Unusual news from Africa today. Devon Energy – a mid-size U.S. independent, that has a large Canadian subsidiary – has sold off its assets in Equatorial Guinea as part of a divestiture strategy, getting $2.2 billion (U.S.) for them. So far, so normal.
But, there are two weird things about this deal. The first is the buyer – GEPetrol, Equatorial Guinea's state oil company. It's pretty abnormal for a national oil company (NOC) in sub-Saharan Africa to make such an acquisition – in fact, it's hard to think of one similar.
The second is the price: $2.2-billion is a lot of money to pay for Devon's assets, which consist of a minority stake in one oil field and two undeveloped oil blocks. Total production – 20,000 barrels of oil a day. So GEPetrol is paying $110,000 per flowing barrel, which seems pretty high; the going rate in Canada for conventional oil is somewhere over $50,000 per flowing barrel.
Yes, oil is at over $100 a barrel. And if you are GEPetrol and you have money to spend, you have few alternatives but to buy what assets come up in Equatorial Guinea's territorial waters – likely inflating the price that Devon could charge. And another factor is tax: while the headline price is $2.2-billion, after tax Devon will only receive $1.7-billion. So that's $500-million that presumably won't leave Equatorial Guinea at all.
Nevertheless, this is an unusual incident. African national oil companies have an unrivalled reputation for corruption and incompetence, and it's extremely rare to see one actually spending substantial amounts of money on expanding its domestic portfolio of assets. It's even stranger to see it happening in Equatorial Guinea, the poster child for squandered African oil wealth.
For example, in 2004, a U.S. Senate investigation into Washington D.C.-based Riggs Bank, showed that Equatorial Guinea President Teodoro Obiang Nguema – who has a rather unsavoury reputation - and his family have siphoned off millions of dollars from the country's oil revenues.
Where did the missing dollars go? Well, in part, towards funding the playboy lifestyle of his son, Teodorin Nguema Obiang. According to a 2006 article in the Times of London, Teodorin has homes in Los Angeles, Buenos Aires and Paris, spent over $2-million on cars in Cape Town in a single weekend, and fancies himself as a record mogul, founding his own rap label (TNO Entertainment). He has also dated Eve, the Grammy-award winning singer.
