A Special Report From HANA Oil and Gas Investor · using shuttle tankers. Oil traders Vitol and Trafigura are regular buyers of Ghanaian oil, which is then mar-keted to refiners internationally

An Emerging Oil Nation

A Special Report From Oil and Gas Investor

and Global Business

Reports

G-88 OilandGasInvestor.com ▪ August 2012

The ingredients are in place for a smooth transitionto newfound prosperity, but time will tell if thecountry is successful.

GHANA

IntroductionThe discoveries made in 2007 at two offshore sites—West Cape Three Points and Deepwater Tano (nowknown as the Jubilee Fields)—heralded a seismic shiftin the history of Ghanaian oil exploration. Estimates ofoil reserves range from 800 million to 1.8 billion barrelsof light sweet crude. Most believe these numbers do notrepresent the sum of Ghana’s oil reserves; further ex-ploration projects are leading the government to theo-rize that number might reach 5 billion by 2015. This story is well known. Yet despite the fact that

Ghana’s familiarity with the extractive industriesstretches back to its ancient empire, the impact thecurrent hydrocarbon boom will have on the nation re-mains difficult to predict.

Exploration futureGhana is not an entirely new market, so perhaps can-not claim the same excitement as if oil had been foundin an entirely unexplored area. In fact, oil explorationhas existed in Ghana since 1896, but it was not untilthe establishment of the Ghana National PetroleumCorp. (GNPC) Law in 1983 that serious emphasis wasplaced upon it. Between 1898 and the late 1990s, anestimated 100 exploration wells resulted in just one sig-nificant discovery, Saltpond oil field, which remains inproduction to this day.Nevertheless, multinational interest in Ghana’s off-

shore oil potential remained, and in 2004 the GNPCsigned a Petroleum Agreement to explore the WestCape Three Points block with a consortium includingKosmos Energy acting as operator, Tullow Oil,Anadarko Petroleum, Sabre Oil and the E.O. Group. In2006, another agreement was signed with Tullow as op-erator of Deepwater Tano. On June 7, 2007, Tullow an-nounced a discovery at the Mahogany-1 well, justsouthwest of Takoradi in Ghana’s Western Region. Thewell, drilled to an overall depth of 3,826 meters, pene-trated gross reservoir sands of 271 meters and net hy-drocarbon pay of 96 meters, with a gravity of 37 degreesAPI. A further discovery made via the Hyedua-1 wellyielded similar results. Following a series of similar discoveries on the Deep-

water Tano and West Cape Three Points blocks, theconsortiums embarked on an ambitious plan to bringthe wells into production as quickly as possible. By De-cember 2010, first oil was achieved at Jubilee, makingit the fastest comprehensive full-scale development todate. The initial project, known as Phase 1, used the float-

ing production storage and offloading (FPSO) unitKwame Nkrumah, anchored off the shores of Takoradi.The vessel, named after Ghana’s first president, is a 60-by 330-meter-long tanker with the capacity to process120,000 barrels per day before exporting to refineriesusing shuttle tankers. Oil traders Vitol and Trafiguraare regular buyers of Ghanaian oil, which is then mar-keted to refiners internationally.Initial production ranged from 66,000 barrels of oil

per day (bopd) to 88,000 bopd, before levelling off at70,000 bopd by the end of 2011. These targets did fall

August 2012 ▪ OilandGasInvestor.com G-89

This report was prepared by Angela Harmantas,Pavlina Pavlova and Tom Hurst of Global Business Reports.For more information contact [email protected].

Jumper fabrication at Technip yard. (Photo courtesy of Technip)

short of expected targets of 120,000, but according toGayheart Mensah, communications manager at TullowOil, the primary reason relates to a technical difficultywith the oil well completion design. “The consequenceof this was a situation in which we were experiencingless-than-expected flow from several of the wells. Re-designs have been successfully carried out, and we arecurrently monitoring the affected wells to ensure thepositive impact of these changes,” he says.With Phase 1 complete, and all 17 wells brought on-

stream, attention is now focused on what sort of explo-ration potential remains in the region. Based oncurrent proven reserves, production from Jubilee Fieldis expected to peak from 2013-2015 at 120,000 bopdand last for 20 years.The next phase of development, Phase 1A, consists

of eight new wells: five producers, three additionalwater injectors and the expansion of the subsea net-work. The first of the Phase 1A wells is scheduled tocome onstream by mid-2012, with production ex-pected to average between 70,000 and 90,000 bopd bythe end of the year. Additionally, in August 2011 at the West Cape

Three Points block, light oil was discovered at theAkasa-1 well. The reservoirs encountered are similar inage to those discovered at Jubilee Field, and the oil

Deep Blue, the world's largest purpose-built ultra-deepwater pipelay and subsea construction vessel, anchored off the coast of Ghana. (Photo courtesyof Technip)


“Ghana was notprepared in advance forthe discovery of oil, so thecountry is still trying todevelop its resources tomeet the demand,” saysHon. Joe Oteng-Adjei,Ghana’s Minister of Energy.

samples recovered indicate 38 degrees API gravity. TheWest Cape Three Points operator, Kosmos, remains indiscussions with the government of Ghana in relation tofurther appraisal and development plans for the Ma-hogany, Teak, Banda and Akasa discoveries. “The Ju-bilee site has unique geological characteristics, and weare convinced that equivalent geological plains can befound in other parts of the world and can reap similarrewards,” says Tullow’s Mensah.

