The government of Ghana has appointed Bank of America Securities (BofA) to act as the transaction advisor for its planned acquisition of a 37% interest in the Deep Water Tano Cape Three Points (DWT/CTP) concession, operated by Aker Energy Ghana Ltd, and a 70% stake in South Deepwater Tano (SDWT), operated by AGM Petroleum Ghana Ltd.
The approval on 11 August 2021 of a request to the Public Procurement Authority by the Ministry of Finance, to use the “single- source procurement method”, paved the way for the government to engage Bank of America Securities as the transaction advisor on its new policy direction in the upstream petroleum sector.
In keeping with efforts by the Finance Ministry to meet timelines to close the transaction at the end of the third quarter of 2021, the Finance Minister wrote to the Public Procurement Authority to recommend and procure the services of Bank of America Securities (BoFA) through sole sourcing as the transaction advisor.
The planned acquisition of stakes in Aker Energy Ghana Ltd and South Deepwater Tano (SDWT), which has received cabinet approval, was laid before Parliament on Monday 2 August 2021 for input and approval by the House and to mandate the ministers responsible for energy and finance to commence negotiations and agree on a purchase price with Aker Energy and AGM.
The PPA, following the Finance Ministry’s application, held a technical committee meeting of its board to respond to the request on 11 August 2021 to consider it. The PPA, after reviewing the agreement, in accordance with Section 72 (5)(a) of Act 663 as amended, has approved the request and since conveyed its decision to the Ministry of Finance.
The approval is said to be valid until 31 December 2021.
BofA, in one of the first steps to be taken under the terms of the approval, will be required to provide a fairness opinion/independent valuation and general advisory service on the transaction.
Ghana has in place 18 petroleum agreements, many of which have not had substantial work done on them as at December 2020. Out of the 18, three are producing fields and four are discoveries.
The Petroleum Exploration and Production Act 2016 (Act 919), which governs the upstream petroleum industry, gives Ghana National Petroleum Corporation (GNPC) exclusive rights to undertake its mandate in all open blocks in the country. It requires all persons and organisations wanting to undertake upstream petroleum operations in Ghana to partner with the corporation.
However, such are the declining number of majors in Ghana and the current energy transition that if no one else is willing to explore or develop, GNPC may have to develop Ghana’s deep water resources alone. To do so, GNPC must have operator capabilities and the technology.
GNPC acknowledges that it will need some capacity-building in order to become a stand-alone operator. The process will require a major oil company willing to travel on this learning route with GNPC. Partnership with AKER Energy and AGM, with proven deep water capabilities, provides such opportunity for the national oil company to develop operator capabilities.
GNPC proposes to partner with Aker Energy/AGM to develop the DWT/CTP and SDWT blocks jointly. The two companies, with their wealth of deep water experience and the requisite technology, are keen to enter into the arrangement with GNPC.
The existing discoveries by Aker Energy and AGM (the Pecan and Nyankom fields) are by far the largest in Ghana, and the only ones that can be developed as stand-alone developments. This partnership has the potential to add more than 200,000 barrels of crude oil to Ghana’s current production within the next four to five years.
GNPC Explorco will be expected to fund the acquisition, which is not likely to exceed US$1.3 billion, and the capex (2021-2024) to first oil of the Pecan Phase I Field of US$350 million, to be spread over three and a half years.
GNPC plans to rely on the Government of Ghana to provide it with a loan on commercial terms to meet its payment obligation in respect of the acquisition and contribution to capex for the development of the Pecan Phase I Field to first oil.
The total loan amount will not exceed $I.65 billion, in a worst-case scenario, if the acquisition price equalises the valued contingent resources of $1.3 billion. The loan provided by the government will be repaid at first oil through securitisation of GNPC Explorco’s crude oil.
“The Attorney General and Minister of Justice has issued a legal opinion confirming that there is no legal impediment to the securitisation of GNPC Explorco’s crude oil entitlements under the Petroleum Revenue Management Act 2011 (Act 815 as amended) and relevant laws of Ghana,” the Energy Minister’s memorandum to Parliament said.
The Energy Ministry says the transaction offers significant benefits to Ghana in its quest to develop her petroleum sector. Among other things, GNPC will build operator capacity at a critical juncture in its history to ensure that hydrocarbon resources in Ghana can be developed fully.
Another expected benefit is that Ghana’s crude oil production will increase by 140,000 to 200,000 barrels per day within three to nine years. The oil produced may be exported or refined in Ghana for domestic use, thereby reducing imports of refined products and conserve foreign exchange. An effective local content agenda can be set by GNPC. The arrangement will also produce a GNPC with operator capabilities that will provide enhanced value creation for Ghana.
GNPC Explorco will eventually recoup the capital expenditure as part of petroleum costs and the loan offered to GNPC Explorco for the transaction can be repaid at first oil through securitisation of crude oil entitlements.
In addition, tax expenditures (through exemptions) and initial concessions extended to Aker Energy/AGM will be substantially reclaimed by the Government of Ghana and assets to be acquired by GNPC Explorco will be purchased at a discount to current valuation.
Royalties, tax revenues and profits to GNPC Explorco will amount to roughly $6.5 billion in nominal value over 15 years and substantial foreign exchange inflows will accrue to Ghana, all of which will contribute to GDP growth and expanded job opportunities.