The Ghana Upstream Petroleum Chamber held its annual oil and gas conference and launched the 2023 upstream industry report – a comprehensive up to date documentation on the state of the upstream industry. B&FT spoke to the CEO of the chamber, David Ampofo on some of the key industry issues highlighted in the report.
Q. What is the contribution of oil and gas to government revenue.
A. Apart from gold, oil and gas contributed the most to government revenue last year; $1.43 billion. This was a significant increase from the 2021 figure of $783million, largely on account of the increase in the price of oil. So, you can imagine how much more revenue would have come in if we produced even more oil. In addition, by using local gas instead of liquid fuel for the power plants, the country made a saving of $1.3billion. The potential of this industry is enormous. By the way, the cumulative investments at the three production fields in 2022 was $1.52billion, an 18% increase from 2021’s investments of $1.29 billion. Significant capital continues to be injected from industry to boost production revenue to the country.
Q. Talking about gas, the report highlights some major challenges in the business of natural gas though. Can you explain the situation further?
A. As already indicated gas continues to offer Ghana significant cost savings. However, delayed payments to producers is a major disincentive to investment. Companies will struggle to provide the gas required for our energy needs if they are not getting paid for the gas they provide to the power sub sector. There is also the issue of gas pricing. To invest in infrastructure to bring the natural gas onshore for processing, government and the companies investing must agree a mutually acceptable price. The Jubilee TEN field for example, is primed to deliver gas to the country but there is as yet no agreement on the price to be paid for it and without that it will be difficult for the Jubilee partners to make the billion dollar investment required. Negotiations are currently ongoing and it would be a positive development if the issue of pricing can be resolved soon.
Q. How would you describe the production situation in the industry?
A. The recent addition of 30,000 barrels a day from Jubilee South East is a boost to industry. To think the 2007 discovered Jubilee field is still delivering oil is simply great. It brings the total production from the Jubilee field to the hundred thousand barrel level on an FPSO with a capacity of one hundred and twenty thousand barrels. With a bit of luck we should be at full capacity in the not too distant future. What the industry needs however is to replace the reserves being currently produced to grow production even further. An increase in the amount of oil produced coupled with the benefit of an increase in the price for a barrel of oil can provide the country with significant revenue; I dare say most of its revenue. That is the potential of this industry. We must make every effort to achieve this and it begins with policies that incentivize exploration and in so doing attract the right companies to the sector whilst encouraging those already here to do more.
Q. When you say those already here what companies are you talking about?
A. I’m talking about the current investors, the Jubilee, TEN and Sankofa Gye Nyame partners as well as several other companies with projects at various stages of exploration and field development. Everything must be done to enable Pecan for example to progress its plans to produce oil as it’s the most likely in the shortest possible time. But we also have several other potential producers already here. They include Heritage, OPCO, Springfield, Goil offshore, Eco Atlantic, MEDEA, AMNI and Base Energy.
Q. The report paints quite an impressive picture of local employment in the industry. Can you expatiate further on this?
A. A decade ago, Ghanaians constituted 69% of the total workforce in the industry. It’s now roughly 90% and it’s growing. A visit to the production facility offshore will leave you hugely impressed. Another hugely impressive development is the role of Ghanaian business in the fabrication and welding of complex subsea structures. Most of such activity was done in Singapore and Malaysia when we first discovered commercial oil. Now the story is entirely different.
Q. What about local content in terms of participation by local companies?
The more activity there is, the more local companies benefit. There is nothing more beneficial to local companies than a vibrant industry. The data speaks volumes. Between 2016 and 2022, a total of $3.7billion worth of contracts went to indigenous Ghanaian companies. However, the lack of investment in recent years and the decline in activity paints a major contrast in the fortunes of indigenous Ghanaian companies when you compare what happened in 2021 to 2022. In 2021 the figure was $ 754million whilst in 2022 it was $ 143 million.
Q. So what in your view can turn the fortunes of the industry in a significant way so that indigenous Ghanaian companies can grow and become giant in their own right?
A. We need to incentivize exploration to boost reserves and increase production. It is my understanding that government is considering various options including a review of the prevailing fiscal regime. We also need to monitor the energy transition for additional opportunities emerging as a consequence of it. I also think we should really keep an eye on the potential offered by natural gas, which really is the game changer. There are huge opportunities here and we must optimize domestic gas production and utilization through the adoption of clear pricing policies that incentivize investment.
Q. Now to the all-important question of revenue distribution. Where does all the revenue from oil go?
A. Last year out of the $1.43billion that accrued for the Petroleum Holding Fund (PHF), $526 million went to the Annual Budget Funding Amount (ABFA) to augment annual government expenditure shortfalls and $407million went towards the Ghana Stabilization Fund (GSF) to sustain public expenditure capacity during periods of unanticipated petroleum revenue shortfalls. Also, $335million went to our national oil company (GNPC) and the remaining $174 million went to the Ghana Heritage Fund (GHF) which is an endowment to support the development of future generations when the petroleum reserves have been depleted.
BFT: Thank you for taking the time to talk to us.
AMPOFO: It’s been a pleasure. I would encourage stakeholders and interested parties to visit ghanaupstream.com where the 2023 report can be accessed.