GNPC Positions To Become Lead Operator

Taking Commanding Height of Ghana’s Oil Resource

…Seeks JV Partner for WCTP, Other blocks

By J. Ato Kobbie, Managing Editor

[The Business Analyst, Accra - January, 18, 2012]

The Ghana National Petroleum Corporation (GNPC) is bracing itself to play a lead operating role in most of the blocks in which it participates, based on an accelerated growth strategy.

This is founded on the four pillars of “capacity building and expanding activities; replacing and growing reserves; efficient capitalization and optimum participation; and catalyzing local content development.”

The strategy, which is to enable GNPC develop the necessary capability to become an excellent Operator that can independently manage oil and gas operations in the medium to long-term, was revealed by Nana Boakye Asafu-Adjaye, Chief Executive Officer (CEO) of the national oil company, at the recently held 63rd Annual New Year School.

To this end, GNPC is already in search of a partner to further explore the West Cape Three Points (WCTP) block, which was relinquished by Kosmos Energy at the end of its contract last year.

The Petroleum Agreement covering the WCTP block, which came to an end on July 22, 2011 provides for Kosmos to relinquish the undeveloped area of the block upon expiration of the contract, subject to the right of first refusal to retain those areas for further exploration.

What this means is that in the event that Kosmos Energy is able to match an offer that GNPC finds acceptable, Kosmos would have an edge over the other company, based on its right of first refusal.

The Business Analyst gathered that GNPC has contracted Zebra Data Services, U.K., which operates a virtual (online) data room. The EZ Data room of Zebra Data Services specializes in marketing data worldwide.

Seismic data on WCTP would be put up in the data room for view by interested companies.

GNPC intends to partner an international player who has a proven technical competence to operate in deepwater, with financial capability and a proven track record, to explore the block.

“You can’t take a novice and throw him into the deepwater,” Mr. Anthony Assiamah of GNPC told The Business Analyst.

To access highlights of the data on the site, interested companies would be given access code, after signing a confidentiality agreement. Those who are interested based on the highlights viewed would then contact GNPC for a more detailed data.

Companies who would want to advance the discussions would then follow up, leading to an offer if they are interested, for evaluation.

The national oil company, which all oil companies are by law required to partner in their exploration activities, has hitherto been participating at a 10% carried interest, which many Ghanaians have decried, particularly after the discovery of significant oil in 2007.

With its new strategy of becoming an Operator would mean GNPC must acquire the majority interest in the block.

The WCTP block, under the operatorship of Kosmos Energy, returned a historic find in the Mahogany 1 well in 2007, followed by another discovery, in the adjoining Deepwater Tano block, operated by Tullow Oil.

Under a Unitisation and Unit Operating Agreement (UUOA) signed among the partners in the WCTP block and Deepwater Tano block, Operated by Tullow Oil, on July 13, 2009, with the Ministry of Energy, the partners agreed to develop the two discoveries jointly to optimize resource recovery.

The unitized area, which is being developed together as the Jubilee Field, straddles the two blocks and is presently producing at about 85,000 barrels of oil per day, against a projection of 120,000 barrels/day by the second half of last year, representing a shortfall of 35,000 b/d.

It would be recalled that The Business Analyst had reported in its July 6, 2011 edition (See West Cape Three Points to Attract Better Terms below.) that the country was on the verge of improving on the terms of the WCTP block, as the exploration phase of the petroleum agreement covering that block came to an end on July 22, 2011.

The paper had cited disclosures by Kosmos, based on its petroleum agreement, to the US Securities and Exchange Commission (SEC) prior to enlisting on the New York Stock Exchange (NYSE), that it would be required to ‘relinquish the parts of the WCTP Block that we have not declared a discovery area or a development area over.’”

The U.S. oil independent had reported that “We and the other block partners have a right to negotiate a new petroleum agreement with respect to these undeveloped parts of the WCTP Block, but we cannot assure you that any such new agreement will either be entered into or be on the same terms as the current WCTP Petroleum Agreement.”

The petroleum agreement covering WCTP Block, like other petroleum agreements, extends for a period of 30 years. It however, has a seven-year exploration phase, during which exploration requirements are to be met and plan of development for discovered fields agreed on.

The Business Analyst had reported also that based on reports (e.g. by WoodMckenzie) revealing an inferior fiscal terms of the Petroleum Agreement on WCTP, compared with the Tullow-operated Deepwater Tano Petroleum Agreement, Ghana was going to improve on the terms of a future agreement covering that block.

Kosmos Energy operated WCTP block with 30.875% interest, the same as Anadarko, with Tullow Ghana Limited having improved its stake to 26.496% after acquiring the E.O. Group’s holdings, whilst Ghana National Petroleum Corporation (GNPC) increased its holdings from 10.0% to 2.5% on commerciality and Sabre Oil and Gas Holdings having a 1.854% working interest.

We reproduce below our story first published on July 6th, 2011

Flashback:

West Cape Three Points Block To Attract Better Terms

By J. Ato Kobbie, Managing Editor

The wish by many that Ghana’s oil blocks undergo competitive bidding to maximize their values to the country is soon to become a reality, as the petroleum agreement licensing out the West Cape Three Points (WCTP) block to Kosmos Energy comes to an end this month, with some international oil companies (IOCs) already positioning themselves to bid for it.

