Franklin Cudjoe: Acquisition of Aker’s block property increased, but GNPC must convince Ghanaians on price and benefits
Over the coming week, several issues related to Ghana’s oil and gas industry will dominate the airwaves. For us in Ghana, we are proud of the fact that we are a small but prosperous country, but one which has not been able to maximize its divine providence in natural resources. Many discussions have led people to complain about the way we have marked our “own goals” in the exploitation of our natural resources, timber, diamonds, bauxite, manganese and now crude oil.
Indeed, since the announcements of offshore business discoveries some 13 years ago, many of us had hopes that this was the final blessing that would change the course of Ghana’s economic history. There were dreams of massive industrial complexes, a new golden age of Ghanaian enterprise, and prosperity with poverty banished from the nation through local control, ownership and management of resources.
The truth has been a tough pill to swallow.
The oil billionaires did not materialize, nor did the dream of seismic changes in the economic fortunes of the country and its people materialize. Some oil blocks are still the subject of disputes over investments and returns, while GNPC’s own EXPLORCO has not made any major discoveries on its own or has not been able to operate independently. as a national oil exploration company as originally conceived.
You better not get bored with the technical details of deep water oil exploration, but there are some major issues that all of us Ghanaians need to understand in the future regarding the oil industry which should be important. to determine the public’s position and what we should expect from industry players in terms of Ghana’s interest.
1. Big Oil has an expiration date
Most of Ghana’s oil fields have a productive lifespan of about 20 years plus or minus for profitable exploitation. According to experts, global demand for oil will level off from 2030, with demand for oil falling from 2040. Already, the biggest oil companies like BP, Shell and others have embarked on oil programs. decarbonization, with more than 198 billion dollars already spent by the first 9 oil companies. companies on such programs. This means that the price of oil could be volatile, and since most of our finds are deep-water discoveries, they tend not to be economically viable for exploitation over the next 15-20 years. Ghana’s oil assets run the risk of being what are called ‘stranded assets’ if the nation is not able to develop the right capacity to invest heavily to harness the potential of these resources over the course of both. next decades.
2. Capacity is a big question
The question of capacity presents itself in two ways. Technical and Financial. Ghana’s petroleum resources are mainly deep water resources, which require extensive preparation in terms of equipment, systems, logistics and environmental considerations. This means that even with viable discoveries, it takes about two to three years to drill the first oil. The discoveries themselves also present technical difficulties that require innovative and efficient extraction technology to drill for oil, at a higher cost than normal. From an investor’s perspective, these present enormous risks that must be underwritten.
However, in the face of increasing investment in green energy alternatives and the need to reduce carbon emissions globally, there has been a shift in technology and research into oil and gas activity in deep water. This means that the technology available today may not experience significant changes due to the disinvestment in R&D in the sector. In short, technology has reached its peak.
With the increase in investments in alternative energy sources, it becomes difficult to find investors willing to finance capital intensive deep water projects. Globally, between 2019 and 2021 (estimate), total investment fell by around 22% in upstream oil and gas projects. In fact, the International Energy Agency predicts that spending on renewable energy in 2021 will be higher than on upstream oil and gas activity.
Simply put, investments in upstream oil and gas will be increasingly difficult to obtain. Beyond the limited value outlook, there are also perception issues related to companies supporting clean energy for the future.
3. Transparency trumps everything
Based on this information, Ghana’s decision to acquire a controlling stake in the Deep Water Tano Cape Three Points (DWTCTP) and the South Deep Water Tano (SDWT) block has become the main topic of debate. These two blocks are owned by Aker and AGM. Over the coming week, we expect the public to come together and ask the most relevant questions necessary for real transparency.
With the current investment climate and the lethargy towards deepwater oil due to high investments and changes in valuation of oil discoveries, is it the safest thing for Ghana to simply take charge of its destiny? and do everything before it is too late? The main objective of this acquisition is to enable GNPC’s Explorco to become a major player in oil exploration over the next decade.
The question is, does this add value to Ghana’s industry and fortunes? As Saudi Aramco, the Saudi Arabian Oil Company has shown, the gains for Ghana could be extremely large. It is evident that Ghana has made its own mistakes in the past when it comes to its deepwater oil transactions. For most civil society observers, the main concern is to ensure that the country gets the best value. The best value here is to determine what price is fair for the takeover of part of Aker’s stake. The resulting speculated independent valuation values the assets at $ 2 billion. The announced acquisition of $ 1.1 billion, the maximum price set by Parliament, suggests a discount. To fully convince the public, it is essential that the GNPC follow an open book policy with the public in this process.
To allay the concerns of observers, perhaps, the first test of GNPC’s determination to be a national oil company is to prove the case for speculative benefits convincingly not only to parliament but to civil society observers and government officials. Ghanaians for posterity.
4. What do we earn? At what price ?
Feeling, and owning an oil block is not the end of the game. The ultimate goal is to ensure that the earning potential of oil is really there and if Ghana really benefits from the huge investments being made beyond the cost, considering the time value of money and other alternatives. The question is whether Ghana should take all the risks and assume a uniform price for oil over the life of the field. However, by taking risks, Ghana also gets all the advantages that we have never had if the price was higher than the assumed price. The average price of oil over the past 10 to 15 years is around $ 75, not far from where it is today. It is above what we understand that the assets were valued. This can only mean that the GNPC is making the bold decision to trade short-term costs for long-term prosperity.
With a break-even point at $ 30 and the technical complexities of ultra-deep water drilling that characterize the Aker fields, there are more risk factors that need to be fully investigated. Of course, the GNPC is better placed to assess these risk factors than Parliament and Cabinet. Close dialogue with the GNPC to ensure that the GNPC performs an appropriate risk analysis and assessment is essential. We encourage the GNPC to transparently share its internal processes and keep the public up to date with developments.
It is the responsibility of the contracting parties to give details of the added value for the country in the medium and long term so that a clearer picture is seen and understood. In the interest of Ghanaians, who are the ultimate beneficiaries, a clearer breakdown of what the country gets in return above the participation percentages should be worked out in more detail for full public buy-in and support.
The good people of Ghana deserve no less. But while we’re at it, time is running out on our ability to make the most of our reserves. While we all need to make sure that Ghana is not cheated, we all also need to make sure that Explorco is supported to make this transaction a success. The biggest tragedy that Explorco pays too dearly would be if the country ends up with stranded assets. Undeveloped assets have zero value.
Clarity on the impact on the role and earnings of GNPC Explorco should be clear in the discussion to determine the exact added value to its capacity.
For the recipient, GNPC, for prospectively large capacity and capital infusion, we now expect them to enthusiastically present the merits to the right people in Ghana.