Regulatory frameworkThe regulatory framework governing Ghana’s off-

shore petroleum industry is both extensive and compli-cated, falling under a variety of domestic laws andinternational maritime treaties. This is compounded by

the fact that “Ghana was not prepared in advance forthe discovery of oil, so the country is still trying to de-velop its resources to meet the demand,” says Hon. JoeOteng-Adjei, Ghana’s Minister of Energy. The primary administrative responsibility for

Ghana’s offshore fields lies with the GNPC, whichholds both commercial and regulatory responsibility.The GNPC acts as a commercial, or private, entity withwhich international oil companies (IOCs) must enterinto a Petroleum Agreement. Under a typical agree-ment, GNPC takes a 10% initial interest, with an addi-tional 5% interest should the project becomecommercial. Exploration periods last up to seven years,at which point the contract can be renegotiated. The government takes its royalties in the form of oil,

which the GNPC then sells on the market. For exam-ple, the overall total output for the first year of opera-tion was 24,451,452 barrels. Ghana’s share, made up ofroyalties, carried and participation interests, was3,930,189 barrels representing 16.08%.

With growth, challengesIf Ghana succumbs to the resource nationalism that

has grabbed so many countries over the past couple ofyears, there is less chance that it will attract the neces-sary explorers. Ghana’s decision late last year to re-ex-amine the fiscal arrangements of the mining sectorcould well be a sensible decision in line with the Inter-national Monetary Fund’s (IMF) advice to raise taxes.Yet some are seeing it as a populist measure driven bythe upcoming elections. In 1977, The Economist coined the phrase “Dutch

Disease” to describe the effect that the 1959 discoveryof gas had on the Netherlands; notably, the decline ofother economic sectors caused by an influx of foreigncapital that strengthened the local currency and madethese other sectors less competitive against foreign im-ports.Fear of Dutch Disease affects all sub-Saharan African

nations to varying extents. With some commentatorssaying that Australia is falling into this trap, one isforced to wonder how Ghana, with industries such asmanufacturing much less developed, will cope. Other challenges may also arise. Neighboring Nige-

ria, although arguably turning a corner recently, is fa-mous for the sectarian strife brought about by the lackof benefits provided by the oil industry to its local com-munities. There have already been signs of frustrationin Ghana that the number of jobs expected has not ma-terialized.

Avoiding Dutch DiseaseGhana is much better positioned than its neighbours

to cope with these issues. Its GDP-per-capita, whichstood at $2,500 in 2010, nonetheless outperforms itsneighbors and even regional giant Nigeria. The propor-

tion of its population living below the national povertyline has fallen from 51.7% in 1992 to 39.5% in 1998and 28.5% in 2006, and undoubtedly it has fallen fur-ther since then. In 2011 it ranked 69th in TransparencyInternational’s Corruption Perceptions Index, tied withthe European nations of Italy and Slovakia and aboveLatin American powerhouse Brazil.The government has taken clear steps towards re-

sponsible management of the Jubilee discoveries withthe Petroleum Revenue Management Act, which man-dates the distribution of petroleum revenues and codi-fies clear reporting methods throughout multiple levelsof government. “Parliament has already passed a lawthat clearly states that 20% of oil and gas revenue willgo towards education and 50% will go towards sustain-able development, which is an important issue thatNigeria did not establish,” says Anthony Matthews,managing partner at Matthews Consult, a corporate law

The government has taken clearsteps towards responsible managementof the Jubilee discoveries with thePetroleum Revenue Management Act….


The government seeks to achieve a minimum of90% local content and local participation in all aspectsof the oil and gas industry value chain within a decade.

firm in Accra that works with anumber of oil and gas clients.The common symptoms of Dutch

Disease have not yet materialized.Whereas concerns about the diseasein Australia have been partly fueledby the rapid appreciation of theAustralian dollar against the U.S.dollar since 2009, the GhanaianCedi has depreciated against theU.S. dollar in the same time period.Ghana also benefits from having

a diverse economy. Fluctuations inoil prices will not have as great animpact on its GDP as, for example,they would in Angola, whose econ-omy is dependent on oil revenues tothe tune of 97%. “Ghana has one ofthe most diversified economies inAfrica, relying not solely on dia-monds or copper, but a combinationof gold, oil, cocoa and agriculture,”says Benjamin Dabrah, managingdirector at Barclays Bank Ghana.While the industry may not be

providing employment at quite therate that some hoped, local contentlaws have been a key agenda for theGhanaian government since thevery beginning. The governmentseeks to achieve a minimum of 90%local content and local participa-tion in all aspects of the oil and gasindustry value chain within adecade. The policy framework hasproposed specific targets for directemployment in oil and gas explo-ration and production. At the man-agement level, 50% of themanagement staff must be Ghana-ians from the start of petroleum ac-tivities of the licensee, with thepercentage increasing to 80%within five years.Success stories abound. “The Ju-

bilee Fields project was completedwith 45,000 Ghanaian man-hourswithout one incident onsite or onelost-time injury,” says Stephane

