There are some major developments in the upstream oil and gas sector which threatens the entire industry, Ghana’s potential highest forex earner.
David Ampofo (DA), CEO of the Ghana Upstream Petroleum Chamber sat down with Graphic Business and provided some answers in the following interview.
GB: So much appears to be happening in the oil and gas industry. What do you make of it all?
DA: Government should reassess its business approach to the oil and gas business.
It’s currently not the best. Growing and replacing reserves in the country is challenged.
The business environment to enable such growth is simply not there.
The legal disputes and company exits are bad for business.
The only two active operators, Tullow and ENI, are in arbitration with government.
AGM is exiting.
We are also not clear on the expectations and path forward for Aker.
There is no clear path for growing and replacing our reserves and that negatively impacts revenue to government.
Oil provides almost $ 1 billion in annual revenue to Ghana. Domestically produced gas contributes about 90 per cent of gas for power and 50 per cent of Liquefied petroleum gas (LPG) demand.
Currently, Ghana’s total proven oil reserves from producing fields is about 527m barrels and total proven gas reserve from producing fields about 1.4tscf.
We should understand that the benefits from these reserves can only be realised when harnessed.
The business environment must be right to retain incumbent companies while attracting other investors.
Our discussions with both incumbent and international investors points to the fact that Ghana is losing its attractiveness as the best place for oil and gas investments.
Something urgent needs to be done before we lose out completely.
GB: How in your estimation is Ghana losing its attraction as a hub for oil and gas investment?
DA: The worsening business climate is evident in the arbitrations. Creeping taxes are common place the latest being the growth and sustainability tax bill which is recommending one per cent of gross production on E&P Companies and five per cent of profit tax on upstream services.
There does not appear to be any recognition for stabilisation clauses. Major players have exited in the last couple of years and this does not bode well for industry.
They include Exxon, Anadarko and now AGM, and this does not include the numerous service companies that have already left due to lack of upstream business.
Production has been in decline since 2019, and no new exploration agreement has been signed since 2017. Production from existing fields is plateauing.
GB: What really is the dispute with Tullow about?
DA: Tullow has filed requests for arbitration with the International Chamber of Commerce in London, in respect of two disputed tax assessments received from the Ghana Revenue Authority (GRA).
Tullow considers that the two disputed tax assessments, which totals $387 million plus penalties, breach their rights under their Petroleum Agreement.
We need to see the stabilisation provisions in petroleum agreements as sacrosanct and use best practice engagements when necessary.
GB: What about the Eni/Vitol and Springfield unitisation impasse?
DA: Eni/Vitol challenged a decision of the Ministry of Energy for a Unitisation of the Sankofa and Afina fields held by Eni/Vitol and Springfield respectively.
Eni/Vitol are of the view that the decision was premature and did not meet industry standards.
Springfield took the matter to court and The Commercial Division of the Accra High Court ordered Eni/Vitol to preserve 30 per cent of all the revenues which will be accrued from the field until the final determination of the legal dispute relating to it.
A legal battle subsequently ensued, with Eni/Vitol eventually initiating action in the International Court of Arbitration against the Government of Ghana and Ghana National Petroleum Corporation (GNPC), whose report the government relied on to order the unitisation.
This matter should be speedily resolved, as it is negatively impacting the industry.
An independent third party is needed to sit down with the parties and arrive at a mutually acceptable resolution.
The timeliness of this effort is critical for the industry in general.
GB: Why does there appear to be a stalemate regarding the Aker Pecan field development?
DA: Aker Energy has been working on the Deepwater Tano/Cape Three Points licence offshore Ghana since 2017.
Although the front-end engineering and design study has been completed, the partners are yet to conclude on their Final Investment Decision for the Pecan development and are yet to submit, for an approval, their revised plan of development. Discussions and negotiations for part acquisition by GNPC have stalled.
Aker has said that there is a “consequence of the uncertainties arising” from Russia’s invasion of Ukraine, which impacts their relationship with their partner, Lukoil, a Russian company with a risk of sanctions, and their Plan of development can only be submitted when this challenge is resolved.
The continued stalemate impacts any efforts to grow and replace oil reserves.
The estimated 334 million barrels of oil that their field holds, if produced, could take the country’s production and easily double the barrels of oil currently being produced daily.
GB: The other recent troubling news for the industry was the termination of negotiations with companies that took part in a competitive bidding process and won some oil blocks. What exactly happened?
DA: The Ministry of Energy terminated negotiations with four oil companies after more than two years of unfruitful negotiations for petroleum agreements over their respective blocks.
The companies are China National Offshore Oil Corporation (CNOOC), First E&P Development Company and Elandel Energy Ghana, Eni/Vitol and KOKA Energy Ltd.
The reason given was that the memoranda of understanding (MoU) governing the negotiations had expired and would not be renewed.
The Ministry informed the affected companies that they can reapply for the blocks through direct negotiations if they are still interested.
So much work has gone down the drain; valuable time and energy spent to no avail.
Some clarity on the negotiation process and how it merited termination would have been useful.
The investment community might interpret termination for different reasons with a resultant impact on any future licensing rounds.
GB: What do you have to say about the reported departure of AGM Petroleum announced only recently?
DA: AGM Petroleum Ghana has opted to relinquish its stake in the South Deep Water Tano block after what it said was a careful consideration of their options.
The decision certainly impacts the race to grow reserves. GNPC was working on a plan to buy into SDWT and Deepwater Tano/Cape Three Points (DWT/CTP) block some 18 months ago and we all remember the fallout from that.