The long-awaited implementation of domestic content legislation on February 1 is expected to help improve participation rates by local businesses in Ghana’s oil and gas sector.
As is the case in many resource-rich countries, Ghana has faced challenges in ensuring the gains from its 2007 discovery of the roughly 100,000 barrel per day (bpd) Jubilee field translate into domestic jobs and spending. The new law, formally known as the Petroleum Regulation on Local Content and Participation, was approved by parliament last year after lengthy debate, and if executed effectively, has the potential to improve indigenous capacity in the hydrocarbons sector.
According to the new rules, local businesses will be given first preference in bids for petroleum licences, while Ghanaian companies must have at least a 5% stake in every contract awarded to an international investor.
Industry reaction mixed
The government has said it is aiming to achieve 90% local participation by 2020, an ambitious target that will require significant investment in human resources and local capacity in the short and medium term.
Many stakeholders in the industry view a gradual implementation of local content as the best way forward. Speaking to OBG, Ken Keag, vice-president and country manager for Kosmos Energy, operator of the Jubilee field, said, “The local content legislation comes at a very early stage in the development of the country’s oil and gas industry. Oil field service firms will be more willing to establish a presence on the ground once additional exploration activity yields new commercial discoveries along with a longer-term continuum of exploration, appraisal, development and production activity.”
Sanmi Longe, country manager of local firm International Energy Services, told OBG the new regulations needed to be implemented in phases and should be based on capacity-building efforts already in place.
According to Longe, the industry can build local capacity in a few ways. The first is for international companies to subcontract smaller jobs to domestic companies. The second is for specialist local firms to pool their resources and join forces when applying for a big job. At the moment, however, there is a tendency for local start-ups to operate alone, he said.
Domestic businesses in the sector are typically service providers, sometimes operating in partnership with foreign firms. A number of Ghanaian companies are already engaged as sub-contractors in a host of activities, including construction and site preparation work, logistics, engineering, geotechnical investigation, topographic surveys, environmental studies and security services.
In November of last year, Nutley Adlerian, the executive director of the Ghana Oil and Gas Service Providers Association, told the local media they had more than 60 members providing jobs for more than 12,000 people.
Continued investment in the sector
Since production at the Jubilee field, located 60 km offshore, began at the end of 2010, oil output in Ghana has jumped from 7000 bdp in 2009 to 80,000 in 2012. The most recent government data show production averaged about 102,500 bdp in the first nine months of 2013, while Kosmos said in January it expected output to hover around 100,000 bpd this year.
Crude oil reserves were estimated at 660m barrels in January 2013, according to the US Energy Information Administration – a number that is expected to continue growing.
The second major offshore development – the Tweneboa-Enyenra-Ntomme (TEN) project – is located in the Deepwater Tano contract area, 60 km off the coast of Ghana and around 30 km west of the Jubilee Field. UK-based Tullow is operator of the contract area, with an equity interest of 47.175%. Other partner interests are Kosmos (17%), Anadarko (17%), Sabre Oil & Gas Holdings (3.825%) and the Ghana National Petroleum Corporation (15%).
Output at TEN is expected to peak at 80,000 bpd of oil and 85m standard cu square feet per day (mscfd) of gas. The development plan requires drilling up to 24 wells. Kosmos anticipates production at the site to begin in 2016.
Meanwhile, around 150m recoverable barrels of oil are anticipated at the Sankofa well in Offshore Cape Three Points block, with production forecast at 40,000 bpd. Additionally, the site is Ghana’s first non-associated gas discovery, with recovery expected to reach 160 mscfd. Development is being carried out through a consortium led by Italy’s ENI Group, including ENI Ghana Exploration and Production, Vitol Upstream Ghana and the Ghana National Petroleum Corporation.
While these projects will result in additional revenue for the country, perhaps the greater challenge for the government will be ensuring that foreign investments result in jobs for Ghanaians. Realising this in other commodity-rich African economies has been tricky, often requiring a mix of incentives and requirements to nudge domestic participation rates up – particularly in upstream activities. The initiatives necessarily require a long-term time horizon, given the extensive investment and training needed to improve local capacity and human resources.