Four years of oil production in Ghana
In 1983, the government of Ghana established the 100 percent state-owned state oil company Ghana National Petroleum Corporation (GNPC) to promote hydrocarbon exploration and production of country’s entire petroleum and natural gas reserves. GNPC prospected in ten offshore blocks between Ada along the eastern international border of Ghana and in the Tano River Basin and in the Keta Basin.
Ghana’s Jubilee oilfield which contains up to 3 billion barrels of sweet crude oil was discovered in 2007, among the many other oilfields in Ghana. The government further indicated that the country could expand its reserves up to 5 billion barrels of oil in reserves within a few years.
Jubilee field came online in 2010, and production in Ghana has since increased from 7,000 barrels per day (bbl/d) in 2009 to 104,000 bbl/d in 2014. Tullow Oil, the operator of the Jubilee field, is also developing the offshore Tweneboa, Enyenra, and Ntomm (TEN) project. The TEN project is expected to come online in mid-2016 and eventually reach a peak output of 80,000 bbl/d of crude oil and 50 million cubic feet per day (MMcf/d) of natural gas.
Oil revenues flow
The expected annual tremendous inflow of capital and revenue from crude oil and natural gas production into the Ghana economy began from the first quarter of 2011 when Ghana started producing crude oil and natural gas in commercial quantities.
Before the inflow of revenue, government had initiated steps to ensure that Ghana avoid the pitfalls that other petroleum-rich nations had unfortunately fallen into. This culminated in the passage of the Petroleum Revenue Management Act (PRMA) by the Ghanaian Parliament in April 2011 with the stated goal of providing a framework for the collection, allocation and management of petroleum revenue in a responsible, transparent, accountable and sustainable manner.
Ghana’s Petroleum Revenue Management Act, 2011 (Act 815) lays down the key parameters for the accounting, collecting, reporting and utilization of petroleum revenues due the Government of Ghana.
The bill outlines clear rules for petroleum revenue inflows and outflows, establishing a Petroleum Holding Fund (PHF) to receive and disburse all petroleum revenues. From this holding fund, 70 percent of oil revenues are to be disbursed to the government budget, with the remaining 30 percent deposited in two newly created funds, the Heritage and Stabilisation funds, respectively.
The objective of the Ghana Stabilization Fund is to sustain public expenditure capacity during periods of unanticipated revenue shortfalls, while the Ghana Heritage Fund provides an endowment to support development for future generations when Ghana’s petroleum resources are depleted. In percentage terms, the Stabilization and Heritage funds are to receive 21 percent and 9 percent of total oil revenues, respectively.
At present, the Ghana Stabilization Fund and the Ghana Heritage Fund manage more than $450 million.
World Bank show interest in public oversight
In 2014, the World Bank Board of Executive Directors approved additional financing of US$19.80 million to support the development of Ghana’s rich oil and gas reserves. This brings the total support to US$ 57.80 million. The objectives of the project are first, to help improve public management and regulatory capacity and enhance sector transparency by strengthening the institutions managing and monitoring the sector; and second, support the development of indigenous technical and professional skills needed by the petroleum sector through support to selected educational institutions.
“The discovery of deep oil and gas reserves has resulted in a rapid expansion of the oil and gas industry in Ghana, which has the potential to bring significant economic development opportunities to the country,” said Yusupha Crookes, World Bank Country Director for Ghana.
The funds will help to establish a national data center within the Petroleum Commission of Ghana (PCG), an independent regulator for the oil and gas sector and also help procure laboratory equipment for Ghana’s Environmental Protection Agency (EPA) to strengthen them to monitor and analyze the impacts of oil and gas operations on marine and shoreline ecosystems.
Reality check
Data from GNPC, Petroleum Receipts and Distribution Reports published by the Ministry of Finance and Economic Planning and Petroleum Holding Fund, Ghana Petroleum Funds, Semi-Annual Report by Bank of Ghana show that under the hybrid concession system, the country produced and exported 124,947,373 barrels of oil valued at $13,496,815,231 within the 4 years.
Ghana was allotted a total of 21,428, 281 barrels made of royalties, carried and participation interests valued $2,305,440,869; corporate taxes of US$448,379,663 and surface rentals of $1,264,419 were paid by the foreign oil companies all totaling $2,755,084,951 representing 21 percent of total production revenue and gross yearly average revenue of $688,771,237.75.
Some right groups in Ghana, however, believe that the 21,428,281 barrels allotted Ghana in the 4 years is below Ghana’s 1 year requirement of about 24 million barrels and are thus advocating the adoption of Production Sharing Agreement (PSA).
The IMF loan puzzle
Ghana is struggling to translate oil money into development gains. While infrastructure development has been slow, the cost of living has surged. However, the city is looking better with hotels, restaurants and shopping malls springing up. There are more daily flights from the capital, Accra. Jobs have also been created; about 86 percent of Tullow Oil staff are Ghanaians.
Four years into production, many are beginning to realise that the potential for the oil money to deliver rapid development may have been overestimated. The government recently reached an agreement with International Monetary Fund (IMF) to help fix its economic challenges including high deficits and widening debt.
The 3-year bailout plan for a $1billion loan, they hope, will restore fiscal stability to an economy will see Ghana’s government spend less, collect more through taxes, engage in inflation targeting and see Ghana’s economic growth record a historic low of 3.5 percent.
“The program rests on three pillars; restraining and prioritizing public expenditure with a transparent budget process; increasing tax collection; and strengthening the effectiveness of the Central Bank monetary policy”, said the government.
The IMF deal is a bitter bill for Ghana to swallow. People are eager to forget the harsh economic conditions of the 1980s under structural economic adjustment programmes. This bailout is considered necessary for the restoration of investor confidence in a struggling economy beset by crippling electricity black-outs.
New oil fields to start production soon
Ghana’s new oil fields are on schedule to start production next year as development has passed the half-way stage, lead operator Tullow Oil said recently. The offshore Tweneboa, Enyenra and Ntomme (TEN) project, which will have a peak production capacity of 80,000 barrels-per-day, is expected to cost close to $5 billion.
The government approved the development plan for TEN in May 2013. It is expected to produce oil for around 20 years.
Tullow said drilling of the first 10 wells required for the start-up next year had been completed weeks ahead of schedule.
“The floating, production, storage and offloading vessel, which will receive and store the oil, is under construction in Singapore and remains on schedule to arrive in Ghanaian waters in February 2016,” the company said in a statement.
FRANK UZUEGBUNAM