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Opinions of Monday, 1 February 2010

Columnist: Apau, Nana

Ghana oil – seeking national or some personal selfish interests?

Oil exploration and exploitation in Ghana is believed to have started in 1896. After over 100 years of on and off search for oil in the country, it was announced in 2007 that finally oil had been found in commercial quantities in Ghana by a consortium of companies including Kosmos and Tullow. Kosmos Energy announced in June 2007 the discovery of a “significant oil accumulation” at its Mahogany – 1 well. Two months later, Tullow Oil announced another significant discovery at its Hyedua – 1 well. Subsequent discoveries in four different offshore wells indicate that Ghana might possess up to 2 billion barrels of oil reserves. When final evaluations on the new Tullow find from the Tweneboa 2 well are added, the reserve potential may exceed 3 billion barrels of oil equivalent.

In the West Cape Three Points Block the original agreement signed on July 22, 2004 gave the operator, Kosmos 86.5% shares, EO Group 3.5% shares, and the Ghana National Petroleum Corporation (GNPC) 10% shares. Kosmos later farmed part of its shares in the West Cape Three Points Block to Tullow (22.896%), Sabre & Gas (1.854%) and Anadarko (30.875%). Kosmos holds an 18% interest in the Deepwater Tano Block. An affiliate of Tullow Oil plc operates the block with a 49.95% interest. An affiliate of Anadarko Petroleum Corporation has an 18% interest; Sabre Oil & Gas has a 4.05% interest; and GNPC has a 10% carried interest.

The various oil wells dug in the two blocks were renamed the Jubilee field as the oil findf straddles the two blocks governed by two petroleum agreements. The oil companies involved and the GNPC have had to develop a “unitization agreement” to develop a joint contractual framework and geographically delimit the Jubilee field area. Following the agreement to modify holdings in Jubilee, Tullow, the operator, holds 34.7 percent; Kosmos controls 23.49 percent; Anadarko owns 23.49 percent; Sabre Oil & Gas holds 2.81 percent; EO Group has 1.75 percent; and Ghana National Petroleum Corp. has 13.75 percent.

Production from the Jubilee field is scheduled to begin in late 2010, with output expected to reach 120,000 barrels per day (b/d) in 2011 -- and possibly 250,000 b/d by 2013 if a second floating production, storage and offloading vessel is deployed.

This article is the first in a series to get the Ghanaian public to engage in a pro-Ghana discourse about the oil find. This first article focuses on the issue of transparency. Who were the bidders and what was the nature of the bidding documents? Who are the actors behind Kosmos and Tullow? Who have been behind the EO Group that has at least 3.5% shares in the initial agreement signed by Kosmos and Ghana that gave 86.5% shares to Kosmos, 10% shares to GNPC and 3.5% shares to the EO Group?

Other questions include the nature of the agreement that allowed Kosmos to transfer part of its shares to Tullow? What were the first option clauses in the agreement that again made Kosmos sell off its remaining 23.5% shares to ExxonMobil that has created the impasse between Ghana and the big oil companies in one aspect, and the potential tension between Ghana on one side and the powerful US and the rising power China?

Another question is who has first rights to the oil and the natural gas that will be produced that will go to the oil companies (EO Group and Kosmos, Anadarko, Sabre and others)? Finally, how will Ghana get crude oil and natural gas for the refinery and other petro-chemical industries that are envisaged for the country?

Transparency Since the oil find was made in Ghana there have been calls for transparency as well as putting in place legal and institutional arrangements to ensure that the product becomes more of a blessing than a curse for Ghanaians.

The World Bank, IFC, Oxfam, and several other organizations have stressed the need for transparency. For example, in its report, Economy-Wide Impact of Oil Discovery in Ghana, issued in November 2009, the World Bank recommends that “Transparency could be improved as Ghana adopts and implements a Freedom of Information Act; and stipulates/enforces accountability mechanisms regarding: (i) the publication of reports on revenue and their use, and (ii) the disclosure of bidders‘ identity and bidding documents.” Similarly, Ian Gary, writing for Oxfam/ISODEC in a 2009 report titled Ghana’s Big Test, states that “…needed institutions, regulations, and transparency measures should be in place early on to avoid the corrosive and corrupting effects of oil booms seen elsewhere in Africa.”

