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Opinions of Saturday, 4 September 2021

Columnist: Dr Sam Ankrah

Dr K.K. Sarpong’s comments on proposed GNPC, Aker deal leaves more questions than answers

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The Ghana National Petroleum Corporation (GNPC), through its subsidiary, Exploration and Production Company Limited (GNPC Explorco) plans to buy a 37 per cent interest in Deep Water Tano/Cape Three Points (DWT/CTP) owned by Aker Energy Ghana Limited and 70 per cent stake in the South Deep Water Tano (SDWT) operated by AGM Petroleum Ghana Limited.

The deal came to public knowledge after Energy Minister, Dr. Matthew Opoku Prempeh requested Parliament to approve loan of US$1.65 billion to enable GNPC to purchase stakes in oil blocks of Aker Energy and AGM Petroleum.

The transaction has, however, been met with fierce opposition by civil society organisations (CSOs), including the Africa Centre for Energy Policy, Imani Africa and Institute for Energy Research and Policy, among others, because they believe that the deal is too expensive, risky and that more cost-benefit analysis is required.

They are also of the view that the valuation used a higher value of about 65 dpb, and that the country is not likely to achieve that price in the medium to long term and therefore, it makes the transaction unfavourable to the country.

Reacting to the concerns raised by the CSOs in a recent radio interview on Peace FM, the Chief Executive Officer of GNPC, Dr. K. K. Sarpong, stated that instead of CSOs asking questions of GNPC, they have resorted to making wild accusations.

In the first instance, it is unclear as to whether the GNPC has made itself available to the CSOs to listen to their concerns and questions and to provide answers to those questions.

This could simply be a matter of inadequate engagement by either party. While most energy sector CSOs are on record of having requested a dialogue with the state-owned oil firm, the comments by Dr. Sarpong does not augur well for a mature and transparent debate on the modalities of this proposed transaction.

Calling the CSOs divided rabble-rousers and stating that he will not engage with them is not helpful to making the argument to citizens in order to court support for what essentially citizens will be asked to foot the bill for.

The other more concerning issue is the apparent speed in which a 2019 decision to divest interests in the same fields by GNPC has been seen to be erroneous and the request for government to provide funding for the new strategy has been very compressed and rammed through Parliament in two days, with the acquiescence of the opposition members, whose silence on the transaction is interestingly sad.

Whilst it is correct that no price has been set for the purchase of reclaimed and additional interest in the fields, the fact that a borrowing price ceiling was set by Parliament means that GNPC has a notion of what it expects to pay. The mere mention of a funding ceiling does also give CSOs the same impression that GNPC has a notion of how much it intends to pay.

The involvement of Arctic Securities and Pareto, Norwegian financial institutions with close links to Aker, and Lambert, selected by Aker and GNPC jointly, to come up with valuations is further fuel on the fire of there being a strong hint of what price the buyer and seller want to try to settle on.

Ultimately, Dr. Sarpong did not answer any questions on the substance of the matter. He did not address the strategy of developing DWT/CTP and other prospective fields that might yield resources in a useful timeframe.

And neither did he address the misgivings over the technical challenges of developing SDWT, an ultra-deepwater field for which the technology to develop is not currently available.

He also failed to address the valuation methodology which includes queries over Aker’s stated back costs for the 5 wells it drilled and how contingent resource is actually valued. Most interestingly, he stayed away from the question of allowing Aker to put forward a funded plan of development, which if it fails to do, the field is relinquished to the state and for free, allowing GNPC to do what it intends without paying a cent.

Questions, valid ones, regardless of whether Dr. Sarpong thinks they are or not, remain to be answered.

What is the basis of the valuation of DWT/CTP?

For a transaction of this magnitude, especially when it involves the use of scarce taxpayer resources, it would help so much if answers to questions such as, who validated and accepted Aker’s back costs? Is it noted that in comparison to Hess’s recorded back costs for having drilled more wells in a time of higher rig day rates, seem inflated?

What is the basis of valuing the contingent resources in the field? If Hess saw fit to sell their stake for US$100m and Aker have only added 50 million barrels of oil equivalent since taking over operatorship, how is the field now worth US$2bn and Aker’s stake worth US$1bn?

Why is GNPC wanting to operate an ultra deep water field? Is this the ideal platform for GNPC to commence its operatorship journey with? Highly complex and technical, even if resource rich the economics may most likely be marginal to loss making.

Finally, why focus all the state’s resources into one field? Why not look at the other assets, especially ones with shallower water and/or close to proven fields, in the hands of indigenous operators who face similar challenges to those experienced by Aker and use the funding to ensure the state has a portfolio of assets not a narrow interest in one field? The same timeframe set by the narrative on the need to access those resources applies to all these other assets.

Bank of America involvement:

The point here is that any bank, whether is BAML, Goldman Sachs, JPM, etc will all prepare a valuation using, a technical report done by a Gaffney Cline/AGR Tracs/WoodMac/ etc and then a comparative analysis using analogous transactions as well as historic sale prices on the field to come to a valuation range.

This work should give a valuation that is reflective of market value.

Which we all know is way above and nowhere nearby.

But this is still papering over the ground level question of, why do you have to pay anything?

When the block will be available for free in less than four months’ time

All these costs by BAML and others are out of pocket expenses to the taxpayers which can be channelled to other very productive and meaningful ventures.

In conclusion, Dr. Sarpong has missed an opportunity to set out the case for this transaction by providing some clear answers to well set out and published misgivings. If the CSOs are factually incorrect, he should have set out the reasons they are incorrect with the facts.

The longer these questions are left unattended, the more suspicion that this deal does not inure to the benefit of Ghana, grows.

This summary, dismissed CSOs as being divided, rabble-rousing and self-responding.

Refusing to engage CSOs, or answer any questions of modalities on valuation and trying to placate all with the fact that no deal has yet been done is wrong for an organisation being funded with taxpayers’ money.



The writer, Dr. Sam Ankrah, is the President of the Africa Investment Group, a fellow of the Chartered Institute of Economists, Ghana and an investment banker.