Investor interest: Planned investment slows pending new legislation

As the first flush of exploration and production in Ghana’s offshore oil winds down, there is little planned greenfield investment in Ghana’s oil fields for 2013. Part of this is a result of domestic developments: in the first half of the year, with litigation over the 2012 results of the presidential election pending, debates over a revised exploration and production bill, and the approval of the TEN field’s plan of development moved ponderously. The slower pace was reflected in new capital spending. However, the spate of discoveries and planned bidding rounds in neighbouring countries, such as Côte d’Ivoire and Gabon, have also led producers to focus on testing the limits of current production rather than expanding. “No new licences have been signed in recent years, and there have been no bid rounds,” Ken Keag, vice-president and country manager for Kosmos Energy told OBG. “The industry as a whole appears to be assessing the results of exploration work to date; and a number of new frontier areas have opened up after Jubilee.” However, the pause appears to be only temporary, with oil services and logistics firms planning a big year in 2014, according to Stephane Bordure-Linder, managing director of oil services company Orsam.

ONGOING EXPENDITURES: Starting in 2012, the Jubilee partners invested in remedial measures to boost production to 110,000 barrels a day (bpd). Elsewhere, ENI continued exploration and appraisal at the Sankofa wells, and confirmed commercial viability of the field with an appraisal well drilled in January 2013. Hess saw continued successful drilling at Pecan in early 2013.

Beyond the Tano basin, many of Ghana’s potential oil fields remained unexplored, offering potential for new investment. There are two licensed blocks in the Keta Basin offshore from Accra, where the geology is similar to that of the oil-rich Tano basin. Only two wells have been drilled in the area and oil reserves have yet to be proven. The TAP/Ophir consortium planned to drill another well at some point in 2013, and “the success or failure of this well will have a strong bearing on the pace of further exploration,” the World Bank stated in its “2013 Ghana Energy Sector Report”. No licences have been signed and no seismic images taken in the Voltaian Basin, Ghana’s onshore basin. Similarly, Ghana’s ultra-deepwater has not yet been explored.

POLITICAL STALEMATE: One cause for the slowdown, which has in fact had a broader impact on several sectors of the economy, has been the drawn-out process of certifying the results of the most recent presidential election. The close results of the polling between the candidate for the National Democratic Congress and the New Patriotic Party resulted in a court case, with the opposition disputing the final tally. The Supreme Court agreed to hear the case, but in late summer 2013, after several months of deliberation, ultimately confirmed the previously announced result.

Although the legal debates cast a pall of uncertainty over business issues, particularly in more heavily regulated industries like energy, the court decision was accepted peacefully and activity has resumed anew. That being said, long-term investors see a silver lining in the president’s drawn-out legal battle. Ghana’s solution to a contested election serves as a testament to the strength of the country’s institutions, and a contrast to the failed states in other oil-rich nations.

“Oil came late in Ghana compared to some other countries, which is good,” said Keag. “Ghana has a solid democratic process and a diversified economy.”

REGULATORY CHANGES: Ghana’s oil and gas regulations were also in flux during 2012 and the first half of 2013, with the Parliament debating the Exploration and Production (E&P) Bill. Raised initially in 2010, the E&P Bill will provide the first comprehensive legislation to regulate all aspects of the sector from bidding, to health and safety requirements, to local content. The bill will replace the 1984 PNDC Law, which has governed oil activities thus far and has a much more limited scope than the legislation being debated.

Some politicians and community groups look at the E&P Bill as an opportunity to extract more local benefits from the hydrocarbons industry. This happened during the Petroleum Revenue Management Bill debates in 2009 and 2010, in which local officials in the country’s oil-rich Western Region pushed – ultimately unsuccessfully – for a dedicated share of revenues.

EXPECTED IMPACT: The legislation will include a number of elements to secure benefits for the local economy as well as protect the environment from industry activities. “The government wants to transfer more and more activities to local firms, but the complexity of the discoveries will require a high level of technicality,” Christian Ibeagha, Schlumberger’s oilfield services manager, told OBG. “This transfer to local enterprises and expertise needs to be managed carefully: otherwise the costs of development can become to high.”

Environmental regulations would codify liability for spills and other environmental mishaps. One statute that has proven objectionable to industry stakeholders and community groups would allow the Ministry of Energy and Petroleum to decide when bids would be competitive. “There have been oil finds, so the risk profile has decreased for the Western/Tano basin, but it still remains a relatively expensive, deepwater, offshore environment,” Keag told OBG. “But the government perceives that risk is much lower now – which seems to be the impetus behind the proposed changes in new petroleum contracts.” Ensuring timely passage of the bill is crucial. Investment in Nigeria’s petroleum sector has practically frozen because the country’s Petroleum Industry Bill has stalled in Parliament for over five years.

MOVING FORWARD: While 2013 is likely to end without any headline investments in the industry, planning is already under way for 2014. Industry insiders have said that more than 15 rigs are contracted for Ghana’s offshore assets in 2014, indicating confidence that big contracts are set to be awarded. The two Keta basin blocks under contract will see drilling in 2013, and two additional contracts are under negotiation, according the World Bank’s 2013 energy sector report.

Kosmos has planned $330m in investment in Ghana in 2013, and the country remains a key part of its portfolio. An attempt by the firm in 2009/10 to sell its Ghana stakes has been dropped, according to Keag.

Meanwhile, Tullow is considering selling Ghana assets to focus on exploration as part of a company-wide strategy. The firm has already sold fields in the UK, the Netherlands, Bangladesh and Pakistan. “We are an exploration company, there’s no value in chasing production targets,” Tullow’s CEO Aidan Heavey told Bloomberg News in February 2013. “We will farm down developments as appropriate.”

With Jubilee producing at target levels and the TEN plan approved, the initial oil investors are beginning to see the rewards for their risk. The government may try to extract more gains, but must also continue attracting oil companies to explore its untested fields. Given Ghana’s sound institutions and relatively predictable regulatory environment, activity is expected to pick up in 2014, but foreign firms are watching legislation.