Ghana becoming attractive destination for oil investments

With uncertainty still surrounding the outcome of Nigeria’s amnesty deal with militants, the country’s low ranking in the doing business index, poor infrastructure and a controversial industry policy, oil majors are exploring other frontiers in search of stable and secure sources of crude oil.

The latest in such moves involves Exxon Mobil Corp which has agreed to buy a $4 billion stake in an oil field off the coast of Ghana, according to people involved in the deal, as the global energy giant seeks a foothold in a major new oil-producing region.

The situation in the Niger Delta has driven investment that would have ordinarily come to Nigeria to her neighbouring countries of Angola and now Ghana because of peaceful investment climate in those places.

There have been series of attacks and high level of insecurity which have led some of the projects that should have been completed years back to remain stalled.

The deal is Exxon’s first major purchase in a decade and appears to highlight that the company believes oil prices will rise over the long term. Some energy analysts have asserted that weak demand for the fuel can’t support even the current price of $70 a barrel. A spokesman for Exxon declined to comment. People briefed on the deal said that while the parties have reached a binding agreement, the deal hasn’t yet been completed and is therefore subject to change. One outstanding issue is that the Ghanaian national oil company has the right to increase its stake, according to a person involved in the transaction.

The seller is Dallas-based Kosmos Energy, which was part of a group that made the 2007 offshore discovery that is estimated to hold 1.8 billion barrels of oil. Anadarko Petroleum Corp. and Tullow Oil plc also own separate stakes in the field, known as Jubilee.

Kosmos informed bidders for its 23.5 percent stake in the field that it had “entered into an exclusive binding agreement” with Exxon, according to a person who had seen the letter.

The news of the deal was cheered by investors. In London trading Tullow rose 8.4 percent to £12.09 ($19.28). In afternoon New York trading, Anadarko was up 6.1 percent to $65.41 and Exxon was up 1.5 percent to $68.58.

But reacting to the development, Diran Fawibe, chief executive officer of International Energy Service, said the issue of corporate governance is very important to foreign investors and considering what is currently happening in Nigeria it is not impossible that oil companies might look elsewhere. He said the recent visit of President Barrack Obama to Ghana was part the strategic move by the United States to ensure that there is continuous supply of oil to their country. “US wants to make strategic move into oil industry in Ghana”

Oil companies in Nigeria, he said, are nervous with the intent Petroleum Industry Bill which the government is bent on implementing. The PIB, he said, seeks to reverse some terms of the existing contracts that have been. It is putting some level of uncertainty in the comfort level of the oil companies. Another industry operator who spoke to BusinessDay but did not want to be quoted said that the way the Chinese companies are trying to get a foothold into the Nigerian oil industry makes the government uncharitable to the traditional players in country’s oil and gas industry.

But the former president of the Nigerian Association Petroleum Exploration (NAPE), Kingsley Ojoh, said that there is no cause for alarm over the investments oil majors are making in the neighbouring countries as their reserves are still far lower than that of Nigeria.

According to him, the biggest discovery in Ghana which is Jubilee field is worth $1.5 billion to $2 billion, adding that every investor has the right to put his money where he thinks he would make the best returns.

The oil industry has become increasingly optimistic about the prospects for oil production off the upper West African coast. This summer, a separate consortium announced a discovery off Sierra Leone, leading analysts to speculate that the 1,100-kilometer stretch between the two finds could be dotted with buried sands containing precious light crude oil.

Exxon’s entry amounts to a seal of approval. “If Exxon Mobil likes this stuff, then everyone knows it’s good,” says Neil McMahon, an energy analyst with Sanford C. Bernstein.

The acquisition is the largest deal for the famously conservative company in over a decade. In the late 1990s, Exxon Corp. and Mobil Corp. combined in an $81.2 billion merger, creating the world’s largest shareholder-owned oil company.

Around the same time, Exxon bid aggressively for exploration licenses in several deepwater blocks off Angola, which was then an unproven oil region emerging from years of civil war. The deal proved prescient: Angola is now a major oil producer and in 2007 became a member of the Organisation of Petroleum Exporting Countries (OPEC).

Opening up its wallet to purchase oil assets signals a new strategic direction for Exxon. Over the last decade, the Texas behemoth has been reluctant to make any large purchases, even as its holdings of cash and repurchased stock ballooned. At midyear, it held $15.6 billion in cash, and the value of treasury shares it has bought back since 2001 were worth $173.6 billion. The Ghana purchase suggests that Exxon is moving to replenish its oil reserves by building its portfolio asset by asset, rather than by making a mega-deal. Indeed, analysts say that Exxon, with its $325 billion market capitalisation, may be too big already in the eyes of regulators to swallow another large oil company.

In addition to buying into the new West Africa oil province, Exxon is engaged in some high-profile, deepwater exploration activities off the coasts of the Philippines , Turkey , Madagascar and Greenland . It also recently backed a large oil-sands development in Canada and a gas export facility in Australia . While none of these regions is large enough to transform the company, put together they could help Exxon maintain its oil and natural gas production and reserves.

It is not clear which company would be the operator of Jubilee, which is expected to begin producing oil in 2010. Tullow has a 34.7 percent stake, larger than the share Exxon is acquiring from Kosmos. Anadarko also holds a large interest. The Ghanaian national oil company and two other companies hold small stakes.