The country derives its principal benefits under petroleum agreements, from its earnings through royalties and additional oil entitlements, during production of crude oil.

The petroleum agreement covering WCTP was signed on 22nd July, 2004, for a seven-year period. Article 4 of the agreement provides that, at the end of the period, the contractor (Kosmos) automatically relinquishes areas that are not deemed to be ‘Discovery, Development or Production areas, except where a force majeure (an act of God) had altered the time frame.

Sources close to an ongoing tripartite discussion among the Ministry of Energy, Ghana National Petroleum Corporation (GNPC) and Kosmos Energy, indicate that the WCTP block Operator, has not been able to meet all of its obligations under the agreement regarding its discovered areas.

The Contractor is, however, to hold on to discoveries over which it has an approved appraisal plan or where commerciality has been declared, a plan of development.

Odum, Mahogany East, Teak 1, Teak 2, as well as Banda, are some of the discoveries that have been made within the WCTP block.

Sources say while appraisal on the Odum discovery has been completed, with some of the other areas having plans under discussion, there is no plan yet for the Banda discovery.

“We and the other block partners have a right to negotiate a new petroleum agreement with respect to these undeveloped parts of the WCTP Block, but we cannot assure you that any such new agreement will either be entered into or be on the same terms as the current WCTP Petroleum Agreement,” Kosmos had reported to the US Securities and Exchange Commission (SEC) in its filing on January 13th this year.

The Business Analyst has gathered that, already some IOCs, including one of the big players in the industry, Chevron, are trotting along the sidelines, positioning themselves to put up a fight for that block, in a competition that appears likely to earn Ghana the best of offers yet for its oil fields.

What appears to be keeping these interested companies at bay is their inability to access seismic data covering the block and allied ones, which is necessary to inform them about what value to place on it.

Under the confidentiality provisions of the petroleum agreement and also under the terms of the Petroleum Exploration and Production Law, PNDC Law 84 of, 1984, Kosmos Energy, and GNPC, the parties to the agreement, are to agree on terms for disclosing data covering the block to third parties.

Other partners with stake in the WCTP block are Tullow Oil, Anadarko, Sabre Oil and Gas, and the EO Group.

The terms of the WCTP petroleum agreement has been described as over generous by analysts, with a WoodMckenzie report revealing an inferior fiscal terms when compared with the Tullow-operated Deepwater Tano Petroleum Agreement, in a manner that leaves Ghana worse off by billions of dollars over the lifespan of the Jubilee Field.

Kosmos Energy operates the WCTP Block with 30.875% interest, the same as Anadarko, with Tullow Ghana Limited having 22.896% interest, whilst GNPC increased its holdings from 10.0% to 12.5% on commerciality, with the EO Group having 3.5%,whilst Sabre Oil and Gas Holdings has 1.854% working interest.

Kosmos is also a partner with 18% interest in the Tullow Ghana Limited operated (49.95%) DT Block, which also has Anadarko WCTP (18%), GNPC (10%), and the Sabre Oil and Gas Holdings Limited (4.05%) as partners.

Under an Unitisation and Unit Operating Agreement (UUOA) signed among the Jubilee Partners on July 13, 2009 with the Ministry of Energy, GNPC and the partners in the two blocks, the discovered fields have been jointly developed to optimize resource recovery.

Tullow Oil became the Unit Operator, with Kosmos Energy as Technical operator. The Jubilee field is currently producing crude oil at a little over 70,000 barrels/day and straddles the two WCTP and DT blocks. The field is expected to peak at 120,000 barrels per day by the end of the third quarter of this year.

In June 2007, the Mahogany-1 well, which was Kosmos’ first exploration well within its WCTP block discovered oil in large commercial quantities. Two months later, in August, the Hyedua-1 well, drilled just across the block in Tullow Oil’s Deepwater Tano block also struck oil in sizeable quantities. The two fields were unitized in 2008 for joint development as the Jubilee Field, after successful appraisals.

The contract for the construction of the floating production, storage and offloading vessel Kwame Nkrumah MV 21 for the Jubilee Field was awarded in 2008 and arrived in June 2010. Technical Production commenced from the field started on November 28, 2010 and the Jubilee Field was officially commissioned for First Oil on December 15 of the same year.

Vigorous promotional activities embarked on in the 1990s by the national oil company, GNPC, after close to a century of erratic exploration activities in Ghana’s oil fields, paid off with the arrival of many IOCs that embarked on a vigorous exploration work during that period.

Companies currently at various stages of activities in Ghana’s oil fields include, Afren Plc, Anadarko, Challenger Minerals, Eni, E.O. Group, Hess Exploration, Kosmos, Lukoil Overseas, Lushann Eternit, Mitsui Group, Oranto, Sabre Oil, Stone Energy, Tap Oil, Tullow Oil, Vanco Energy, and Vitol Upstream. J.atokobbie@yahoo.com

First published in the July 6 - 12, 2011 edition of The Business Analyst.