Economic Update

Published 28 Oct 2013

Investment in Ghana’s hydrocarbons sector has boomed over the past six years, with capital inflows helping stoke headline growth in the double digits. The performance of oil and gas exploration and production (E&P) activity has been robust, but passage of new legislation to regulate the E&P segment is likely to provide an additional boost to the industry and create a clearer and more sustainable environment for upstream producers.

Most current activity is centred on the Tano Basin, a deepwater drilling zone off Ghana’s western coast that includes the Jubilee field, where Tullow Oil and Kosmos Energy first discovered commercial quantities of oil in 2007. Turnaround of the field, which happened in a record 42 months, led to oil being pumped just over three years later. Since then, production at Jubilee averaged 110,000 barrels per day (bpd) in the first quarter of 2013, with additional investments set to lift output to more than 120,000 by the end of this year.

The dropping costs of offshore exploration, although it still remains a pricy venture, have led to a wave of interest over the past five years in the Gulf of Guinea, with discoveries in Cote d’Ivoire and a planned new ultra-deepwater tender in Gabon. However, in Ghana, potential fields outside the Tano Block and the nearby West Cape Three Points block remain largely unexplored. The Keta Basin, off the coast near Accra, may contain reserves in quantities similar to those of the Tano, but few wells have been drilled in the area. The basin is considered a promising but still unproven target for future investment. There are further unexplored areas that may yield oil in the onshore Voltaian Basin and several ultra-deepwater areas.

New legal framework expected

The upstream sector is governed by a law passed in 1984, long before the discovery of commercially significant reserves, and is considered limited in scope and outdated. Ghana is planning to pass a new law soon to replace it.

The Petroleum Exploration and Production Act would address a number of key areas, including the awarding of contracts, good governance, local content and environmental issues. Clarifying these issues in good time is crucial to increasing capital flows into the sector, as demonstrated by the slowdown in spending in Nigeria as a result of that country’s protracted five-year negotiations over the planned Petroleum Industry Bill (PIB).

As of June, Ghana’s government was working on a draft bill to be submitted to the cabinet and then parliament.

Planned investments for 2014

In the meantime, plans for investment in 2014 are already in place. Industry estimates suggest that more than a dozen new rigs will be contracted next year, including several at the Tweneboa field, an area of Tano Basin that is jointly held by Tullow (47.18%), Kosmos (17%), Anadarko (17%), Sabre (3.82%) and state-owned Ghana National Petroleum Company (10%).

Kosmos expects to begin extracting oil at Twenboa by 2016 (the World Bank estimates it will be a year later) and projects daily production to reach 80,000 bpd. Kean Keag, vice-president and country manager of Kosmos, told OBG that his firm has planned $330m of investment in Ghana in 2013 and $1.5bn over the following four years. The Sankofa well in the Cape Three Points block has also been appraised by a consortium led by Italy’s ENI Group, with production estimated to begin by 2017 on the well’s estimated 150m barrels of recoverable oil reserves and a similarly-sized non-associated gas find.

Attracting foreign investors

The passage of the Petroleum Exploration and Production Act would further boost confidence by creating a more predictable regulatory regime. Certainly, the outlook for a smooth passage is encouraging. Ghana already has the bulk of its framework for managing oil revenues in place – an equally contentious process that was resolved comparatively quickly in 2011, allowing the country to establish a revenue-sharing model based in part on Norway’s model, with a proportion of revenues split between a future generations fund and a price stabilisation fund.

These are positive signs for international oil companies looking for a stable environment in which to operate and invest. The passage of the Exploration and Production Act is expected bolster foreign firms’ perception of Ghana’s stability and help the fledging oil sector become more attractive as a target for long-term investment.