Oil Riches On Line as African Maritime Boundary Ruling Looms

ACCRA (Capital Markets in Africa) – Petrodollars are at stake when the International Tribunal for the Law of the Sea rules this Saturday on the maritime boundary between Ghana and Ivory Coast. The ruling will impact on an offshore area holding an estimated 2 billion barrels of oil and 1.2 trillion cubic feet of natural gas, according to Teneo Intelligence.

Here’s what you need to know ahead of this ruling:

Why A Ruling Now?
Ghana and Ivory Coast previously lacked a formal maritime boundary, adhering to a “de facto” line that’s reflected in their offshore oil activity over several decades, according to Pieter Bekker, partner at CMS Cameron McKenna Nabarro Olswang LLP.

Ghana argues that both countries delineated the boundary using the equidistance principle — a line equidistant from salient points along the coasts of the two West African nations — according to Paul Reichler, a partner at Foley Hoag LLP and counsel to Ghana in the ITLOS case. 

Ghana said Ivory Coast only questioned their “mutual respect” of the equidistance boundary after the Jubilee oil field was discovered off Ghana in 2007. After several failed rounds of negotiations since 2008, the countries submitted the dispute to ITLOS in December 2014.

Ivory Coast, in written pleadings to ITLOS, said it raised the issue of the maritime boundary in the late 1980s and early 1990s, but Ghana failed to respond. It also said a sandy, unstable coastline subject to heavy swells compromises a boundary post used to determine the border.

Counsels to Ivory Coast — Alain Pellet, emeritus professor at Paris Nanterre University, and Michel Pitron, partner at Gide, Loyrette, Nouel — declined to comment.

Likely Outcomes of Ruling?
ITLOS could adopt one of the proposals put forward by either country or produce its own. The tribunal could rule that a new equidistant line be drawn using modern technology, Reichler said. Ivory Coast’s position — called the angle bisector method or the 168.7 degree azimuth line — envisages the boundary running further to the southeast.

Companies Impacted by Ruling
While only sovereign nations are parties in the ITLOS case, the ruling could impact on the Tweneboa, Enyenra, Ntomme — or TEN field — off Ghana. Operator Tullow Oil Plc owns 47.2 percent of TEN, while Kosmos Energy Ltd. and Anadarko Petroleum Corp. both own 17 percent. Ghana National Petroleum Corp. holds 15 percent and PetroSA the rest. The Tullow-operated Jubilee field, also off Ghana, won’t be affected by the decision.

Tullow plans 13 more wells at TEN once a moratorium on drilling is lifted after the ruling. Citing legal advice, the company, its partners and the Ghanaian government “don’t expect any material change” from the ruling, Tullow Chief Executive Officer Paul McDade said in July. TEN pumped on average 48,000 barrels a day in the first half of this year, according to Tullow. Tullow and Kosmos declined to comment, while Anadarko didn’t immediately respond to a request for comment.

Risks For The Companies
If there’s no change to the border, shares of those oil companies may rally, said Al Stanton, an energy analyst at RBC Capital Markets. If the ruling modifies the border, “it all comes down to the magnitude of the change,” he said. If part of TEN gets transferred to Ivory Coast, the greatest risks will relate to taxes and receivables rather than the field’s ownership, Stanton said.

In that case, the tribunal would most likely ask both nations to reach a “negotiated settlement,” said James Hosie, an analyst at Barclays Plc. Further project delays would be unlikely since it would be in both countries’ interest to “maximize” the value of the assets, he said.

Acceptance by ITLOS of Ivory Coast’s angle-bisector method would be worst outcome for the companies and Ghana since it would annex all of TEN, according to Brendan Warn, head of international oil, gas equity research at BMO Capital Markets. Warn sees a 5 percent chance of that happening.

Risk, Rewards For Ghana, Ivory Coast
Ghana’s reliance on oil revenue to boost economic growth and ease its budget deficit would be threatened should the ruling favor Ivory Coast. “Any potential revenue loss does look quite significant and would be a short-term challenge for Ghana’s foreign currency bonds,” Simon Quijano-Evans, a strategist at Legal & General Investment Management Ltd. in London, said by phone.

Ghana Energy Minister Boakye Agyarko didn’t answer calls seeking comment.

For Ivory Coast, the oil income would be a boon after cocoa prices plunged by more than a third, hurting the world’s biggest producer of the chocolate-making ingredient.

Bruno Kone, a spokesman for Ivory Coast’s government, declined to comment before the ruling.

Impact For The Wider Region
The Ghana-Ivory Coast ruling, along with another maritime boundary case between Somalia and Kenya, might be a catalyst for more adjudications on disputed offshore and lake boundaries across Africa, said Bekker of CMS Cameron McKenna Nabarro Olswang.

Delivering The ITLOS Ruling
Judge Boualem Bouguetaia, president of the ITLOS Special Chamber, will read the judgment at 11 a.m. on Saturday in Hamburg. The ruling of the tribunal — established in 1996 under a United Nations treaty — will be final and binding, with no appeal possible. Along with Algeria’s Bouguetaia, the Special Chamber is composed of four other judges from Germany, South Korea, Ghana, France — the latter two being nominated by Ghana and Ivory Coast respectively.

Source: Bloomberg Business News