Ghana-The Latest Front in the Scramble for Africa’s Oil

Posted by Staff Writer on Monday, October 12, 2009 at 8:39pm.

China is accelerating its efforts to secure access to more of Africa’s oil by teaming its China National Offshore Oil Corp. (NYSE ADR: CEO) with the Ghana National Petroleum Corp. (GNPC) in an effort to bid for a stake in Ghana’s deep sea oil discovery off the West African coast.

The announcement was a surprise on the heals of a declaration by a Kosmos Energy LLC executive that the U.S. oil explorer had entered into a binding and exclusive agreement to transfer its assets(23.5% of Jubilee Oil Field) in Ghana to Exxon Mobil Corp. for a reported $4 billion.

Kosmos is partially owned by private equity firms Blackstone Group LP (NYSE: BX) and Warburg Pincus and requires permission from the Government of Ghana to sell its stake in the Jubilee Oil Field.

Ghana is Africa’s newest oil producer and with the discovery of Jubilee Oil Field just off the coast in 2007. Exports are set begin in 2010.

The Jubilee field is estimated to hold 1.8 billion barrels of oil and will likely produce 120,000 barrels of sweet crude a day, according to London-based Tullow Oil Plc, project operator and 34.7 percent owner of Jubilee.

Other owners include: Anadarko Petroleum Corp., 23.49 percent; Sabre Oil & Gas, 2.81 percent; EO Group, 1.75 percent; and Ghana National Petroleum Corp., 13.75 percent.

The rival bid for Kosmo’s stake, which is expected to be about the same amount or slightly above Exxon Mobil’s offer could turn into a lengthy legal and political battle.

Kosmos feels it can sell the stake to whomever it wants, as long as the Government of Ghana gives consent.

But the Exxon-Kosmos deal riles the Ghanaian government and GNPC, which had been trying to increase its 13.75% stake in the field.

“We have formally notified (Kosmos) that we do not recognize whatever agreement they reached with Exxon — we told them we disapprove of it because it’s illegal,” a GNPC source said to Reuters.

The source said Kosmos had violated Ghanaian laws when it shared confidential exploration data with over 20 companies for its own commercial purposes without giving the GNPC any prior notification.

According to Reuters, there is also a possibility of the Ghanaian government bidding on the block without the financial backing of the Chinese Government.

However, there is doubt the government has the capital to close a deal this large on its own. There is also the belief among some industry analysts that Ghanaian government may end up backing the Exxon Mobil deal.

If not derailed by the Chinese and/or Ghanaian government this could be Exxon Mobil’s first major acquisition in 10 years giving it a strong anchor in the region.

Some of the other players battling for Africa’s resources include Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), Chevron Corp. (NYSE: CVX), Total SA (NYSE: TOT) and the Chinese government backed CNOOC.

Guinea, Nigeria, Sao Tome and Principe, Angola, Sudan, Chad, Congo and South Africa are some other countries in Sub Saharan Africa that could benefit from increased foreign investment targeting their oil reserves.

Given the amount of oil on the continent it seems as though its time for African Governments to accelerate their capacity and infrastructure development in an effort to manage their own resources.

Brazil, with several of the largest new discoveries, recently said it would create a new national oil company to develop their new deep water-fields instead of leasing them to foreign companies. African Governments should position themselves to do the same.

Contries like Nigeria have created local content laws placing quotas on foreign owned firms to use local supply firms and labor while holding the lease to blocks of Nigerian oil fields. While Western companies have cited a lack of local capacity to fill key supply and management roles, their is great political will to ensure those quotas are met.   We’ll explore the success and failures of this policy in a future article.

In the meantime, stay tuned for more on the sale of the Kosmos block as we continue to cover this story on AfricaBusinessSource.com