GNPC READY TO BUY OUT KOSMOS

Deep throat sources within the Ghana National Petroleum Corporation (GNPC) indicate that the state oil company, is poised to buy the Kosmos Energy stake in Ghana’s oil fields, and has already secured funding to undertake that venture. GNPC’s decision to acquire Kosmos Energy’s stake in both the Jubilee Field and Deepwater Tano oil fields stems from the decision of Kosmos to sell its interest in Ghana, at a time when oil prices are very high.

But in doing so, available documents suggests that Kosmos, the American company, in blatant disregard for Ghanaian law, is breaching the nation’s petroleum laws, agreements, and regulations.

In June this year, GNPC appointed Morgan Stanley, the premier investment bank in oil and gas, mergers and acquisitions, as their advisers in the deal. Some sources are crediting a South African bank, for being instrumental in helping GNPC raise the cash for the transaction. Government in mid July approved the phase-one plan of development for the Jubilee Field offshore Ghana, with a plan for the associated gas. First oil production is expected to begin in late 2010, at an initial level of 120,000 barrels per day. The Jubilee Field lies in West Cape Three Points (WCTP), where commercial oil was discovered in June 2007. Kosmos holds 30.875% and 18% interests in WCTP and Deepwater Tano Blocks respectively. However, under the larger Jubilee unitization field, Kosmos’ stake stands at 23.491% BREACHES BY KOSMOS In February 2009, GNPC picked up information that Kosmos Energy, was trying to sell its stake in the Jubilee Field of Ghana and Deepwater Tano. Kosmos, in breach of Ghana’s laws, had set up a data room, and for its own commercial purposes, had disclosed confidential technical data - acquired at great cost and corporate effort to GNPC - to more than twenty different companies around the world, without any prior notification to GNPC, thereby infringing on the proprietary interest of the country.

None of the other parties to the Petroleum Agreements (Tullow, Anadarko, Sabre and EO Group), were informed by Kosmos that it had allowed access to third parties of data, in which they too had a commercial interest and they only became aware of the breaches by Kosmos after GNPC had raised the issue. Even after allowing access to GNPC data by the potential buyers, Kosmos denied that it was engaged in any sale process, when asked by the Minister of Energy and GNPC in February whether they were selling.

Kosmos, however, was only to concede in April that it was exiting, describing the move as a ‘Strategic Alternative Process.’

Kosmos then informed GNPC that it had called for bids, with July 17th as deadline for the submission of bids by prospective buyers.

Meanwhile, GNPC had before then cautioned Kosmos for giving access to GNPC technical data, in clear violation of data licensing and confidentiality provisions under Ghana’s Petroleum Exploration and Production Law, PNDC Law 84. The data relating to all oil and gas activities in Ghana is the property of GNPC. This is clear from section 23(2) of the Petroleum Exploration & Production Law, 1984 (PNDC Law 84):

“All data and information obtained by a contractor or sub-contractor as a result of petroleum operations and all geological, geophysical, technical, financial and economic reports, studies, interpretations and analysis prepared by or on behalf of a contractor or sub-contractor in connection with such petroleum operations shall be the property of the Corporation.”

The obligation on Kosmos to maintain the confidentiality of the data is also expressly provided for under Ghanaian law.

Section 23(5) of the PNDC Law 84 provides:

“A contractor or sub-contractor shall keep all data acquired and any existing data released to him by the State or the Corporation confidential and shall not disclose such data to a third party without permission from the Secretary except as may otherwise be provided in accordance with the terms of a petroleum agreement or petroleum sub-contract, as the case may be.”

Failure to comply with the provisions of the Petroleum (Exploration and Production) Law (PNDC Law 84) is an offence under Ghanaian law.

In view of these clear breaches of Ghana’s petroleum laws by Kosmos Energy, while pursuing its commercial interest, GNPC advised Kosmos to halt the bidding process, since the process was flawed from the beginning.

GNPC impressed upon Kosmos to regularise the illegal transfer of data to various companies and the companies were also written to and informed of the illegality they were engaged in.

On July 16th, 2009 Kosmos agreed to stop the bidding process. GNPC sent to the various bidders who had participated in the flawed data room process, its form of data licensing and confidentiality agreements to execute, consistent with the ownership rights that it had under law, as part of the process of regularisation, and also the requisite licensing fees they were to pay to GNPC.

Even though Kosmos raised issue with the licensing agreement, claiming they had executed same with the companies involved, those so-called licensing agreements did not recognise GNPC data ownership concerns, and did not contain the necessary protective clauses.

GNPC was best placed to determine those concerns and kosmos was not its agent. Meanwhile, Article 16 (6) in each petroleum agreement required that the form of Confidentiality Agreement that should be used to protect data acquired from operations conducted under the agreements should be agreed among all the parties to the Petroleum Agreements.

The said article provides as follows:

“Any Party disclosing information or providing data to any third party under this Article shall require such person to undertake the confidentiality of such data. Promptly after the Effective Date, the Parties shall agree upon a mutually acceptable international petroleum industry standard form of confidentially agreement. Contractor shall require the execution of such agreement by a potential assignee prior to disclosure of such data; and shall provide copies of all such signed agreements to GNPC”

This provision was clearly flouted by Kosmos, as there was no pre-agreed form of the supposed Confidentiality Agreement, which they (Kosmos) provided to the third parties.

Kosmos unilaterally decided what Confidentiality Agreement they would use and failed to provide copies of the signed Confidentiality Agreements to GNPC until GNPC called them to order.

Kosmos Energy, in early October, surreptitiously announced through leading international media that it had sealed a deal with Exxon