It was announced in the news media on July 22, 2004 that Ghana had signed an oil exploration agreement with three companies for the West Cape Three Points block in the country’s territorial waters. They were Kosmos Energy of USA, Ghana National Petroleum Corporation (GNPC) and E.O. Group of Companies. Dr. Paa Kwesi Nduom, then Minister of Energy, signed for the Government; Mr. Douglass G. Manner signed for Kosmos Energy and Mr. S. Sekyere Abankwa, then Chairman of GNPC board of directors, signed for GNPC and Mr. Derick Oppong-Agyare of E.O. Group of Companies, signed for the Group of Companies.

According to the news account of the signing ceremony, the agreement, which was reached within a record time of three months, was based on previous seismic data provided by the GNPC and valued at an initial $30 million in the West Cape Three Points Block. This was the first acreage contract Kosmos had signed since its formation in 2003. The exploratory agreement was expected to run for seven years with operations in five basins.

Sekyere Abankwa, the GNPC Chairman, reportedly, said at the signing ceremony that GNPC had trust in Kosmos Energy’s ability to deliver and expressed the hope that oil would be found with Kosmos Energy’s involvement.

Mr. Manner, on behalf of Kosmos Energy expressed his company's commitment to the exploration project and promised to work assiduously to make the investment worthwhile. He noted that the GNPC seismic data had rich information and everything would be done to ensure that drilling would begin by the middle of next year. "We are very excited about the size and nature of the seismic data available," Mr. Manner said (GNA, July 22, 2004).

Was it possible that some of the initial founders of Kosmos Energy had knowledge of the GNPC seismic data prior to the company applying for a contract to explore the block? If so, who passed on the seismic and other GNPC data to the newly formed Kosmos Energy that had no previous oil exploration track record to speak of?

It is recalled here that oil had been found in the block by previous explorers such as Hunt and Philips Petroleum in the 1980s and 1990s. The wells were abandoned because deep seawater drilling was considered too risky and expensive at the time. Oil prices were too low then, and the technology for deep seawater drilling and data analysis was still in its infancy at that time.

A brief history indicates that Phillips Petroleum Company commenced exploration in the Tano-Cape Three Points basin in February 1974. They acquired several 2D seismic vintages totalling over 3,700 km, part of which covered the present Kosmos block. Phillips drilled one deepwater well and six shallow water wells that resulted in the discovery of the North and South Tano fields west of the current Kosmos block. Phillips relinquished the entire Tano Cape Three Points blocks in 1981.

After promotion of the area by GNPC in the early 1990s Hunt Oil acquired two licenses in the West Cape Three Points block that includes the current Kosmos block in 1996. The company acquired 2D seismic data totalling 2,225 km, and later acquired about 264 square kilometres of 3D seismic data to the east of the current Kosmos block. They drilled two deepwater and one shallow-water well. One of the deepwater wells resulted in a non-commercial discovery. These wells lie immediately east to the Kosmos block. Hunt relinquished the block in 2001.

After the year 2000, deep seawater drilling technology and computer technology for seismic data analysis had become highly advanced, and following the 9/11/2001 crisis, world prices for oil sky-rocketed. These factors, together with increased need to secure oil away from the troubled Persian Gulf area, led to rising interest in the West African area – now designated the New Gulf. Those dynamics attracted oil prospectors back to Ghana at a time when, coincidentally, the Kufuor administration was making Ghana oil laws “more investor friendly.”

Since coming to power in January 2009, the NDC government of Ghana headed by President John Atta-Mills has been perceived to be carrying out some vendetta against the New Patriotic Party (NPP). There were series of car seizures from NPP former state office holders in the Kufuor administration. A committee was set up to investigate the Ghana@50 planning committee and its appointees. The latest inquiry has been perceived by some people to be directed against the EO Group in relation to the oil find.

