China gains ground in battle over Ghana's offshore oil

The Aug. 18 announcement that Exxon Mobil will not purchase a stake in Ghana's offshore oil fields opens the door for China, which is setting a new standard for how to woo Africa's petrol powers.

China appears poised to, once again, outmaneuver a US competitor for oil rights in Africa.

The door has opened for the China National Offshore Oil Corporation (CNOOC) to purchase a stake in Ghana's coveted offshore oil bed after the Ghanaian government pressured Kosmos Energy LLC to scrap a $4 billion deal to sell its stake to fellow Texas-based company Exxon Mobil.

Kosmos, an oil exploration specialist with scarce history deep sea drilling, will extract the crude for now. If and when it goes to sell its stake, analysts say that Ghana's government will likely push for a partnership between its own state-owned oil company and CNOOC.

The turn of events has analysts wondering what China may be offering Ghana in exchange for oil rights. In an emerging pattern, China’s state-run resource extractors have been wooing Africa's petrol powers by including the construction of power plants, ports, and roads as a part of their bids – a far cry from the fine print of a typical Exxon Mobil proposal.

What Ghana wants

"For a poor country with poor infrastructure, these are pretty tempting offers," analyst Keith Myers at Richmond Energy Partners said in a telephone interview. "It’s uncomfortable for Western oil companies, because they’ve got more competition. But competition in markets is supposed to be good, no?"

Ghana is very much a country in need of infrastructure, despite its ample supplies of gold, cocoa, and light crude oil, not to mention its increasingly skilled workforce. Most of the country’s power comes from a single rain-fed hydrodam – a gorgeous but aging relic of 1960s Nkrumahism that draws away water from its thirsty capital, Accra.

Brandishing its stamp of approval over multi-billion dollar oil block transactions may be a way for Ghana to rectify its infrastructure shortage.

Emerging oil providers

Kosmos discovered oil off Ghana’s coast in 2006 and in October 2009 agreed to sell its 23 percent stake in the Jubilee oil field to Exxon Mobil Corp. Ghana's government immediately opposed the deal, saying it wanted to purchase Kosmos’s stake through state-owned Ghana National Petroleum Corp. Kosmos announced Aug. 18 that it was nixing the deal with Exxon and would instead pull up the oil through its own coalition of small-scale drillers.

But Kosmos might not be in Ghana's seas for long. According to an unidentified source cited by the Wall Street Journal, the government has already signed a $4 billion contract to pair its Ghana National Oil Company with the CNOOC. To bring the news full circle, the China-Ghana team is looking for a third company to effectively operate the site, which the Journal reported could very well end up being…. Exxon Mobil.

In any other decade, the world’s largest oil company might have been an easy pick for the job of sinking multi-ton drills beneath the oil-flushed seabed. But this is the 2010s, the first decade of a post-America world, when the national oil companies of China, India, and Korea are prying open new side doors into the global game of swapping oil fields.

Western oil dominance fades

In 2002, Angola's government nixed a plan by Houston-based Shell Oil Company to sell shares of an oil field to India’s national driller, awarding the plot to a Chinese state firm, instead. Shortly thereafter, the government blocked a plan by Houston-based Marathon Oil Corporation to sell some of its own drilling rights in the oil-rich country. East African countries such as Uganda, Kenya, Mozambique, and Somalia are all active in the search for crude as well.

African nations, it seems, are flexing more muscle during negotiations over oil rights, according to Alex Vines, an Africa analyst at London-based think tank Chatham House.

"What [the failed Kosmos-Exxon deal] really shows is African agency, the ability of a host country to decide better what it wants to do with its own resources," Mr. Vines said in a telephone interview.

And China is stepping up where US companies fall short.

“The days when you thought a Western [oil company] could call the shots are long gone," says Vines.