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GHANA: Energy groups lured by Ghana’s Kosmos

by Carola HoyosFinancial Times
June 4th, 2009

Big international energy groups and state-owned oil companies from China and India are circling Kosmos Energy for its Ghanaian oilfield assets, which have been valued at $3bn-$6bn by analysts.

The sale of Kosmos, a small exploration company financially backed by Warburg Pincus and Blackstone, is one of the industry’s most closely watched deals. It will influence the future of companies such as UK-listed Tullow and Anadarko of the US, and could open an oil corridor off the west African coast, stretching as far north-west as Sierra Leone.

Neil McMahon, analyst at Sanford Bernstein, says the Kosmos deal could be a stepping stone for more mergers and acquisitions in the sector. “The outcome will be very important for the evolution of the oil industry over the next few years,” he said.

“This basin is one of the few in the last 10 years that has yielded large discoveries ... More could come as the geology reveals itself through new seismic and drilling data.”

Big oil companies missed Ghana’s potential as they concentrated exploration efforts on Nigeria and São Tomé e Príncipe, the island nation in the Gulf of Guinea. They have struggled to increase production because most unexploited oil deposits are in countries that keep their fields off limits.

Ghana’s potential oil wealth will not have gone unnoticed by the White House. Barack Obama, US president, chose the country over Nigeria as a stop on his July tour of Africa.

But Washington has competition from China and India. China National Offshore Oil Corporation , the Chinese state oil company, and ONGC of India have indicated they will bid, sources close to the companies say. A steady oil supply from Ghana, a relatively stable country, would satisfy both governments’ aim to secure fuel supplies.

But these are lean times and several companies thought to be evaluating the assets, including BP and Royal Dutch Shell, may find it difficult to make such an acquisition without risking too high a gearing, too little cash at hand and a dividend policy that becomes too expensive to maintain.

ExxonMobil of the US, which accumulated a $40bn cash pile during the high oil price years and could afford the assets, may find them too small to make a difference to its total production profile.

Much will depend on what kind of upside a company sees in the Ghanaian field, say several people who have seen the data on the assets. But bankers and oil executives caution that it is difficult to tell how many companies have accessed Kosmos’s data room with a serious intention of bidding.

Other concerns include the new Ghanaian administration, which could dramatically worsen the generous economic terms Kosmos enjoys once a new company enters the fray. At least one oil executive who seriously looked at the assets cites the uncertain politics, and the possibility that the field’s production could peak and decline more quickly than expected, as reasons his company will not bid.

Ghana is likely to favour a large international oil company that brings expertise to develop the field, rather than a cash-rich Chinese or Indian group.

If a company does stump up the money, it will be largely because it believes Kosmos’s geological data suggest its Ghanaian fields are the beginning of an exciting new frontier.





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