In the case of the oil find, it is important that any investigations should be done in a more open manner because, as enshrined in 1992 Constitution of Ghana, oil as a natural resource belongs to all Ghanaians not any one political party or any one group of people.

As suggested by the World Bank in its publication quoted above, the general public needs to know about the identities of the bidders and the bidding documents as well as the nature of the agreement reached between the oil companies and the state. Available information suggests that the agreement signed between Ghana and the oil companies is of the PSA (Production Sharing Agreement) type as outlined in the Model Petroleum Agreement that is available on GNPC's website.

There have been calls for revenue sharing arrangements from the oil find, but what revenue is to be shared is all tied to the contracts signed between the state and the private oil companies. A vague reference to parts of them already being in the public domain is not sufficient and does not constitute regular disclosure.

The World Bank for example doesn’t refer to leaked documents in connection with its own disclosure requirements. Neither does the IFC that has loaned money to some of the oil companies developing the Jubilee Field. If there is transparency, the government stands to gain the support of the general public, especially as the government attempts to take on the oil companies on one hand, and on the other hand the world powers that be – Britain, China, and the US.

Who are the players in the Ghana oil discovery? The immediate key actors in the unfolding drama surrounding the oil discovery are GNPC, the oil companies and political leaders of Ghana. Behind these front stage actors are some powerful backstage actors, directors, promoters and producers who see Ghana’s oil as being relevant to security interests of some countries other than Ghana. Let us first discuss the front stage actors: GNPC, the oil companies and political leaders of Ghana.

The Ghana National Petroleum Corporation was formed in 1985 as a state-owned entity and given legal backing under two main statues: PNDC Law 64 and PNDC Law 84. Initially GNPC focused on capacity building by acquiring and analysis of seismic and other geologically data, staff development and training, and acquisition of latest computer technology for data analysis.

When the EO Group was formed is not very clear. There is the assertion by some people that the involvement of EO Group in Ghana’s oil was done above board. Was it really? The EO Group lists Kwame Bawuah-Edusei and Derick Oppong-Agyare among its directors.

In other instances, Kwame Bawuah-Edusei is listed with George Owusu as the E and O in the name EO Group. We have already mentioned that Derick Oppong-Agyare, who was believed to be with the Quality Assurance unit of PricewaterhouseCoopers Ghana at the time, signed on behalf of the EO Group. We found very little else information about Derick Oppong-Agyare and we hope a FOIA is passed to make it possible to gain more information about him and other members of the board of directors of the EO Group.

As for Kwame Bawuah-Edusei, he was a medical doctor in family practice in the US until he was appointed Ghana’s ambassador to Austria and Switzerland and the Permanent Representative of Ghana to the UN offices and international organizations in Geneva and Vienna in August 2004 soon after the EO Group, Kosmos, GNPC and Ghana signed the oil exploratory agreement.

Dr. Kwame Bawuah-Edusei had no track record as having been a career diplomat. This has led to some people speculating that he must have been awarded with the ambassadorial appointment for his role in the oil discovery. Others claim he was one of the prominent NPP financial backers several of whom were also given ambassadorial and other patronage appointments in the Kufuor administration.

Dr. Bawuah-Edusei is believed to be a friend of former President Kufuor. He is believed to have lobbied the US Congress, the State Department and the World Bank for support for the development of a vibrant and sustainable democracy in Ghana.

Another Ghanaian in the Washington DC area well known in lobbying circles is Prof. George Ayittey of the American University. Prof. Ayittey was member of the African Oil Policy Initiative Group (AOPIG).

AOPIG formed the US-Africa Energy Association, members of which included a number of serving and former Bush administration and several oil companies such as BP, Chevron, Texaco, Marathon, Shell and Anadarko. AOPIG and the US-Africa Energy Association lobbied the Bush Administration for the creation of AFRICOM. Was it coincidence that Anadarko also became a player in the Ghana oil find?

