Fate of Foreign Oil Investors In Limbo Amid Ghana-Cote d'Ivoire Border Dispute

A maritime boundary dispute between Ghana and Côte d’Ivoire that erupted this month casts doubt on future international oil claims near the contested area and raises questions about the reaction of foreign investors to the uncertainty.

Earlier this month, Côte d’Ivoire appealed to the United Nations to delineate its offshore border with Ghana, a bid seen as controversial since Russia’s Lukoil discovered oil reserves only days before off Ghana’s coast. Ghana’s Jubilee field will also begin operations later this year and give the country commercial oil-producer status.

Ghana found oil in 2006 and analysts estimate it has one billion to two billion barrels in proven oil reserves; Côte d’Ivoire is probably in the same range or has slightly less oil.

The Ghanaian parliament passed a boundary commission bill this week, according to media reports, which have also asserted that Côte d’Ivoire does not expect discussions to regress into a fight over oil rights. The commission would outline the country’s land borders and mark the limits of its maritime boundaries.

While an actual war may not be looming between the African neighbors over the rightful ownership of offshore resources, potential “unclear title right at the margin” will most certainly be a problem, argued Peter Pham, director of the Africa Project at the New York-based National Committee on American Foreign Policy and an associate professor at James Madison University in Harrisonburg, Virginia.

“I think both sides have a stake in settling this, because if there’s uncertainty, no one is going to invest anywhere near the disputed area for fear of having bought a license that’s worthless,” Pham cautioned.

A change of “one or two degrees” with respect to where a line is drawn out to sea can have a “huge impact 100 miles offshore,” and neither side will be in a position to profit from resources found there, Pham told OilPrice.com.

The Côte d’Ivoire challenge is being closely monitored by U.S. companies.  The West African region, located in an Atlantic basin, is close to the United States and attracts U.S. companies, said Sebastian Spio-Garbrah, a New York-based analyst covering Africa at the Eurasia Group, a research and consulting firm.

The outcome of the maritime boundary row will also have a bearing on a number of small and mid-sized companies on both sides, Spio-Garbrah said.  Firms like Kosmos Energy, Exxon, Total and Tullow Oil are all “sort of concerned” about the conflict, he said.

For the most part, though, oil investments have been made in blocks that are "unambiguously in one country’s economic zone or another,” Pham noted.  But Ghana will move into a tricky “crunch” mode when most blocks have been spoken for and the location of the rest are questionable, he said, adding “that’s going to delay the sales on both sides.”

At the moment, the Ghanaian government has reached this key stage as far as licensing is concerned, Pham said.  Both countries are operating off the “same ambiguous maps that France and Great Britain left” following the Congress of Berlin in the 1800s, he said. The conference outlined the rules of Europe’s conquest of Africa.

Once the Ghana border commission stakes out a claim, Accra will have to compare it to its neighbour’s claim, which also “needs to be better articulated,” he argued. From there, he noted, the two can figure out the exact area in dispute and start to negotiate.

At this point, Pham added, it is “nearly impossible” to say which argument is legitimate.

But the dispute will “get very expensive,” he predicted, and how long it takes to resolve will depend on the "political will on both sides.”

Africa, more accustomed to fighting over the movement of people across borders, now has more at stake as oil blocks are at risk, he told OilPrice.com.

Indeed, there is a “scramble” for natural resources in this “latent belt of oil” stretching from Sierra Leona eastward to Nigeria, noted Eurasia Group’s Spio-Garbrah, adding this region may one day become a major producer.

The disagreement between Ghana and Côte d’Ivoire foreshadows the sort of conflicts likely to take place in West Africa, as more oil wealth is unearthed in “marginal areas” and in countries that petroleum firms have not yet explored, said Spio-Garbrah.
These disputes, however, may simply become legal conflicts, he said, rather than slide into all-out war.

Anaylsys by. Fawzia Sheikh for OilPrice.com