Tsikata Agreed GNPC Owed SG $40m (2) ... In Memo To GNPC Board On December 15, 1998!
Yesterday The New Crusading GUIDE published an agreement between Socite Generale and GNPC dated September 25, 1998which clearly stipulated that GNPC owed SG $40m as at that date and which Mr.Tsatsu tsikata , in his capacity as the Chief executive Officer (CEO) of GNPC had signed onto as �ACCEPTED and AGREED� .
WE promised to publish further materials evidencing the $40m indebtedness of GNPC to SG. That pledge is being redeemed today by our publication of a memorandum by Mr. Tsikata which was addressed to the Board of Directors of GNPC, in which Mr. Tsikata made mention of the $40m indebtedness for the first time to the GNPC Board. �At that time of the closure of the positions, the decline in overall value was at the level of us$35,203,700.00. However, as GNPC had earlier received premium income of almost us$5 million the total amount due to Societe Generale came to us$40,181,115�, Mr. Tsikata intimated to the GNPC Board in his memo dated December 15, 1998.
Mr. Tsikata explained that that situation had arisen because �With the continuing uncertainty over the actual start-up date for production. Societe Generale would not expand the credit line to address this price situation pending the start-up of production. They required the positions to be closed and this was done in July, 1998�. Published for the perusal of readers and the general public on page 2 of today�s edition of The New Crusading GUIDE is the full text of the December 15, 1998 memorandum. Please read and stay tuned for more detail.
FROM TSATSU TSIKATA TO GNPC BOARD
�.December 15, 1998
Societe General (SG) is one among many banks that GNPC has held extensive discussions and negotiations with in respect of the Tano Project and other corporate finance requirements. In connection with the US Exim Bank financing for the Tano Project they were among the four banks whose proposals for financing the 15 per cent equity portion of the US Exim financing were closely studied.
In the course of discussions with them the issue of establishing a framework for protecting the projected revenues from the anticipated oil and gas production from the Tano fields was a key concern. Resulting from these discussions agreement was reached in September, 1996 for commencing a series of transactions whereby GNPC would obtain price protection for the future production from the Tano fields.
These transactions began in October, 1996 and involved:
*(A) THE PURCHASE BY GNPC OF PUT OPTIONS TO PROVIDE A MINIMUM PRICE FOR FUTURE PRODUCTION FROM THE TANO FIELDS. THE STRIP OF PUT OPTIONS COVERED A PERIOD FROM 1998 WHEN PRODUCTION START-UP WAS ANTICIPATED UP TO 2012;
*(B)�� In order to generate the required premium to purchase these put options another set of transactions was entered into whereby GNPC sold options.
If the premium generated was in excess of what was required GNPC was able to receive payment from Societe Generale for its cash flow.
Both sets of transactions had to be managed on an ongoing basis in the light of market conditions. Thus, if for example, options purchased by GNPC gained value it was possible to sell them back and realise the value with a view to re-purchasing the options under the right circumstances. If the options lost value but there was the prospect of their regaining value, they could be retained so long as the credit limit of Societe Generale was not exceeded.
In order to manage the positions constant contact was established between GNPC�s Market Research Department and Societe Generale�s Commodities Group in Paris. Personnel of the Market Research Department were sent for training programmes arranged by Societe Generale. A Risk Management Committee chaired by the Chief Executive or in his absence the Executive Director (Marketing) or Ag. Head (Finance & Administration) was also established to hold periodic review of the positions.
With the signing of the US Exim Bank facility for the Tano Fields Development in November, 1996 and the understanding that it was intended to re-finance the facility in order to remove the sovereign guarantee once commercial operations started, it was all the more vital that steps be taken to provide assurance about project cashflows. Discussions with the various banks, including Societe Generale, indicated that such price risk management would be essential for raising the financing to replace the US Exim Bank facility. At the time, there was no anticipation that there would be any restriction on the use of the Exim Bank facility as a result of future developments in the economy.
THERE WAS ALSO NO REASON TO BELIEVE THAT THE PROJECTED START-UP DATE FOR PRODUCTION FROM THE TANO FIELDS WOULD NOT BE MET. AS THINGS TURNED OUT, HOWEVER, BY THE END OF 1997, IT WAS CLEAR THAT THE PROJECTED START-UP DATE OF JANUARY, 1998 WAS NOT BEING REALISED AND THAT THE PHYSICAL TRANSACTIONS INTENDED TO UNDERLIE THE POSITIONS WERE NOT GOING TO BE IN PLACE. THE END OF 1997 WAS ALSO WHEN OIL PROCESS BEGAN TO DECLINE SIGNIFICANTLY.
As oil prices declined from then through 1998 the value of the options through which premium has been generated declined. This decline was to a much greater extent than the increase in value of the put options purchased by GNPC for the simple reason that future oil prices for the later period did not decline as rapidly as the front end of the price curve. With the continuing uncertainty over the actual start-up date for production. Societe Generale would not expand the credit line to address this price situation pending the start-up of production. They required the positions to be closed and this was done in July, 1998.
A number of meetings were held with Societe Generale to address the issue. Societe Generale expressed a willingness to re-finance the payment over three (3) years. However, their proposed interest costs of LIBOR + 4 per cent seemed unduly high. Considering the fact that receivables from future charter of the drillship, Discoverer 511 were to be the security for this re-financing, it seemed preferable to explore the extension of the existing pre-financing on the drillship which Lazard Freres of New York had undertaken at a cost of LIBOR + 1%. Societe Generale agreed to a meeting with Lazard Freres to assess this possibility and a meeting was indeed held in October during which Lazard Freres said that they could undertake such an extension of the existing financing arrangements once the new charter was in place. This seemed acceptable to Societe Generale at the time.
Discussions regarding the new charter for the D511 began in September when Transocean, the existing charter intimated that their programme in Mexico was likely to end in November, 1998. This was communicated to Societe Generale. However, the Pernex well has proceeded for a longer period than anticipated. A number of times, the drilling operations had to be suspended because of hurricanes in the Gulf of Mexico (No hurricane actually hit the operational area but precautions were taken once there were hurricane watches in the Gulf of Mexico are). These delays were notified to Societe Generale.
When the letter from Societe Generale was sent to the Minister of Finance, we were notified after the fact. The Director in London, Mr. William Nagle, with whom we had been dealing, informed us that his bosses in Paris had decided to take this step and that the matter had been taken out of his hands. It was the same letter which was also addressed separately to the Minister of Mines and Energy. Since the letter, Mr. Nagle has been to Ghana to hold discussions at the Ministry of Finance and with the Vice President. I have also briefed the Vice President and the Minister of Finance who wrote a response to the letter he had received from Societe Generale. He indicated in his response that he has asked me to discuss the matter with the Societe Generale Chief Executive in order to find a mutually satisfactory solution.
I had the meeting with the Societe Generale Chief Executive in Paris on 4th December, 1998. In the discussions in Paris I emphasised that it was always our intention to resolve the issue at a corporate level based on the framework that had been discussed. It appeared that Societe Generale thought that a letter to Government would yield a quicker solution at the same time as they were in the discussions with us on the corporate solution involving the re-financing secured with receivables from a new D511 charter. Societe Generale acknowledged that these were corporate obligations with no government commitment involved.
By the time of the meeting the Ghanaian Chronicle had published the first article on the subject. Societe Generale were vehement in denying that they had anything to do with the newspaper story. They did say that someone who claimed to be calling from GNPC had rang to ask questions but there had been no information provided him.
Further negotiations are going on with Societe Generale on the basis of the re-financing proposed by them.
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