GNPC Outdoors ‘Secret Strategy’

…To Outwit Prez. Mills, Kosmos & ExxonMobil
While The Chinese Wait In The Wings After Collapse Of BP/‘Dream Team’ Deal. September 1, 2010 Is Target Date!

The ‘hawks’ and ‘ideological dinosaurs’ who have been pulling the strings from behind the scenes within the Ghana National Petroleum Corporation (GNPC) relative to the latter’s confused, ill-defined initiative to buy the shares/stake of Kosmos Energy in the Jubilee Oil Field, have outdoored a ‘new secret strategy’ tailored to prolong and/or scuttle the on-going negotiations between the Government of Ghana (GoG) Team appointed by President Mills and the US Oil giant, ExxonMobil.

A confidential ‘strategy paper’ authored by the ‘hawks’ and ‘ideological dinosaurs’ who appear not to be enthused about the apparent U-turn effected by the President’s decision to invite ExxonMobil “to provide a comprehensive proposal for study on whether it seeks the utmost interest of Ghanaians should it be given the opportunity to acquire shares of Kosmos Energy in the Jubilee Field”, which was intercepted by our roving scouts, concedes that the Sales and Purchase Agreement (SPA) executed between Kosmos and ExxonMobil which has been placed before the Government of Ghana (GoG) for its consent, has changed the environment in which GNPC’s strategy must play out.

“It is no longer advisable for GNPC, to submit an offer to Kosmos before 1st September 2010. The SPA does not allow Kosmos to engage in any negotiations with GNPC while the SPA remains in force. On the contrary, it obliges both ExxonMobil and Kosmos to do all they reasonably can to implement the ExxonMobil purchase for as long as the SPA remains in force”, posited the ‘faceless authors’ of the GNPC ‘strategy paper’.

According to the ‘faceless authors’, their analysis of the SPA had led them to conclude that if the GNPC were to submit an offer letter to Kosmos before the expiry of the SPA the following events would occur:

“*(a) Kosmos would notify GNPC that it is unable to consider the offer while the SPA remains in force;

“*(b) Kosmos would be required (happily or not) to furnish a copy of the offer and supporting documents to ExxonMobil. ExxonMobil would have options (either legal or tactical) which would otherwise not be available to it and whose exercise would not help GNPC achieve its objectives (even if they may not ultimately help ExxonMobil either). Apart from seeing GNPC’s terms, ExxonMobil would also have been presented with what in ExxonMobil’s eyes, would be the most compelling evidence to support allegations of “tortious interference” that ExxonMobil could ever hope to fall into its lap. (It is difficult to see how ExxonMobil could accuse GNPC of tortious interference). This may give ExxonMobil unnecessary leverage against those (including GNPC advisers) who are used to playing hard but expected to play within the rules”.

The authors of the GNPC’s ‘secret strategy paper’ indicated that while it was undeniably frustrating that Kosmos and GNPC cannot negotiate while the Kosmos/ExxonMobile SPA was in place, the SPA sends a second important signal.

They noted that Kosmos has the right to terminate the SPA on September 1, 2010 if certain “conditions” have not been satisfied by that date. The “conditions”, they underscored include:

*(a) The grant of consent to the transactions by the Government and the GNPC;

* (b) The release of existing parent company guarantees in relation to the Petroleum Agreements and substitution of replacement guarantees;

*(c) Waiver of pre-emption or failure to deliver counter –notice of pre-emption by contractor parties to the DWT Petroleum Agreement within the required period; and

*(d) receipt by ExxonMobil of a legal opinion from a named firm regarding Foreign Corrupt Practices Act issues in a form and substance satisfactory to ExxonMobil.

The authors calculated that if Kosmos exercises its termination right come September, then, absent any “side agreement” with ExxonMobil that GNPC has not seen, Kosmos would be free to entertain an offer from; and conclude a sale to, GNPC at any time afterwards.

They conceded that the potential existence of “side agreements” was important for two reasons, the first being that the SPA itself suggests that there are “side agreements” (or “Transaction Documents” as they are defined) which have not been shown to the GNPC.

While recommending that the Minister of Energy should request for those documents at his meeting with ExxonMobil, the authors speculated that “it is highly likely ExxonMobil would have been smart enough to retain some “Exclusivity” mechanism which allows it to leverage their position even if the SPA terminates. “Exclusivity” could have been the price ExxonMobil secured in return for agreeing to “rescue” Kosmos from its funding crisis in October 2009”.

They said even if the Exclusivity Agreement between Kosmos and ExxonMobil was resuscitated, it was unlikely not to include the “fiduciary out” exclusion GNPC focused on before. They further anticipated that Kosmos may likely become free to negotiate with GNPC (provided GNPC submits a sufficiently attractive offer) on or after 1st September, 2010.

