Ghana’s Oil Revenues Starting to Flow

Filed under: Business,Featured |
Jubilee tullow photo

Tullow’s Jubilee field operation in Ghana

Annual figures for Ghana’s nascent hydrocarbons sector – which has spurred a wave of capital spending in the country in recent years – have come in for 2011, bringing with them mixed news. While production levels fell short of expectations, output is expected to rise closer to targets within the next 18 months as technical adjustments begin to pay off.

According to the independent Public Interest and Accountability Committee (PIAC), Ghana’s oil sales earned revenue of $350.93-million in 2011, including 5% royalties. Earnings fell short of the targeted $343.02-million, due largely to lower-than-expected output. A total of 24.5m barrels of crude were lifted in 2011, 20.5m (83.9%) by the Jubilee partners – a consortium led by the UK’s Tullow Oil that includes US-based Kosmos Energy and Anadarko Petroleum Corporation – and 3.93m barrels (16.1%) by the Ghana National Petroleum Corporation (GNPC), which received 47% of total oil revenues.

Production at the Jubilee field, currently Ghana’s only operating oilfield, stands at around 70,000 barrels per day (bpd), Tullow said in early May. This is below the 120,000 bpd “plateau” level the firm originally expected to reach in August 2011, as technical and geological issues have affected output, largely due to seepage of sand into oil wells.

However, this is likely to be only a temporary setback for production. Tullow expects to increase production to 90,000 bpd by the end of 2012, and reach 120,000 bpd in 2013. According to Aiden Heavey, the CEO of Tullow, the firm, which is double-listed on both the Ghana and London Stock Exchanges, will spend up to $400-millon on remedial work on the wells.

For decades, Ghana’s only oil production came from the 1000-bpd Saltpond onshore field, but the discovery of commercially-viable deposits in Jubilee in 2007 have sparked a flurry of new exploration in nearby blocks. Heavey said that he hoped Tullow would receive permission in the third quarter of the year to start work on the nearby Tweneboa, Enyenra and Ntomme fields, known collectively as TEN. Although TEN’s reserves have not yet been verified, estimates range anywhere between 200m and 1.2bn barrels, with a potential output capacity of 100,000 bpd, which could potentially double Ghana’s crude output.

Technical work on development of TEN has already commenced, including floating production, storage and offloading (FPSO) design and subsea front-end engineering and design (FEED) and related tendering.

Although a large part of Ghana’s oil activity thus far has come from mid-sized, independent and wildcat firms, due in part to the higher risks that accompanied exploration, the comparatively smooth functioning of the Jubilee field has drawn the attention of the majors. On May 21, the press reported that international oil firm Shell was investigating options for upstream investments in Ghana as part of its policy of expanding in West Africa. Omar Bension, the country manager at Shell Ghana, said the country was particularly attractive for his firm as part of its “aggressive” upstream strategy in the region, though questions over the quantity of commercially viable reserves would need to be answered first.

In a bid to both keep pace with the expected increases in crude output, as well as increase the value of hydrocarbons exports, the government aims to boost its limited refining capacity. In May, Thomas Mba Akabzaa, the chief director at the ministry of energy, stated plans to upgrade the publically owned Tema Oil Refinery (TOR) should be revived. TOR currently has capacity of 45,000 bpd, but its development has been held back by a lack of financing, including a lengthy struggle with debt in recent years as a result of domestic pricing policies for refined products.

Akabzaa said that the government hoped to increase refining output to 60,000 bpd in the medium term and 120,000 bpd by 2020. He added that Ghana was still committed to constructing a second refinery, and had been approached by firms from countries including South Africa, Saudi Arabia and the UAE.

The TOR upgrade and a second refinery would help support Ghana’s aim to be a net exporter of crude and refined oil products by 2015, tapping into growing markets across Africa.

Although the turnaround time from discovery to production was impressively fast, Ghana’s current output is still plagued by some start-up issues that have delayed the production timeline. However, the technical complications are short-term, and investment in existing and new wells will help boost output over the coming months, matched in the medium term by rising downstream capacity that can build Ghana’s position as a petroleum products exporter