Sole, country manager at Technip, aFrench company that provided engi-neering and construction services atJubilee. “Foreign companies that come to

Ghana must demonstrate that theyare making a long-term commit-ment to operations in the countryand are not here just to make short-term gains,” says Phyllis Christian,chief executive officer and manag-ing consultant with ShawbellCon-sulting, which provides legal andbusiness advisory services to compa-nies in Ghana. “This is particularlyrelevant to the oil and gas sector aswe have seen many countries thathave discovered oil and been ex-ploited by multinational companiesthat have at best limited interest inbenefiting the local population. Acompany that becomes a trustedbrand will be more successful thanone that is not.”Finally, in terms of attracting in-

vestment, Ghana scores well. Itsrank on the Heritage Institute’sIndex of Economic Freedom has in-creased dramatically over the pastfive years and is now above the

Phyllis Christian, chief executive officer,ShawbellConsulting


world average. According to Hon. Joe Oteng-Adjei,Minister of Energy, the political stability that the coun-try enjoys has increased the amount of investment intothe country. “Ghana will be able to raise the necessaryinvestment that the country requires if it continues tomaintain an attractive investment climate with clearregulations for investors.”

The enabling industryFor the oil and gas industry to benefit Ghana in a

significant, sustainable and optimal way, it must notonly be a success in itself, but must also involve andsupport other segments of Ghana’s economy.A good example is the power sector. The rapid pro-

gression to full production has prompted a boom in theoil and gas industry over the past five years, increasingpressure on the national power grid’s already stretchedsystem. Ghana’s use of electricity is increasing rapidly,and the current infrastructure does not have the capac-ity to sustain this growth. The industry may be contributing to the challenges,

but it is also providing the solution. According toKweku Awotwi, chief executive officer of the VoltaRiver Authority, the company’s expansion plans in-clude using gas instead of hydroelectricity: “The VRAwill add 450 megawatts of capacity to Ghana’s national

grid over the next three to four years, and is expectedto reach a total capacity of 3,000 megawatts by 2019.To finance this growth, we hope to raise aroundUS$250 million from commercial buyers by the end ofthis year. Ghana’s energy consumption will continue togrow and gas will become an important source of power.This presents challenges but also represents an excel-lent opportunity for investors to come in and monetize


“Ghana’s energyconsumption will continue

to grow and gas willbecome an importantsource of power. This

presents challenges butalso represents an

excellent opportunity forinvestors to come in and

monetize gas powergeneration in Ghana,” says

Kweku Awotwi, chiefexecutive officer, Volta

River Authority.

gas power generation in Ghana.”Another sector benefiting from oil and gas activity is

the financial sector. Since the discovery of oil, this sec-tor’s share of GDP has risen from 7.8% in 2005 to 9.3%in 2010. The Ghanaian Stock Exchange saw market

turnover increase 224% in 2010 and its first interna-tional oil company, Tullow Oil, listed on it last year.This is not to imply that non-E&P companies have

an easy ride by relying on the oil producers. Now thatPhase 1 of production has come to a close, the industryas a whole has entered a quiet period as companies waituntil the next phase begins later this year. For servicecompanies, managing growth in order to develop sus-tainably yet remain responsive to the fluctuations ofthe oil industry is a major challenge. “The rate of pro-duction from oil fields is not reliable and the surges anddownturns have an instant impact on our business,”says Soraya Anglow, executive director at GreenlineLogistics, a Takoradi-based haulage company. “Manycompanies will make large investments or diversifytheir services anticipating growth that never comes.”Nevertheless, the booming industry offers potential

for growth, provided that service companies heed thiscautionary note. “The oil and gas sector has enabledour company to grow every year, and Wood & Associ-ates is able to choose clients carefully,” says JamesWood, managing director at Edward Mensah, Wood &Associates Ltd., an insurance brokerage.Other companies are looking to expand beyond the

borders of Ghana. “In 2012 we are expanding our oper-ations by opening offices in Liberia and Sierra Leone,where there is active oil and gas exploration,” saysFrank Tony Eshun, managing director at Damco, aworldwide provider of freight forwarding and supplychain management services.As long as the industry can responsibly manage its

newfound oil wealth, the future seems bright for thecountry. The government’s Petroleum Revenue Man-agement Act stands as a hopeful sign that, in the yearsto come, hundreds of millions of dollars in oil revenuewill go towards the economic benefit of the entirecountry. �


The Takoradi Thermal Power Station is undergoing expansion to increaseinstalled capacity by 110 megawatts through a joint venture with AbuDhabi's TAQA Energy. (Photo courtesy of VRA)

Documents

A Special Report From HANA Oil and Gas Investor · using shuttle tankers. Oil traders Vitol and Trafigura are regular buyers of Ghanaian oil, which is then mar-keted to refiners internationally