Kosmic joke

Exxon's $4 billion Kosmos offer rejected

(This was my debut Alrroya newspaper column published in 2010. That I subsequently wrote and produced an oil industry luncheon video introducing George W. Bush as a "great American leader" goes to show how easily and cheaply a writer can be bought. It took a long time to find photos of W. where he didn't look like a stupid deer caught in the headlights.)


In October 2009, I noted ExxonMobil's offer to buy the privately-held Kosmos Energy 24% interest in Ghana's Jubilee oil field. Based on Tullow maps and well data, I deduced that Exxon was using a medium term $100 per barrel price model to determine how much to bid for the Kosmos stake. No surprise, it matched oil forecasts by T. Boone Pickens, Goldman Sachs, and former CIBC World Markets chief economist Jeff Rubin.

Kosmos promptly accepted the Exxon bid, in a straightforward move to monetize their Jubilee asset. They were out of pocket less than $1 billion funded by Warburg Pincus and Blackstone Capital Partners. Exxon's $4 billion offer would give them a $3 billion profit and zero their risk of development and doing business in Ghana. Kosmos previously reduced their risk by farming out stakes to Anadarko and Tullow, who did the actual work of drilling and discovery. Clever little Dallas-based Kosmos had achieved what all E&P "minnows" hope to do -- get a license, bring in experienced operators, then flip it to a fat supermajor.

Except the wheels fell off and Exxon's offer died.

Who, why, and what killed the acquisition is a convoluted story. It starts at a racetrack in Dallas involving Texas politicians, a Federal class-action settlement, and a Monte Carlo head fake that propelled attorney James C. Musselman from obscurity to VIP status at a White House state dinner for Ghana's President John Agyekum Kufour.

Musselman got his start in the oil business as an investor in Triton Energy. He became its CEO in 1998 when Tom Hicks, owner of the Texas Rangers baseball team and chairman of private-equity firm Hicks Muse Tate & Furst, bought a big speculative stake in troubled Triton.

Musselman's job was to pump up reserves and sell the company, which he successfully did in 2001, after reporting an operating loss of $383 million. Hess paid a 50% premium to Triton shareholders to acquire the Ceiba oil field in Equatorial Guinea. Musselman and his team were deemed geniuses, and they briefly worked for Hess, until Hess had to declare a $530 million impairment charge and write down 70% of the Triton reserves they paid $3 billion to own.

But that's not how it played in Ghana, nor in Dallas where Musselman and his ex-Triton team founded a new company, Kosmos Energy, in 2003. They were touted as West Africa experts with a new project negotiated by Craig S. Glick, who left Hunt Oil with inside knowledge of  the West Cape Three Points block in Ghana. Hunt acquired 2D seismic data totalling 2,225 km and 264 square kilometres of 3D. They drilled and logged two deepwater wells. Those wells were immediately east of the future Jubilee discovery. When Hunt Oil quit Ghana in 2001, the story gets a little bizarre, clogged in multiple layers of state secrets.

Before he became President of the United States, Gov. George W. Bush was co-owner of the Texas Rangers, which he sold to Hicks. After he left the White House, Bush bought a house in the exclusive Preston Hollow neighborhood of Dallas, down the street from Musselman's $6 million mansion. It seems likely that they knew each other in 2003, when Bush met Ghanaian President John Agyekum Kufour in Dakar and urged him to do business with US backing.

Two of Kufour's trusted associates laid the groundwork for a deal with Kosmos. Dr. Kwame Barwuah Edusei, a medical doctor practicing in Washington DC, and George Owusu, a self-styled Ghanaian oil broker living in Houston, formed a company called E-O, rather hilariously registered at a chicken farm near Accra. Kosmos and E-O entered into a written agreement signed by Edusei for E-O and Glick for Kosmos, covering future exploration, production and other revenue: Kosmos 86.5%, Ghana National Petroleum Company 10%, E-O 3.5%. The agreement stated that Kosmos would carry E-O and additionally pay them $250,000 upfront. Kufour appointed Edusei ambassador to Switzerland in August 2004 (to open a numbered account?) and later appointed him Ghana’s ambassador to the White House. Owusu became Kosmos Energy's Ghana representative. Owusu's Kosmos salary, perks and other graft may have totalled $2 million before he ran afoul of anti-corruption due diligence by Anadarko.

President Kufour, after serving two four-year terms, had to step down in 2009. He and his cronies did everything possible to grease the wheels for Kosmos, Anadarko, and Tullow -- signing off on low royalties, 100% off-loading for export, and token involvement of GNPC. President George Bush and First Lady Laura Bush made a 3-day goodwill visit to Ghana in February 2008, meeting all 30 tribal chiefs, promising US development aid, and stumping for Kufour's New Patriotic Party, hoping to upstage and deflate perennial opposition presidential candidate John Atta Mills. In September 2008 there was a gala White House state dinner to honor President Kufour and Kosmos boss Jim Musselman. In Ghana, NPP newspapers and radio stations celebrated their fabulous new oil wealth, thanks to Kufour and Kosmos.

All for nought. Social democrat and former national tax commissioner John Atta Mills was elected president of Ghana by a razor-thin majority, after an odd ballot re-run in a remote rural constituency. His first act in office was to appoint a special advisor on energy policy, Tsatsu Tsikata, long-serving patriarch of GNPC who was put in prison and tried for "causing financial loss to the state" when Kufour came to power in 2000. His trial lasted eight years and Tsikata was pronounced guilty, then pardoned when Mills won the 2009 presidential runoff.

Tsikata flew to Houston and visited Anadarko to pick up their Corrupt Foreign Practices file on E-O and Kosmos Ghana. Then he flew to New York and retained Morgan Stanley as financial advisors. Next on the agenda was a $10 billion line of credit from China. George Owusu's and E-O's assets were seized. Kosmos was put under investigation. In 2010, Tsikata flew to China six times, negotiating with CNOOC.

When Kosmos filed a request to sell its interest in Jubilee to Exxon, the government's reaction was slow and comical. In due course, the Energy Ministry said, they would vet ExxonMobil and consider their suitability to partner a Ghanaian oil company. We intend to produce Jubilee gas first, before oil production, because our country needs more electric generation, and we will be working with world class government engineering experts from Trinidad and Tobago. Your $4 billion Exxon deal is imaginary and illegal.

The only buyer Kosmos Energy could talk to was Tsatsu Tsikata.


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