ExxonMobil said earlier this week it was giving up its attempt to get a stake in the Jubilee field that has been touted as a game-changer for Ghana. The share purchase agreement with Kosmos Energy had emerged last October, but it was met with fierce opposition by the Ghanaian government, which had been left out of the $4bn venture.
The US’ biggest oil company declined to explain its decision to terminate the share purchase agreement, noting Exxon does not discuss the details of commercial agreements.
But the reasons for Exxon’s withdraw are clear. Ghana’s interference in attempts to close the deal smack of the interventionist policies of oil-rich countries such as Venezuela. And Exxon has always been one to insist it plays by the rules or does not play at all. It is a policy that has cost the company access to key areas and money in the ground, when nationalization or some other change in policy leads to new rules.
That Exxon has been forced to withdraw from its agreement is certainly bad news for the company. The Jubilee field is believed to be part of a new “oil coast” stretching along west Africa. The field is expected to pump 120,000 barrels a day by the middle of next year. And it represented a foothold in Ghana, which in recent months has been blessed with other discoveries. Tullow of the UK said last month its Owo field might be as oil rich as Jubilee. In the words of Raoul LeBlanc, a senior director at PFC Energy, the consultancy:
Ghana is the anchor position in a new, high potential, deep-water basin. Exxon looks for – and needs – leadership positions in big basins, which are becoming rare as established ones, such as Nigeria or Kazakaistan, become more expensive or put their assets off limits. Ghana was seen as a nice strong position that could grow into something meaningful.
But the unraveling of the deal also is bad news for Ghana. This whole Jubilee deal issue could turn off international oil companies who, like Exxon, are searching for big finds. The country needs this outside investment to bring it the expertise and help it gain the experience to grow its oil assets. And companies had been eager to pay to get in.
Ghana has been thought of as particularly important as Brazil does not appear to be willing to give outsiders leadership positions in its highly-touted pre-salt play. And Iraq – another big area – has terms so tough it is difficult to get anything meaningful out, according to analysts.
However, companies are not going to rush in to invest if they feel the rug can be pulled out from under them at any moment. If they don’t have the right to buy and sell stakes in fields without interference by the government, they will hesitate to get involved. History has shown such meddling makes running the fields less productive and limits investment.
Perhaps Ghana – like many other oil-rich countries – must learn this the hard way.