who it wants as a partner in developing its not-yet-existent oil industry. As I have always said, value is either destroyed or created by the decisions made today. In this case, we cannot afford to let short-term benefits, and individuals who may be putting their personal interests above what’s best for the country, result in a decision that leads to years of chaos. While Ghana has gradually built a better investment climate that is beginning to attract significant outside interest, we should never forget our poor record at crafting successful deals with external partners. We seem to always find a way to pick up fights over deals that should have been seamlessly and successfully executed – from the Malaysians, Telenor, the unresolved Ghana Airways fiasco - and seem to be on schedule for another fight with Vodafone. The business of developing our newly-discovered oil is, unfortunately, the only one area and opportunity the country cannot afford to pick a fight over. Kosmos Energy may be perceived locally as a small unknown company, but Kosmos is Warburg Pincus and Blackstone, the same Blackstone that China is heavily invested with and has emerged as one of the premier corporate advisory firms in China. This is not a fight a country like Ghana can afford to have. As a country, the Ghanaian leadership has to decide on exactly what the country wants in a partner and the end-goal it wants to achieve with this deal. In the absence of such clarity, the whole deal will be driven by individual side deals and individual profiteering, and establish a foundation for chaos years to come. In the meantime, it is critical that all government officials and the senior management at GNPC are on the same page with respect to the deal. No one, absolutely no one, should be giving public interviews, sending out emails, or making public statements about a deal that is still in progress. While the government and GNPC ponders whatever actions it needs to take, let me offer this piece of advice as to what needs to be considered; 1. Market Access Our crude oil is only as valuable as the market access it gains. Hong Kong-based CNOOC only has major production areas in the seas of China and is practically a new entrant into the world oil market. ExxonMobil, however, operates in practically all major oil producing areas, with operations from exploration through manufacture of related end-products as well. The market access ExxonMobil wields will either be the one invaluable asset we gain in a partner or one that will become a hurdle for our future prospects if it ends up going to competing emerging oil producers in our region.

2. Jurisdiction and Political Risk Jurisdiction for resolving legal issues is very critical. As far back as I can remember, past Ghana governments have frequently had legal fights with deals after the fact. The most recent examples being Ghana Airways and also with deals in Ghana Telecom. US courts are open and Ghana is more likely to have access to sympathetic courts than having to fly to Beijing to fight a Chinese company. ExxonMobil being an established private company with more interests across the globe is more likely to be amenable partner than CNOOC, whose relatedness to China National Petroleum and the Chinese government is still subject to politics. Any deal with CNOOC is likely to face years of nationalization risk with the nature of government that exists in China today.

3. Technology Transfer Money does not develop oilfields, but smart money (money with competitive technology and human capital) does. I am very familiar with the depth of technology Exxon posses both on the upstream and the downstream side. The company has the deep sea technology and the managerial experience that can benefit and possibly accelerate the local development of related companies to support an emerging oil industry. While CNOOC has tried in the past to acquire deep sea drilling technology via a failed $18.5B acquisition attempt in the US which was blocked by US politicians, it definitely lacks the managerial experience that could benefit the successful development of our local industry.

4. National Strategic Interest A potential partner promising to help the country to develop its national petroleum company and local oil industry, should be asked to produce examples to substantiate their promises. ExxonMobil's involvement in Saudi Arabia has been a great driver of the development of Saudi’s oil industry. ExxonMobil practically built Saudi Aramco and the technology transfer to Aramco has been substantial. Niger and Gabon should be other examples of how Exxon Mobil executes. CNOOC has no such proven track record of enabling oil industry development anywhere. An Exxon deal can bring years of focus and the possibility of building a deeper relationship with the US that can bring access to world markets that we have never had before. Unless China is about to encourage its companies to outsource jobs to and invest in Ghana, a deal with CNOOC gets you limited upside and does nothing to open up opportunities in related industries.

5. Transparency Exxon operates under the US Foreign Corrupt Practices Act (FCPA), which prohibits any US company from engaging in bribery in the conduct of their overseas businesses. In fact, there have been several prosecutions of both US executives and politicians under that act. That alone brings a level of transparency that can help us ring-fence future oil revenues, an opportunity that can give us an experience far from the problems Royal Dutch Shell has had in Nigeria.

6. The Human Element Unfortunately, African governments often overlook the human capital element and its importance to the long-term success of business transactions. There are two key human capital issues I want to point out. First, there are several excellent Ghanaians, both on the upstream and downstream sides, who have long and deep experience with ExxonMobil and can be easily poached to play a key role in managing a transition to a vibrant local oil industry. Second, Ghanaians are more likely to get employed and integrated into an American company like ExxonMobil, which already has Ghanaians in the US in managerial roles. The American culture is diverse enough that our people are more likely to have access to the kinds of opportunities that can accelerate technology transfer. If you think it’s hard enough for a Ghanaian to become a CEO in a British firm then wait till Ghanaians start working for a Chinese company.

At the end of the day, while decisions made today can either destroy or create value tomorrow, we should never lose sight of the fact individuals who may already have been offered favors and other personal incentives will try to work very hard to scuttle successful deals that actually are done on merits. That may be the game on the ground, but more mature adults should take control of the process and make sure that we do not have the sort of decision that ended up in the current pending legal problem over the defunct Ghana Airways. This is too critical a decision for our future and for our children, and we cannot afford to embark on a great experiment with a new entrant such as CNOOC. Let’s defer that experiment for now.

Full Disclosure: Dr. Ohene Aku Kwapong began his career with ExxonMobil Research, was with ExxonMobil in research and production operations for seven years. Transitioned from the oil industry into banking and currently works for a major US financial services company. He had previously invested in both Blackstone and CNOOC via stock purchases. Do not currently have any stock positions in any of these companies cited above.