Interview : Paul McDade
How would you evaluate the current West African hydrocarbons extraction landscape?
PAUL MCDADE: West Africa is a very important contributor to the global oil market. A key factor that distinguishes the region is the diversity in the maturity of its oil basins. From established deepwater sites in Nigeria to significant new finds in Ghana, the full life cycle of basins is available in relatively close proximity. This variety is valuable because it permits varied operations. This can be compared with the North Sea basin, off Scotland and Norway, which is now mature to the point of becoming depleted. Major players tend to move out of maturing basins, and smaller firms move in because of the much lower cost base. Exploration in the region is high risk, but also offers big rewards. Due to this, we are seeing the emergence of exciting opportunities with many new companies entering the market.
Due to the strategic significance of the industry, the sector is characterised by state involvement. Building relationships with governments is crucial because of the importance of international oil firms to the overall economy, from the contribution of tax receipts to the development of human capital and employment. In West Africa, this relationship is complemented by strong contract stability. When a firm is investing billions of dollars up front and looking for returns over a 10-year period, risk and even the perception of risk must be alleviated as much as possible. This highlights the importance of properly enforcing contracts, but also building the right financial conditions to make the early stages of investment worthwhile and less risky. In Ghana, we find a maturing oil basin where there are proven hydrocarbons. Therefore, the next tranche of investment is not as high risk, so the fiscal balance between investor and government could change. The security of contracts in West Africa, coupled with new opportunities, highlights a strong future for the region.
What capacity do domestic oil firms have?
MCDADE: Oil is a significant contributor to the economy in Ghana, although it is not dominant. The Ghanaian economy is well diversified, and this can help mitigate commodity price fluctuations and provide a stable backdrop to the sector. Ever since the discovery of oil in Ghana, the impact of local content has been central to the government’s vision, and as we pass 10 years of extraction, we see oil field services performing at a global standard.
On a regulatory level, Ghana has taken an evolutionary approach, whereby as capacity in the market increases, so too does the amount of local content. For the first floating production storage and offloading facility at Jubilee, the sector was being created and the domestic capacity was not there, but by the time the Tweneboa, Enyenra and Ntomme field came online, local players with the right skills were in place. The risk inherent in emerging markets is that if regulation is imposed too stringently and too early, one might be forced to compromise operations; thankfully this has not been the case in Ghana.
How important was the ruling in favour of Ghana made by the International Tribunal for the Law of the Sea (ITLOS) in its dispute with Côte d’Ivoire?
MCDADE: Due to the scale of the investment involved, the outcome of the maritime boundary dispute was very significant for Ghana. The choice made by both Ghana and Côte d’Ivoire to hand the issue over to the ITLOS caused a degree of short-term uncertainty among investors. Nevertheless, from a longer-term perspective, having both countries take this dispute to the UN, then respect the legal outcome, is very encouraging. The level of maturity shown by both governments has ultimately increased investor confidence and highlighted a high level of mutual respect that indicates that they will likely develop a strong working relationship in the future.
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