Ghana urged to boost oil revenue through production sharing agreements

Business News of Friday, 13 March 2015

Source: out-law.com

Solomon Kwawukume GIGS

Ghana received more than $2.7 billion in total revenue from the oil sector after four years of production activities under the existing ‘modern concession system’, but the figure could have been around $6.4bn if the country had adopted production sharing agreements (PSAs), according to a new report from the Ghana Institute of Governance and Security (GIGS).

The ‘Four Years of Oil Production in Ghana’ report, signed by GIGS’ executive director David Agbee and senior research officer for oil and gas Solomon Kwawukume, called on the government to switch to PSAs when awarding contracts to foreign oil companies.

The report said “there are over 80 oil and gas producing countries in the world operating under PSAs, because (they are) the most equitable and fairer fiscal regime for sharing oil revenue with the foreign oil companies”.

The report followed the announcement of what Ghana’s energy and petroleum minister, Emmanuel Armah-Kofi Buah, said was a “very lengthy conditional approval” for Tullow Oil to drill two additional wells at the country’s Jubilee oil field to boost oil production.

Tullow had asked to drill four infill wells, which are drilled between producing wells to ensure the more efficient recovery of petroleum, the GhanaWeb news agency reported. The agency said Tullow believed the “interim measure” would prevent a possible “slump in oil production from the field in 2016”.

According to GhanaWeb, Kofi Buah told local media: “We basically think that there is real sense and justification in (Tullow’s) request. We were also guarding against what they had cautioned – a possible slump in production. So this was a safeguard. But there are clear conditions that they have to meet with the Petroleum Commission of Ghana before the permission is granted.”

Tullow, which published its annual results for 2014 last month, said its ‘Ten’ project in Ghana, relating to the Tweneboa-Enyenra-Ntomme deepwater fields some 20 kilometres west of the Jubilee field, “remains on track”. The Ten project “will increase our net West Africa oil production to over 100,000 barrels of oil per day (bopd) by the end of 2016, generating substantial cash flows and placing Tullow in a strong position when the sector recovers”, Tullow said.

Ghana’s government formally approved the Ten development plan in May 2013. The project, which is expected to cost $4.9bn, requires the drilling and completion of up to 24 development wells, which will be connected through subsea infrastructure to a floating, production, storage and offloading vessel (FPSO).

According to Tullow, the Ten project in Ghana “is 50% complete, on budget and on track for first oil in mid-2016”, with ramp up towards an FPSO facility capacity of 80,000 bopd gross around the end of 2016. Tullow said Jubilee field gross production averaged 102,000 bopd in 2014 and is forecast to average 100,000 bopd in 2015.

In December 2010, the World Bank approved a credit of $38 million to Ghana’s government to implement an oil and gas capacity building project. The support, a concessional loan with a repayment period of 35 years, including a 10 year grace period, constituted two-thirds of the total cost of the project. Other co-financiers of the project, which is due to come to an end this year, are the governments of Ghana and Norway.

Last June, the World Bank approved additional financing to support the development of Ghana’s oil and gas reserves, taking total support at that time to nearly $58m. The bank said the extra finance would help to establish a national data centre within the Petroleum Commission, an independent regulator for the oil and gas sector, and help procure laboratory equipment for Ghana’s Environmental Protection Agency.

Draft legislation aimed at improving transparency and governance in the exploration and production of oil in Ghana was approved by the country’s cabinet last year.

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