Ghana oil production to double to over 400,000bpd in next four years

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Ghana’s oil production is set to more than double over the next four years thanks to new fields coming on stream

Ghana is a relatively recent and small player in Africa’s hydrocarbon sector, and new discoveries by Norwegian start-up Aker on the Deepwater Tano Cape Three Points block could help production rise from a little less than 200,000 barrels per day (bpd) this year to about 420,000bpd by 2023, according to finance minister Ken Ofori-Atta.

Aker submitted its $4.4bn development plans this year for its Pecan field, where it argues between 600,000 and 1m barrels of oil can be found. Ghana’s oil and gas are helping position it among the continent’s fastest-growing economies, with growth forecast to reach 8.8% this year.

The government is also hopeful that US supermajor ExxonMobil and its consortium partners will find commercial quantities of oil at its Cape Three Points block. AGM Petroleum, backed by Norwegian businessman Kjell Inge Røkke’s TRG Holding, also concluded a deal this year for its exploration of the South Deepwater Tano block.

Boom or bust?

Whether oil is a boon or a curse depends in part on how the government rides the waves of boom and bust, how it uses the revenue it earns, how it supports the diversification of the economy and how it uses policy to ensure that the oil sector’s growth benefits the local private sector through contracts, partnerships and training.

Energy minister John Peter Amewu is optimistic about the country’s trajectory, telling a conference in May: “Ghana’s oil and gas industry has grown in size and in activity from a long period of zero rig to four rigs working at the same time to determine the potential of our basins. In terms of the fiscal impact, we have also seen growth from 1,400bpd in 2009/2010 to 214,000bpd in 2019. Many of our people have also been impacted through employment opportunities and service contracts […] The country now largely uses gas for most of the electricity generated […] hence the industry’s value addition to the economy has been well noted.”

He said that the government is now considering revising its regulations of the sector, pointing out weaknesses such as Ghana’s oil recovery rate of about 25%, which is much lower than in established oil-producing economies. He added that one goal is to “reward investors that believe in our country and are willing to invest and meet their work obligations.”

A tax law change on the cards?

Ghana began producing oil in December 2010 thanks to the Tullow-operated Jubilee field. That period coincided with a vast spending programme under the National Democratic Congress (NDC) government that more than doubled the government’s debt as a share of gross domestic product (GDP) between 2009 and 2017, when the New Patriotic Party government of President Nana Akufo-Addo took power.

The International Monetary Fund (IMF) predicts that debt levels will hit their peak, at 62% of GDP this year.

Meanwhile, its latest estimates are that oil revenue will reach ¢6.1bn ($1.1bn) in 2019, up from ¢2.4bn in 2018. Akufo-Addo’s government has been dealing with costly clean-ups of the banking and energy sectors. The government wrapped up its IMF bailout in April, but it has been having difficulties raising domestic tax revenue. The IMF and the Accra government agree that Ghana does not need to change its laws to get a fairer deal from its natural resources.

In an April 2019 report, the IMF explained: “There is also significant scope to make potentially large revenue gains from enforcing current legislation, for example by executing cost audits to detect possible profit shifting by companies in these sectors.”

Poor deal-making

The opposition and some of Ghana’s think tanks argue that the government is not striking good deals in the oil and gas sector. This year, opposition NDC members of parliament have been critical of the government’s negotiations in the Aker and AGM deals, saying Ghana is not getting its fair share and is foregoing the right to take on bigger equity stakes once discoveries are made.

Activists point to a lack of transparency, asking for explanations about why AGM – a company related to Aker, where Kjell Inge Røkke is also a director – has chosen Aker director David Adomakoh as its local equity partner through his firm Quad Energy. Adomakoh set up Quad in April of this year.

A local think tank, the Imani Centre for Policy and Education, says the government stands to lose billions of dollars in oil revenue with deals that are too favourable to oil companies – claims which the government denies, saying the critics do not understand the intricacies of the deals.

Ghana’s previous oil deals have all been conducted through direct negotiations with companies rather than through a competitive bidding round.

The government launched a licensing round for six blocks in October 2018, with the results of negotiations due to be announced in August of this year.

Big names like France’s Total, Italy’s Eni, Ireland’s Tullow and US-based Kosmos are in the running for blocks, with BP and ExxonMobil having since dropped out of the bidding.

The Africa Centre for Energy Policy is calling for the government to improve its oversight of the sector, pointing out that many companies that have been awarded exploration licences lack the technical capacity and financial means to carry out their work programmes. In late May, the energy ministry said that more than a dozen companies could lose their licences over failures to pay fees required by the government and failing to deliver on drilling and mapping programmes.

This could lead to a major shake-up in the sector, but may not bring about a flood of new investment because many exploration areas are yet to be de-risked.

Volta face

The government’s attempts to unlock more value from the sector to support the growth of the economy has also shifted to the Voltaian basin to the east of the country’s coast. Primarily an onshore reserve, it spans 104,000km sq, with an estimated 52% of the resources sitting in the Northern Region of the country.

The Ghana National Petroleum Corporation (GNPC) has completed its stakeholder engagements with communities likely to be affected by exploration activities, and earmarked six oil blocks, two of which are the East Keta block and the Onshore/Offshore Keta Delta block.

Two blocks have been reserved for the GNPC, which will likely seek partnership with some independent oil companies to support exploration and production. The previous government under the leadership of John Dramani Mahama awarded an exploration and production licence to Swiss African Oil Company, a subsidiary of Swiss African Petroleum AG and the consortium of GNPC and PET Volta Investments, making it the first onshore exploration deal in the country.

Some analysts put the expected reserves from the Keta basin at 100m barrels.

Local content

The previous NDC government passed a local content law in 2013 that requires a minimum 5% equity stake in hydrocarbons exploration and production activities. A local-content policy framework from 2010 has largely been met in terms of management positions and general staff, but technical positions are where the progress has been slowest.

The upstream oil sector is not a big employer, with the industry directly providing an estimated 7,000 jobs in 2015 for Ghana’s population of more than 28 million people. Amongst the government’s other targets are 90% local participation in the oil and gas value chain by 2020, a target judged by analysts from the outset as being overly ambitious due to the lack of financial capacity, ability to meet international standards and lack of technical training of many local firms.

The Petroleum Commission has launched a review of Ghana’s local content provisions that is currently ongoing.

Nonetheless, the value of contracts won by local firms has been on the rise. International oil companies are looking for local partners across the entire upstream value chain from direct participation, storage, transportation and haulage, to services and main­tenance.

The government had set up the Enterprise Development Centre in 2013 to help small Ghanaian companies to get business in the oil and gas sector, but its funding ran out. The current government has been talking about relaunching it.

Bringing benefits to locals

Local think tank Africa Centre for Energy Policy’s data shows that local firms made $154m in deals in 2014, $249m in 2015 and $489m in 2016. Seaweld Engineering, founded in 2007 by its chief executive Alfred Fafali Adagbedu, built part of the floating production, storage and offloading unit produced for the Offshore Cape Three Points development.

Other local companies involved in fabrication projects include Belmet 7, a joint venture between the UK’s Subsea 7 and the Ghanaian subsidiary of South Africa’s Belmet.

The Ghana Free Zones Authority is now looking into setting up an industrial zone targeting the oil and gas sectors at the western port of Takoradi to attract more local and international investment into the sector. There is much more potential for employment and economic benefits from manufacturing and other services targeting the industry.

The Ghanaian government wants to position the economy as a hub for West African oil and gas activity, seeking to succeed where neighbouring Nigeria has largely failed as exploration picks up in new frontier territories like Sierra Leone.

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