George Owusu, on the other hand, is said to be a trained environmental scientist who worked in the energy industry for about twenty years. He rose to the rank of commodity manager for Shell oil Company in Houston, U. S. He is believed to be a friend of Mr. Kan-Dapaah, Minister of Energy in the early part of the first Kufuor administration.

In 2001, with the help of the Greater Houston Partnership, a major business group in Houston (Texas) dedicated to the promotion of business between Houston companies and the rest of the world, Mr. George Owusu was said to have organized a conference in Houston addressed by energy experts from GNPC and the Energy Ministry of Ghana about the offshore hydrocarbon potentials in the country. Many companies in Texas and the rest of the world were believed to have attended the conference. Who were the officials from GNPC and the Energy Ministry who participated in the Houston conference? Was it George Owusu who invited these energy officials from Ghana? Who paid for their expenses to participate in that conference?

Soon after the Houston conference, the E.O Group is believed to have facilitated a visit to Ghana by Vanco Energy, according to news media. The Houston-based Vanco Energy signed an exploration agreement with the Ghanaian government in August 2002. Vanco Energy said at the time that it planned to invest $30 million to explore for oil on the West Cape Three Points Deepwater Block. However Vanco backed out of the deal. Reports indicated that Vanco backed out of the deal because it was too risky.

A Ghana News Agency (GNA) news report of June 19, 2002 indicated thus: “Meanwhile, in a breach of normal administrative law practice, two provisional acreage awards have gone for parliamentary approval without first winning formal Cabinet sanction. Vanco Energy's deep-water deal has gone forward as has Alderney Resources' Central Basin award, backed by local mining mogul Nic Amarteifio.”

At a later date, EO Group partnered with Ennex Energy of Ireland who were in Ghana but gave up on a deal that was reached. Sources indicated that Ennex walked out of the deal as they evaluated Ghana too risky to invest. However, in a Financial Times article of January 7, 2010, William Wallis and Martin Arnold, authors of the article quote John Craven of Ennex thus: “Geologically we wanted to do the deal. We could have raised the money to do it but we were uncomfortable with EO’s demands.” Could it be that Vanco backed out of the deal because they too were “uncomfortable with EO’s demands?”

In December 2003, reports indicate that George Owusu came into contact with some people who later emerged as part of the technical staff when Kosmos Energy was formed. Key founding members of Kosmos had been involved in Triton Energy that operated in Indonesia and also discovered oil in Equatorial Guinea. In both Indonesia and Equatorial Guinea Triton Energy became involved in allegations of corruption. These corruption allegations were the subject of extensive investigation by the US Congress and the US Security and Exchange Commission (SEC).

E.O Group and Kosmos Energy are believed to have struck a deal to seek a contract in Ghana. Their application for a contract to explore the same block that Ennex backed out of - West Cape Three Points Block - was reported to have been approved in a record three months.

The Cape Three Points contract was the first oil exploration work for the newly formed company called Kosmos Energy. The agreement to explore the West Cape Three Points Block was announced on July 22, 2004. George Owusu was appointed Kosmos Energy’s representative in Ghana. Dr. Bawuah-Edusei was appointed Ghana’s Ambassador to Austria and Switzerland in 2004.

The questions that need to be answered are: What is it that EO Group offered besides their links to corridors of power for which they demanded to have a share in the block and have their fees paid? Why was Kosmos Energy given 86.5% share and EO Group 3.5% share for the block? Why was Bawuah-Edusei given Ambassadorial appointment to Austria and Switzerland soon after EO Group/Kosmos Energy application was approved? Was the EO Group a front for some other people? Why did Derick Oppong-Agyare sign on behalf of the EO Group? Besides EO Group’s possible links to people in power in Ghana, what else did the goup offer Kosmos for Kosmos to pay for EO Group’s shares and fees? These questions are asked because it is unusual in the oil industry that one partner will pay for the shares and fees of another.

Besides George Owusu, Derick Oppong-Agyare, Dr. Bawuah-Edusei and George Ayittey, we need to know more about Mr. Stephen Sekyere Abankwa and Mr. Thomas Manuh, Director of Operations and other former GNPC officials such as Tsatsu Tsikata as well as Daniel Opoku-Mensah, and Joe Klemesu of the Ministry of Energy.