“THE MINISTER AND GNPC SHOULD CONSIDER FORMALLY REQUESTING KOSMOS TO TERMINATE THE SPA AFTER 1ST SEPTEMBER 2010. IF KOSMOS ARE TO TERMINATE THE SPA WHEN THAT RIGHT ARISES, THEY MAY NEED TO BE SATISFIED THAT GNPC CAN DELIVER ON A FULLY TERMED, ATTRACTIVE OFFER. THERE IS AN OBVIOUS TENSION HERE BETWEEN GNPC’S DESIRE TO PROVE THIS TO KOSMOS AND THEIR OBLIGATION TO DISCLOSE ANY OFFER TO EXXONMOBIL WHILE THE SPA EXISTS. HOW GNPC TACKLES THIS WILL DEPEND ON KOSMOS’ RESPONSE TO THE MINISTER AND GNPC’S REQUEST TO TERMINATE THE SPA. GNPC CAN LEGITIMATELY EXPECT KOSMOS TO FIGURE OUT A WAY IN WHICH THEY CAN GET COMFORTABLE ENOUGH TO TERMINATE WITHOUT EXPOSING THEMSELVES TO LITIGATION FROM EXXONMOBIL SO LONG AS WE HAVE A STRONG, CREDIBLE PROPOSAL. THE STRONGER GNPC’S POSITION, THE MORE LIKELY KOSMOS IS TO FIND A WAY THROUGH”, articulated the authors of the ‘secret strategy paper’.

Significantly, the ‘secret strategy paper’ gave a background account of the ‘protracted tango’ that had ensued between the GNPC on one hand and Kosmos and ExxonMobil on the other, prior to the submission of the June 28, 2010 Kosmos/ExxonMobil SPA to Government for its consent on June 29, 2010.

The GNPC ‘strategy paper’ indicated that throughout April and May 2010, GNPC had pursued an “unsolicited offer to Kosmos”, which had been initiated in consultation with “the Presidential Oversight Committee”, within the context of its earlier strategy of a “Dream Team combining the entrepreneurial and financial strength of a Chinese State-owned international with the technical strength of a World Class Deepwater Operator”.

This approach, according to the GNPC ‘strategy paper’, “would provide the best fit and alignment with GNPC’s own strategy of acquiring deepwater operational capabilities within the shortest possible time and values”, and also “ensure respect for Ghana’s laws and interests, understanding of the needs and perspectives of an emerging national oil company supporting a national development agenda and prioritization of the development of Ghana’s hydrocarbon potential for material benefit once Kosmos stake had been secured”.

It was revealed that as part of the so-called “Dream Team” strategy, one of the entities that GNPC had been in discussion with was British Petroleum (BP) which, according to the authors, “had developed a holistic strategy which included other assets in Ghana and beyond, combined with a fast paced development of GNPC’s operating capabilities.”

“IN ADDITION BP HAD FULLY ASSESSED THE EXXONMOBIL LEGAL POSITION AND DEVELOPED A STRATEGY FOR CONFRONTING THIS FRONTALLY WITH GNPC AND OUR CN00C. UNFORTUNATELY, THE OIL SPILL IN THE GULF OF MEXICO ESCALATED TO SUCH AN EXTENT THAT BOTH GNPC AND BP RECOGNIZED THAT A PARTNERSHIP IN JUBILEE AT THIS TIME WAS AN UNREALISTIC PROPOSITION”, disclosed the authors.

They intimated that the elimination of BP as a potential partner caused GNPC to shift in late May (2010) from a tripartite approach to Kosmos to one in which GNPC would:

“*(a) Finalise Chinese funding for a Kosmos Offer;

“*(b) Submit a solo offer to Kosmos “as soon as possible”, and

“*(c) (Only after Kosmos has been acquired) pursue entry discussions with a “blue-chip” deepwater operator (both Statoil and Shell have approached GNPC recently)”.

A bombshell was then dropped by the authors to the effect that “ACCORDINGLY, GNPC HAS NOW CONCLUDED AN MOU WITH CN00C DESIGNED TO GIVE GNPC A FULL 12 MONTHS, IF NEEDED, TO CONCLUDE DISCUSSIONS WITH THE SELECTED BLUE-CHIP DEEPWATER OPERATOR”.

They continued: “Having settled on a structure GNPC needed to go through the processes required to complete a fully financed offer package. For example in the absence of any information about the price agreed between Kosmos and ExxonMobil, GNPC had to work with its advisors and partners to determine what price to include in its offer to Kosmos. This was not a simple matter. On the one hand if GNPC failed to match the (unknown) ExxonMobil terms, its offer would probably be misused by Kosmos and ExxonMobil in their propaganda. On the other hand GNPC obviously did not want to pay more than the asset was worth and had reason to doubt the conventional wisdom regarding a price in the mid 4 billion dollar range. GNPC also needed to satisfy its lenders and potential partners about its commercial prudence”.

Asked to comment on the contents of the ‘secret strategy paper’, an Insider in the Oil Industry wondered how the GNPC could have struck deals and signed MOUs with BP and the Chinese (CN00C) without first showing them data on the Jubilee Oil Field.

“The revelations in the ‘strategy paper’ point to the hypocrisy and double standards of the GNPC Management and the Ministry of Energy. Indeed all the major players in global oil industry as well as the Jubilee Partners and some International financial entities have been aware of the activities of GNPC in the last 15 months or so. It is known and documented that they (GNPC), without consulting its Jubilee partners, have shown data to BP, the Chinese, Koreans, Brazilians, etc, all in a desperate attempt to secure finance for a ‘Kosmos buy-out’. And yet these same people have been crying foul and wolf against Kosmos. Hypocrisy of the highest order”, observed the Insider who requested anonymity. Stay tuned...