Analyst wants upfront payments by oil companies reduced

The Institute for Energy Security (IES) has urged government to review the upfront payment of up to US$7m that the country takes from oil companies as technology transfer and training fees as part of the terms of petroleum agreements (PAs).

According to the Executive Director of the institute, Nana Amoasi VII, these upfront payments, which oil companies are expected to make within 90 days before undertaking seismic surveys, serve as a disincentive to the companies, particularly the smaller ones.


“If the upfront payments that go as high as US$7m are reviewed downwards, the savings could serve as free cash flow to the oil companies to deploy into their operations,” he said.

Nana Amoasi added that the government should also take a look at the exploratory period and extend it from the current 7 years (should there be no force majeure) to possibly 10 years.

This, he said, will give the companies enough time to acquire seismic data, analyse the data, and establish the existence of reservoirs of hydrocarbons. It will also reduce the number of dry holes, he added.

The IES Executive Director had told Business24 earlier that oil companies are currently struggling to raise funds for projects because a substantial amount of global capital is being directed at renewable energy projects and away from hydrocarbons.

The shift, he said, follows the unprecedented political and business momentum renewable energy is currently enjoying, with the number of policies and projects around the world expanding rapidly.

“The oil majors and other international oil companies (IOCs) are diversifying into renewables, motivated to invest heavily in renewable technologies and projects because that is where the cash is drifting,” he told Business24.

It was revealed earlier this month that United States oil major ExxonMobil has relinquished its controlling stake and operatorship of the Deepwater Cape Three Points oil block in Ghana

The IES boss said a possible reason for the exit of ExxonMobil could be the company’s expectation of tax exemptions from the initial exploration activities, which were not provided.

The exemptions, if offered, could have provided some form of free cash flow for the company to attempt drilling further wells to confirm the results of the initial seismic survey, he said.