Tullow, Kosmos make good start with Ghana project disclosures

…But Think Tank criticises their behaviour towards Ghana EITI process

 Jubilee platform operator Tullow Plc and leading partner Kosmos Energy may be feeling good after receiving plaudits from the Africa Centre for Energy Policy (ACEP), a think tank, for making “significant disclosures” about their operations in Ghana.

Kosmos made its disclosures to the New York Stock Exchange where it is listed while Tullow on its part made disclosures in its 2012 Corporate Responsibility Report and the 2012 Annual Report and Account.

ACEP said in a statement issued in Accra on last week that “…whilst there exists significant material differences in the disclosures between the companies, the disclosures in our view mark an important development in corporate governance in Ghana’s oil and gas industry, a practice that must be commended.”

At the same time, however, ACEP has scolded Tullow and Kosmos for uncooperative behaviour towards Ghanaian authorities in the preparation of the first Ghana Extractive Industries Transparency Initiative (GHEITI) report for the oil and gas sector for 2010 and 2011.

ACEP said “we are worried by the observation in the 2010/2011 Ghana Extractive Industries Transparency Initiative (GHEITI) Report on Oil and Gas that the oil companies did not cooperate with the Independent Aggregator during the reconciliation process by their unwillingness to provide information beyond the payments to the Government.”

Disclosures abroad

Tullow and Kosmos hold commanding stakes in the Jubilee Oil field – the platform where Ghana is currently producing an estimated 110,000 barrels of oil per day. Official information indicates Tullow holds 36.5 per cent stake in the Jubilee field while Kosmos Energy clasps 23.49 per cent.

According to ACEP, Kosmos Energy reported to the New York Stock Exchange on sales volume totalling 5,905,000 barrels of oil, sales revenue of US$667,951,000 generated at an average sales price of US$113.12 per barrel of oil.

In addition, Kosmos disclosed that its average production cost was US$16.11 per barrel of oil, bringing its total cost and expenses to US$638,053,000. The company’s income before Income Tax came to US$34,156,000.

For its part, Tullow Oil reported royalties and carried participating interests to the tune of 464,051 barrels of crude oil. According to the company, it paid corporate tax of US$40,664,000, other taxes amounting to US$52,843,000 and made other government payments totalling US$314,000.

Furthermore, Tullow’s 2012 Annual Report and Account show that the Irish firm sold its oil entitlements at an average price of US$108 per barrels of oil and raked in sales revenue of US$958,600,000.

Critique

Expressing a view on the two firms’ disclosures, ACEP said in the statement signed by its Executive Director,  Mohammed Amin Adam, that “In our analysis of the disclosures, we found that Kosmos Energy’s report focused more on the fundamental project economics that could support independent verification of payments to the Government of Ghana; but Tullow Oil provided information on how much has actually been paid to the Government, both of which are important requirements for deepening transparency and accountability in the oil and gas industry.”

Even so, “We also noticed that the disclosures were not made project-by-project basis. This might be due to lack of ring-fencing rule in Ghana’s regulatory regime.”

It also faulted the pair for the manner in which they handled their participation in the GHEITI process, mentioning that the Aggregator indicated that even though his terms of reference for the assignment however required the Reconciler to analyse and comment on some details including operating cost, capital allowance computation, prices and liftings by the Ghana National Corporation (GNPC) and the International Oil Companies (IOCs), the companies were unwilling to provide these relevant information.

“We also do not understand why the companies could provide this information to institutions abroad whilst undermining institutions in their host operation nations. This is unacceptable and undermines Ghana’s institutions mandated to uphold the integrity of the petroleum industry,” ACEP critiqued.

Going forward, ACEP indicated that it expected that future disclosures should reflect project-by-project reporting as the Jubilee field pair move towards the development of their second project, the TEN Fields. “This will not only show the revenue performance of each project but will more importantly provide a useful basis for tax assessment and the determination of Additional Oil Entitlements (AOE).”

Concluding, ACEP drew inspiration from the development of implementing rules for the United States Dodd Frank Reforms Act and the endorsement of the final version of the European Union’s Accounting and Transparency Directives, saying: “we are confident that the disclosure requirements by these oil companies will become more comprehensive and comprehensible, without compromising national disclosure standards.”

Meanwhile, government has assured of its commitment to legislating on the EITI process, which could mean companies cannot pick and choose the information they wish to disclose.

At the 6th Global EITI Conference convened in Sydney, Australia from May 23-24, Hon. Cassiel Ato Forson, a Deputy Minister of Finance delivered a statement on behalf of Government of Ghana, saying “as we seek to back the EITI by law, disclosure of all extractive sector contracts will become mandatory.”

He explained that this means that Ghana Government intends to be transparent not only on extractive sector revenue management but throughout the entire value chain of the extractive industry from the negotiation of contracts to issues of revenue utilization and sustainable development.

Story also published on Pg. 17 of June 4-7th Edition of The Independent newspaper under the heading "Tullow, Kosmos Under Fire."