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Ghana’s first act in a long drama

Posted on Friday, 29 October 2010 13:16

The case of Ghana. Part of our investigation into African mineral deals, The Struggle Underground.

Read more about Guinea’s master plan, Kinshasa’s contract competition, and Uganda’s negotiating positions.

Ghanaians and outsiders are puzzling over how a local row over an oil block blew up into a geopolitical contest in the Jubilee field, Africa’s biggest offshore oil field. Ghana’s defenders point out that the World Bank and the International Monetary Fund, after a rigorous diagnosis of the country’s economy, offered more than $2.5bn in medium-term financing to President John Atta Mills’ government in 2009.

After the business-minded government under President John Kufuor took power in 2000, it started working with two of its supporters, businessman George Owusu and medical doctor Kwame Bawuah-Edusei, who headed the EO Group. In turn, EO brought in the US-based Kosmos Energy, which is run by a blunt Texan oil man and friend of President George W. Bush, Jim Musselman.

EO got Kosmos a stake in an oil block and kept a 3.5% share for itself, the costs of which Kosmos would meet. Kufuor strongly approved of ?Kosmos and gave it excellent terms: its tax liabilities on the West Cape Three Points block were at least $3.8bn less than those secured by Tullow on the adjoining Deepwater Tano block.

The real problem started when Kufuor’s New Patriotic Party (NPP) lost power in the 2008 elections and the National Democratic Congress returned to power under President Mills. In mid-2009, Kosmos announced that it wanted to sell its stake in the Jubilee field before Ghana started to export oil commercially. But its style jarred with the new government, and the two locked horns in a dispute over access to state oil data. In September 2009, Kosmos announced that it had secured a “confidential and binding” agreement to sell its stake in Jubilee to ExxonMobil for $4.3bn.

Senior Ghana National Petroleum Corporation and ruling party officials were furious. Kosmos had not consulted any Ghanaian officials during these negotiations. In addition, two strong supporters of the opposition NPP stood to gain $300m from the sale of their stake alongside the Kosmos-Exxon deal.

Energy Minister Joe Oteng-Adjei insisted the government would block Kosmos’ sale to ExxonMobil. The US companies were determined to go ahead and warned all their rival companies off the patch with lawyers’ letters. Kosmos, backed by a couple of US private equity companies, wanted to pay back its investors, and Exxon Mobil saw a great opportunity for a bargain-priced stake in Africa’s latest oil territory.

ExxonMobil finally blinked in mid-August when it announced it was abandoning its bid for the Jubilee field. That will not be the end of the saga but will reopen the bidding and more politically charged negotiations between Kosmos and the Mills ?government.

Read more about Ghana, the new oil star of West Africa.

This article was first published in the October-November 2010 edition of The Africa Report. Watch out for our next edition, published in late November, for a special investment guide to Ghana.

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