Pricing Of Jubilee Oil

GNPC GETS

BEST DEAL

…And KOSMOS Worst

By J. Ato Kobbie, Managing Editor

Even before the actual selling price of Ghana’s first cargo of crude oil from

the Jubilee Field is known to the last dollar at the close of business on

Wednesday, March 16th, The Business Analyst can state that the Ghana National

Petroleum Corporation (GNPC) got the best deal from all the cargoes lifted from

the field, with Kosmos Energy being the worst performer.

The national oil company is expected to rake home for itself and the country

around $0.20 as premium on each of the 995,259 barrels of crude oil that Vitol

SA and Cirrus Energy lifted on its behalf on March 9, 2011.

The worst deal so far, has come from Kosmos Energy, who sold the second Jubilee

Oil cargo of 989,360 barrels lifted by Trafigura on January 20, 2011 to an Exxon

refinery at a discount of $2.00 to dated Brent.

Although the first cargo of 649,064 barrels of crude from the Jubilee Field,

jointly owned by Tullow Ghana Limited and the EO Group, was lifted by Vitol SA

on January 5, 2011 and sold at a discount of $0.50 to dated Brent, against the

backdrop of that being the maiden supply that was not surprising.

This paper gathered that the pricing formula agreed among the Jubilee partners

provided for a $2.50 per barrel discount as the worst case pricing scenario for

the maiden cargo, which went to Tullow Oil.

This was because of the uncertainties and risks associated with first cargoes,

even though the gravity of the Jubilee Oil at 37 API puts it in the top range

and should ordinarily attract a premium over Brent crude price.

Anadarko, which lifted its own cargo, together with that of Sabre Oil and Gas on

February 9, 2011 got the second best deal, selling at a premium of around $0.10

p/b to dated Brent on the 996,708 barrels it sold.

With world crude oil price hovering above the 100-dollar mark, the corporation

has already announced at a press conference that it expected not less than

$110-million from its high grade cargo, if the pricing trend that prevailed at

the time of lifting continued.

The corporation has promised to disclose the actual price, which would be

computed on a five-day Brent average after the March 9lifting date, plus the

negotiated premium.

The end of the first round of lifting of crude oil from the Jubilee Field, and

expected revenue, has already brought to the fore questions of transparency and

the need for vigilance as the partners have been reluctant to disclose

information regarding how much they are selling the product.

Until the national oil company disclosed at a press conference it held last

week, disclosing who had lifted what cargo and for whom, information related to

the earlier transactions, such as quantities and pricing, had not been

forthcoming.

Even though GNPC drew the veil off the quantities and trading companies that

lifted on behalf of the partners, the national oil company fell short of

disclosing how much exactly each cargo was sold for.

Article 11.7 of the Petroleum Agreement, spells out pricing of crude oil from

Ghana’s oilfields based on Market Price and Article 11.8 requires that

contractors who lifted crude oil (in this case the Jubilee Partners), ‘shall

notify GNPC of the market Price determined by it for its respective lifting

during each Quarter not later than thirty (30) days after the end of that

Quarter.’

Where there is discrepancy in the Market Price, the parties would reconcile to

arrive at the standard price.

Ghana’s expected tax revenue from its oil resource is to be computed on the

excess of revenue over a threshold that allowed for the partners to recoup their

investments over a stipulated period (about five years).

The higher the price realized from the crude oil sold, the higher the investment

recovery rate and the more taxes that would accrue to the state and vice versa.

thebusinessanalystgh@gmail.com