You are here: HomeNews2009 10 08Article 170006

Govt studying Exxon-Kosmos deal

Comment: How it works - AKOSUA

Author:
MKO
Date:
2009-10-08 08:03:27
Comment to:
Agreement already?


1. The Ghana govt granted Kosmos (together with other companies, forming a consortium)exploration rights for a fee, which was paid to the govt. The license (exploration rigths) - comes with some conditions attached.


2. Kosmos as the holder of the equity (by virtue of it contribution to the consortium) has the right to sell its sake to any buyer of its choice.

3. Kosmos is owned by a private equity (PE) group. PE generally operate on short / limited time span on projects. Typically what they do is acquire companies, add value (sometimes thru restructuring or other means), and the sell the company to make profit for the investors who gave them the money to buy the company/ run the project in the first place. The PE group then takes a % of the profit and a commision as reward for their ""management wizardry"" (usually 2% of the total investment commited and 20% of profit realised)
For this reason PE's are not interested in hanging around unnecessarily - projects usually have a timeline of say 3 to 7years which contractually binding. So if they do not sell before the time they usually lose thier commission and their profits become jeopardized (sometimes zero)

4. Now GNPC on behalf of the governmant of Ghana, has the right of refusal to any deal that KOsmos enters into based on an earlier contract that they have with the Govt of Ghana. The reason for objection would have to be leagally justifiable. (could include lot of issues for example some aspect of the Govt's contract with Kosmos is being circumvented/ altered in the Kosmos sale to Mobil, Mobil's business operations has violated Ghana statues in the past and was not resolved, etc, etc,

5 So GNPC has to look at the sale agreement between Kosmos and Mobil to make sure that no clause of the original agreement has been violated.

6. This process is usually just a formality - govts don't block such sale unless there are other factors such as effect on local competition, monopoly, unfair advantage etc.

7. The main reason why the Govt has to go for these arrangements is because we lack the technical expertise, but more importantly we usually lack the capacity to raise funding for such projects independently on the worlds finance markets.

This article is closed for comments.

10-08 04:51
 
 
 
 
 
How it works - AKOSUA
MKO
10-08 08:03
JAH-jerry >>>>>>>>>>>>>>>>>>>>
10-08 09:05