Mr. Abankwa is a banker with Prudential Bank – the same bank believed to have given a $1 million unsecured loan to Kufuor’s son to buy an uncompleted hotel building for $3.5. J. S. Addo Consultants. He is also listed as chairman of the Board of Directors of Lushann Eternit. Lushann Eternit was based in Houston and headed by Quincy Kwesi Sintim Aboagye. A GNA report of June 19, 2002 indicated that “Steven Sekyere-Abankwa, a professional banker, was appointed [chairman of the board of GNPC] in secret several weeks ago.”

Lushann Eternit had a contract to drill oil from the Saltpond field. GNPC had 40% shares and Lushann Eternit had 60% shares in that contract Later the agreement was re-arranged to give Lushann Eternit 55% shares and GNPC 45%. Lushann Eternit was not required to pay royalties nor rental fees. In the Lushann operations on two separate occasions oil tanker carrying oil from Saltpond to TOR disappeared on highseas ending at Nigeria eventually. Reportedly, one of the tankers carried 73,000 barrels of oil valued over $2 million. The tanker was later found in Nigeria. Lushann Eternit also secured an energy contract with VRA when Dr. Wereko-Brobbey was head of the Authority. The energy contract became embroiled in a legal tussle. Lushann Eternit was represented in this case by the Akuffo Addo legal chambers. By the way, legal counsel for S. Sekyere Abankwa and Dr. Wereko-Brobbey during the Ghana@50 probe came from the same Nana Akuffo Addo chambers. It is also alleged that Nana Akuffo Addo’s legal chambers were paid a whopping sum of money to draft the divesture agreement for the sale of Ghana Telecom. Coincidence?

After almost 20 years of assembling data, analyzing and promoting the petroleum potential of Ghana at various international fora, GNPC walked away with an infinitesimal 10% share in the Jubilee oil find while EO Group walked away with 3.5% share. Was national interest sacrificed at the altar of personal interests?

The Atta-Mills administration could do Ghanaians a favor by disclosing the bidders’ identities and the oil development plan reached with the oil companies. In this instance, transparency does not refer only to revenue accruing to government but also to all stakeholders. Transparency in terms of the full disclosure of the content of all agreements our governments have signed with the oil companies will clear doubts about the country’s interest that has been sacrificed for pittance, and with the unsubstantiated promise that many people will be employed at the development phase of the oil production. How will the production affect communities in the Sharma, Ahanta, Elembelle, Egwira and Jomoro districts, and Sekondi-Takoradi Metropolitan area? What environmental and social impact assessments have been done in these communities? Next in the series will be articles that will discuss how the oil money should be used to transform the Ghanaian economy and how the oil money should be shared.

After the transparency issue, we hope to discuss the kinds of industries to be established in relation to the oil so as to transform the present economy of the country. The focus on oil-related industries to facilitate the transformation of the Ghanaian economy will be done in the context of the global energy and its geo-politics. We hope the industries that will be set up will have more backward and forward linkages to other sectors of the Ghanaian economy. After discussing industries we will tackle revenue sharing in a subsequent article on the isue of revenue sharing of the oil proceeds that will accrue to Ghana, we will be taking a critical look at the existing revenue sharing arrangements for the mining of bauxite, gold, diamonds, and manganese. We will also take a look at the EITI model for the mining industries in the country. We will take a look at revenue sharing models from Botswana (for diamonds), Alaska and Norway (for oil). We need to have this comprehensive approach in discussing the oil find in Ghana so that we do not polarize the country along NDC/NPP political acrimony; neither do we need to polarize the country along ethnic/tribal lines. Ghana is a pluralistic society where all ethnic groups live and work among each other and we have strong inter-ethnic marriages, school class mates and work partners. For example, in the cocoa growing areas of Western Region, one finds migrant farmers from all parts of the country establishing and operating cocoa farms.

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Nana Apau: