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The Scramble For Ghana’s Oil Begins

Posted by Business in Ghana on October 17, 2010

By Carly Ahiable, Business in Ghana

Some people call it Dino Juice, Texas Tea, Black Gold while other call it the fluid with rising cost but here in Ghana, where the continental shelf is impregnated with oil, crude may be assuming a new name, HOPE (Help Our People to Enjoy). Who want to be hungry and suffer in abundance of oil wealth? Every Ghanaian hopes to enjoy peace and prosperity but how trustworthy are the international agencies and multinational companies in their resolve to develop the oil reserves of Ghana, and keep the nation united and peaceful as they find it?

Four upstream exploration companies and thirteen downstream oil processors and distributors in field of play, six government agencies acting as referees, the media as coach and technical bench, government as match officials, and the Ghanaian public as fans, makes Ghana’s oil industry looks like Olympic games but serious business is at stake.

Ghana’s oil’s discovery is a refreshing piece of news and gives a glimmer of hope that by next year the government will get to serious business for rapid national reconstruction to transform the nation into an emerging and prosperous oil economy to effectively confine poverty to the pages of history. London-based Tullow Oil, the operator of Jubilee Fields, expects to produce initial output of 120,000 barrels of crude per day starting the last quarter of this year.

The latest discovery of excellent quality light crude by Tullow in its Deepwater Tano Offshore Block, 6km to the west of the Tweneboa wells in the Jubilee Fields, raises hope that the country will rapidly move from the state of poverty to prosperity.

It is reported that there are intense activities at the corridors of the Ghana Investment Promotion Centre (GIPC) who has announced a total estimated value of 105 newly registered projects worth US$662.68 million in the second quarter, significant increase of 252.19% compared to (US$188.16 million) recorded for the first quarter of 2010.

A typical scene at GIPC may be a smartly-dressed cigar totting business tycoon with suitcase stuffed with dollars, signing up for business opportunities, but how many genuine investors are knocking at our doors and how prepared is the nation to handle the challenges that comes with managing an oil economy?

Counting the Chicks

By 1980 Ghana drilled about 31 wells resulting in three significant discoveries at Cape Three Points, Saltpond, North and South Tano. However, we have seven major offshore oil fields in all with proven reserves of over 1.8 billion barrels of oil and gas deposits of which 800 million barrels of the crude is considered high-quality grade oil.

‘God Bless Our Homeland Ghana,’ our national anthem partly says, and indeed God has blessed the nation with oil and gas. But have we put the requisite legal framework and measures in place to effectively manage our oil and gas resources? The optimists and pessimists speak of a two-way traffic for the nation’s future. The choice is with the leadership and citizens.

One route points to curse characterized by mismanagement, greed and corruption as is happening in the troubled oil-rich Niger Delta of Nigeria. The other leads to blessing as in Libya, Kuwait, Saudi Arabia and other rich Gulf states whose oil wealth impacts the lives of most citizens.

History of Oil Exploration in Ghana

Oil, the viscous black gold, is undoubtedly an economic tool and has a history spanning a century. Oil exploration in Ghana is not a recent development. In 1896 there was evidence that the much sort after ‘liquid gold’ exits in Ghana. The years 1896-1967 marked the initial phase of oil exploration in the country during which Europeans undertook intermittent and un-sustained exploration activities in the country. Generally, shallow wells were dug during the initial phase and exploration was mainly confined to stratigraphic data acquisition which later proved useful.

Tales now making rounds suggest that the oil discovered formed part of Nigeria’s oil. However, it must be emphatically stated that Ghana’s oil did not migrate from Nigeria but is confined to the geographical boundary of our country from Accra-Keta Basin through Ofshore shallow and deep waters of Saltpond, Cape Three and Tano Basins that is divided into blocks currently controlled by a number of local and foreign oil and gas exploration companies.

Kosmos Energy and Tullow Oil are the leaders in oil exploration in Ghana with major partners including Anadarko of USA, Sabre Oil of UK and the E.O. Group, a Ghanaian company. Tullow controls two blocks, the Tano Shallow Water Block and the Deep Water Tano Block covering a total 2,083 sq km, whiles Kosmos holds right to West Cape Three Points Block which covers 1,957,05 sq. km. Oil wells from the two major blocks were renamed Jubilee Fields, which contains the richest oil wells ever found in Ghana.

Hess Ghana Limited, a subsidiary of Hess Corporation, USA, signed for Deepwater Tano / Cape Three Point Block covering an area of 3,000 sq. km. while Vitol Upstream Ghana Ltd, a UK based company controls two blocks, the Offshore Cape Three Point Block covering approximately 2,080 sq. km. and the 740 sq. km. South Cape Three Points Block

Nigeria-based Gasop Oil Ghana Ltd controls the Offshore Saltpond Basin covering 2,050 sq. km. Another Nigerian company Oranto Petroleum International Ltd partners a local company, Stone Energy for the 1,500 sq. km Offshore Saltpond Basin, whilst the Saltpond Ofshore Fields just about 13 km from the coast is controlled by Saltpond Ofshore Producing Company (SOPCL), a joint venture between GNPC and Lushann Eternit Energy Ltd of Houston.

Aker ASA of Norway and its Ghanaian partner Chemu Power Company Limited controls the South Deepwater Tano Block measuring 3,482 sq. km. whilst Afren Energy has rights to the Keta Sub-Basin.

The Vanco, Young Energy and Gassop also have blocks in Shallow and Deepwaters of Takoradi and Cape Three Points.

In all, about four main oil prospecting companies form the core of upstream oil companies whilst thirteen oil companies which include the Tema Oil Refinery, Sahara Energy Petroleum Resources Ltd, Fraga Oil Company Ltd, Ghana Oil Company Ltd, Oando Ghana Ltd, Trigon Energy Ltd, Havila Oil Company Ltd, Universal Oil Company Ltd and Chase Petroleum Ghana Ltd form the downstream companies for the distribution of oil and petroleum products.

More than 30 years ago oil companies fruitlessly searched for oil in the coastal Keta area. Oil seepage was sited in the onshore Keta area of the Volta Region far back as the last decade of the 19th century and in 1965 the Romanian government provided technical assistance for exploratory drills. The Romanian government provided fund and oil wells were drilled at Anloga and Atiavi without any significant find.

In the latter part of the 1960’s, the search for oil spread up-country to the mid-part of the country, geographically defined as the Voltaian Basin. In 1978, Shell sunk one deep well in that huge exploration.

The years 1968 -1980, marked second phase which saw intense exploration activity in the offshore but no drilling activity took place in the Onshore Tano Basin. However large amounts of seismic data were acquired in the continental shelf during which the total number of wells dug reached 31.

In the late 1970s some international oil companies scrambled for licences to prospect oil in the country, notable among them were Amoco, Chevron, Mobil, Occidental, Signal and Union Carbide.

In the early 1970’s, a consortium of American companies with Mesa Petroleum as the operator moved to the Dzita area in the onshore Keta Basin.

During the third phase from 1981-1995 major sustained exploration activities started. During that period oil exploration companies became pre-occupied with data retrieval and gathering. It became certain that Ghana sits on the liquid fuel, oil that runs the world economy. With the establishment of the Ghana National Petroleum Corporation in 1985 to purposely act as the regulator in the oil sector, new petroleum laws and proposed structure of petroleum agreement were formulated.

Discoveries of Oil and Gas

The first discovery of oil and gas was made in 1970 in the Saltpond Fields and thereafter more gas and oil were found between 1978 and the year 2000 at various parts of the Tano Basins followed by gas finds in the Cape Three Points area in 1973.

By 1994, more oil prospecting companies joined the search for oil in the country. In that year a consortium of four companies including Phillips, Zapata, Oxoco and Agip made their first discovery of natural gas in the Cape Three Points area but the discovery was never appraised because gas was not of interest to the oil companies at that time.

In 1997 another consortium of American Agricultural Co-operatives, AGRI- PETCO, who was interested in refinery and drilling started prospecting for oil in Saltpond. Initially, production reached 4,000 barrels per day but output dropped sharply. In 1986, the oil rig was sealed as output drastically fell to 600 barrels crude per day.

From 1996 to date the oil exploration landscape radically changed and experienced intense exploration activities which saw more companies coming on board and many entering into partnership agreements. Notable among were Dana Petroleum, Nuevo Energy, Hunt Oil, Devon Energy and West Oil.

Mega Finds and Locations

In June 2007, Ghana’s petroleum exploration agency, the Ghana National Petroleum Corporation (GNPC) and its partners Kosmos Energy and Tullow Oil announced the discovery of oil in commercial quantities.

With wells  sunk in the West and Central Tano Fields, Cape Three Points, North and South Tano Fields, West Cape Three Points, Saltpond, Jubilee and Odum which gave impressive results, Ghana’s oil agenda takes shape.

The precise locations of the oil wells include Odum -1 well, situated in the Tano Basin and located 51 kilometres from the coastline, 117 kilometres southwest of Takoradi.

The Mahogany-1 Oil discovery was made on June 7, 2007. It is located about 63 kilometres from Half Assini, 132 kilometres southwest of Takoradi.

The Mahogany-1 Exploration Well and the Hyedua-1 Well drilled by Tullow Oil on the Deepwater Tano Block, was grouped and renamed Jubilee Field in December 2007 to mark the coincidence of the discoveries with the country’s Golden Jubilee Year. The Hyedua-1 oil discovery was made on August 7, 2007 about 5.3 kilometres close to the southwest of Mahogany-1 Well.

The West Cape Three Points Block is about 140 kilometres south-west of Takoradi and about 65 kilometres from Half Assini. It is located between the Tano Fields operated by Tullow Oil to the west and the Heliconia Block to the east. The area is part of the eastern extension of the larger Cote D’Ivoire – Tano Basin.

Discovered in February 2008 by Kosmos, The Odum-1 Well located approximately 13 kilometres east of the Jubilee Field, is 51 kilometres from the coastline and 117 kilometres southwest of Takoradi.

In the year 2000 prior to the exit of former President John Agyekum Kufour, Ghanaians watched on national TV the former President sniffed a sample crude oil at Castle, the seat of government with some Tullow officials looking on which herald the breaking of the news of the oil find in commercial quantities.

Oil Revenue Appropriation

Far back in 2008 the GNPC and its partners met and discussed a conceptual field development program, the details of which were worked on by an Integrated Project Team (IPT) based in Dallas.

Analyzing available data, there is no doubt that every government past and present, in a way, contributed to the discovery of oil. Therefore no single government can lay absolute claim to Ghana’s oil. The question is how revenue generated from oil should be utilized to impact the lives of Ghanaians?

Considering the history and scope of the discovery it is important to highly consider the economic challenges that face the nation before we decide on what to do with the oil revenue as it flows into government kitty. Experts have suggested various antidotes to the revenue appropriation problem but let us consider the most important things against the backdrop of the economic realities.

Ghana’s population is 24 million and the Gross Domestic Product (GDP) is less than $15 billion with per capita income of about $600.

Experts have estimated the total oil revenue to the government in respect of royalties, taxes and interest payments on oil and gas exploration in the margin of $1 billion and $1.6 billion per annum. This calculation is based on an average crude oil price of $60 per barrel (currently $77.88). Admittedly, $1 billion a year cannot be the universal solution to the country’s problems.

Many Ghanaians need jobs that will guarantee sustainable income, good education, health, housing, food security and secured future for the yet un-born etc. At least these are the priority areas for the man in the street.

The government’s presumption that crude exports will boost annual GDP growth to about 10% in a couple of years and the International Monetary Fund (IMF) belief that if Ghana utilizes the unexpected fortune wisely, the country could reach the status of a middle-income country in a decade, are all conjectures.

Considering the fact that the oil industry itself is a fertile ground for corruption and greed, by reason of the millions of dollars at stake, and the tendency by some unscrupulous executives of business and investors to offer inducements to win contracts as is the case in some oil-producing countries, it is necessary Ghana picks a leaf from Nigeria’s bitter lessons in managing an oil economy.

Controlling the Oil Industry

The Petroleum Exploration And Production Law, 1984 P. N. D.C.L. 84, and the GNPC Law 1983 P.N.D.C. Law 64 all extensively deal with rules and regulations regarding petroleum exploration and production in Ghana.

However, Civil society groups, think tanks, the local media and international NGOs, who are closely monitoring developments in the oil sector recently launched a barrage of criticisms at the government for the slow pace at which the state is putting up the requisite legal framework for players in the oil industry.

A couple of months ago, the extension of the Extractive Industries Transparency Initiative (ETTI), a law that covers the Oil and Gas sector received approval from cabinet. This important legal instrument is designed to improve transparency and accountability in the extractive sector.

The Ghana Petroleum Reserves Accounts, which consist of the Ghana Petroleum Accounts to which all revenues collected by the Ghana Revenue Authority on behalf of the government will be transferred, the Ghana Petroleum Funds which comprises the Ghana Stabilization Fund for mitigating the effects of unexpected revenue shocks and the Ghana Heritage Fund that aims at ensuring inter-generational equity and to maintain the value of oil capital, are all still at the proposal stage while the decisive day to start lifting crude oil in commercial quantities is fast approaching.

The lack of rules to effectively control the oil industry and the slow pace at which the rules of engagement is being formulated only helps to increase the fear factor to plunge the nation into oil curse. However, everyone wants to avoid confrontation as Ghanaians want to remain vociferous and law abiding.

Some Civil Society Organizations (CSOs) are mounting pressure on the government to do the right thing. Recently they launched a booklet that gives a brief guide for civil society on oil and gas which also contains definite rules for minimizing negative social, political and environmental consequences of developing Ghana’s natural resources. Their effort is seen as a good start.

As preparations are made for crude exports to begin the last quarter of this year, it is obligatory for government to develop the requisite regulatory framework for contract transparency, as well as a proper assessment of the environmental and social impact of oil and gas development.

Oil Spills

On December 26, 2009, a spill from Jubilee Well offshore attracted heavy criticism in the Ghanaian media. The local media reported that over 700 barrels of a substance said to be a mixture of oil and mud was spilled.

According to media sources Tullow also spilled some 37 litres of oil on January 1, 2010. Kosmos defended itself saying that its spillage took place under the sea bed and did not affect marine life.

The Environmental Protection Agency (EPA) at the time had no clue of what actually happened but sent a team to investigate the incident.

Jubilee partner Kosmos was fined $35 million for negligently spilling 699 barrels of mud which contains poisonous heavy metals, on three occasions that could affect Ghana’s ecosystem.

Prior to the punitive measures against Kosmos, the media questioned the visiting International Finance Corporation (IFC) Director for Environment and Social Development, Mr. Greg Radford about what sanctions his organization would take against exploration companies responsible for oil spill in Ghana since IFC is partnering oil exploration in the country.

His response was that the IFC had the capacity to monitor such spills. However, a journalist quibbled; “how can you monitor oil spill in Ghana when the machinery and personnel for monitoring spillage are based in Washington D.C.?

Kosmos spill and the subsequent punitive measures against it make a good case for coastal communities. How much will they benefit from the fine since the fisher folks will be affected? Already there are complains about depleting fish stock in Ghana’s waters and could this be attributed to activities of drilling companies?

This scenario deepens the fears of the dangers communities living in the catchments of oil wells are exposed to real dangers. The government must not ignore the needs of those in the catchments of oil rigs. They are the first to be affected should anything go wrong in terms of accidents or large-scale oil spills. The event of getting things wrong is real hence those in the catchments of oil and gas exploration must enjoy dividends and not wait till they become defenseless victims.

We must take a cue from events in the Gulf of Mexico where a large oil spill from a damaged oil rig affected the livelihood and marine life and hundreds of communities the American Gulf coast, the worse oil spill in US history.

Role of the Media

Information dissemination is vital in a vibrant oil economy and the role of the media as watchdog to bring sanity in the oil business is very important. The Ghanaian media is generally ill-trained, lacks funding and faces new challenges posed by the transforming oil economy.

The media cannot standup to its reputation as the fourth estate of the realm but is gradually becoming partisan to survive, and thus fails to play its key role to protect the weak against the strong. The numerous scandals of bribery and corruption, and cases of blackmail involving some journalists attest to these facts.

It is suggested that the media must be resourced with the requisite tools and finance partly from the Ghana Petroleum Fund. If the media is resourced and journalists get adequate remuneration, the era of powerful and unscrupulous businessmen hijacking the media for their selfish interest will end. This will ensure that an enabling environment is created for journalists to play their watchdog role effectively and objectively.

It is important to note that publication of events in the oil and gas industry affects the world market price for oil. Journalists and media practitioners therefore need special skills to operate to enable them to present facts objectively.

It is imperative that special training programmes and regular seminars are organized for selected and accredited journalists on oil reporting to prevent sensational reportage that can set off false alarms and adversely affect the oil market and cost Ghana much fortune.

The government must also create a fund to assist civil society groups, NGOs and other recognized pressure groups who are working relentlessly to campaign for equitable distribution of the oil wealth, the fight against corrupt practices in the oil sector and safe environmental practices in oil exploration. These groups are frontline fighters ready to sink any ‘gravy boat’ that sails the choppy waters of corruption un-conversional practices.

Greater Local Participation

Every effort must be made to ensure the oil wealth impact the lives of majority of Ghanaians. One way to set the agenda is to involve greater local participating in the oil sector. Priority must be given to local oil companies to engage directly in the oil and gas sector or in allied businesses.

Special concessions must be given to allow easier participation of Ghanaian entrepreneurs in the oil sector. When more Ghanaians are involved, much of the wealth generated would remain in the country.

Countries such as China and Japan among others gave their local entrepreneurs the first choice in their prioritized industrial programmes, extractive industries, and commerce, and as a result their economies developed rapidly to become global leaders because capital outflow was regulated and confined mostly to their borders which gave the the impetus to have a large capital base.

Accreditation and Manpower Training

Education is the key ingredient in the social and economic transformation of Ghana and a knowledge-based society is a valuable asset to an emerging oil economy.

However, it is disheartening to note that apart from the All Nations University College (ANUC) in Koforidua, not even a single university or tertiary institution received accreditation from the National Accreditation Board (NAB) to offer oil and gas programmes.

The situation has created grounds for some tertiary institutions to offer training courses and seminars on oil and gas to the public without accreditation. To ensure quality education every tertiary institution by law is supposed to be accredited by NAB who guarantees the quality of students produced for the various disciplines. Will the NAB maintain its silence and see more of such institutions mushrooming throughout the country at the cost of unsuspecting public?

For instance, the Centre for Petroleum Studies, CPS-Ghana, has no accreditation from the NAB but took advantage of the vacuum and conducts live-lectures and hands-on training courses at a training center in Accra. Most of its courses are for field-level employees.

Another institution, the Ghana Oil Drilling Academy and Consultancy (GODAC), reputed to be an internationally accredited oil drilling training institution offers rig-workers training in the offshore/onshore oil drilling and its related disciplines, but has no accreditation from the NAB.

A thorough check at the NAB indicated that of all the tertiary institutions both private and public, only the All Nations University College had accreditation on September 2009 to organize a programme in Oil and Gas Engineering and will be monitored for three years for renewal.

What caliber of staff are these institutions producing to fill vacancies on oil rigs and for onshore operations? Will they pass the litmus test and offset disasters that can result in oil spills on the scale of what happened in the Mexican Gulf?

The NAB must fast-track the processing of applications of all pending applicants including the Kwame Nkrumah University of Science and Technology (KNUST) and the University of Science and Technology (UNaT), Tarkwa, who had applied to run programmes in petro-chemicals.

Without doubt, it is possible that our politicians who want to vie for office in the next general election may use their campaign platforms to make incredible promises to win votes.

It is predicted that the discovery of oil may radically change the texture of language and the style of delivery of speeches on political campaign platforms, which may probably be vicious. The size of funds for running political campaigns may also increase astronomically because whoever wins the next election controls the multi-million dollar oil economy.

The Ghanaian attitude of ‘let us wait and see’ cannot be over-ruled but what is certain is that democracy, free speech, peace and stability will prevail to guarantee a better future for the citizenry but the trustworthiness of the oil companies is a key factor.

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