With a good track record for policy stability, the government is looking to increase local participation in projects

The governing legislation for Ghana’s hydrocarbons sector was first passed in 1984, at a time when production was minimal. As a result, the discovery of far larger reserves and production potential in 2007 necessitated an overhaul of the country’s regulatory framework to accommodate everything from new revenues to environmental oversight. “Collectively, the legislation encompassed only around 29 regulations, which served its purpose at the time when the country was not viewed as an energy producing nation. But now that we are, more regulation is needed, especially around health and safety and local job creation, as Ghana no longer wants to be a mere recipient of fiscal incentives,” Theophilus Ahwireng, acting CEO of Ghana’s Petroleum Commission, explained to OBG.

Redefining The Terms

When the state struck its first significant revenue sharing deals with the producing consortium for the Jubilee field, Ghana’s upstream potential was still very much an unknown, and more favourable terms had to be offered in exchange for the participating partners to bear higher risks. In the years since, as additional reserves have been discovered, the level of risk has declined, prompting the government to further refine its regulations to, among other things, strengthen local participation in the value chain.

Ken Keag, vice-president and country manager for Kosmos Energy, operator of the West Cape Three Points block and partner in the Jubilee field and Deepwater Tano TEN development, told OBG, “The local content legislation comes at a very early stage in the development of the country’s oil and gas industry. Oilfield service (OFS) firms will be more willing to establish a firm presence on the ground once additional exploration activity yields new commercial discoveries and there is a longer-term continuum of exploration, appraisal, development and production activity, along with the associated OFS business opportunities.”

Local Content

February 2014 saw the implementation an act titled the “Petroleum Regulation on Local Content and Participation”, which stipulates Ghanaian companies will be given first preference in bids for new petroleum licences. There will also be a minimum 5% stake for local companies in every oil contract awarded to an international investor. In addition, the policy calls for international oil companies to give first consideration to procuring goods and services from within the country and to employ qualified Ghanaians where possible, with few exceptions granted.

The government aims for local firms to control 90% of oil activities by 2020, an ambition that William Kodwo Tewiah, managing director of fuel solutions provider Zen Petroleum, believes is both necessary and achievable. “Ghana has to create cottage industries around its resources the same way that Scotland did, where today you now have Scottish oil and gas service firms working all around the world,” Tewiah told OBG. The measure has received broad support from most operators in the country, provided implementation is done on a careful and considerate basis.

However, the goal will not be without its challenges. Christian Ibeagha, Schlumberger’s oilfield service manager for Ghana, Ivory Coast and the Remotes, explained to OBG, “The biggest problem with local content is the recognition of what it is.” To make it long-lasting, Ibeagha said that “the alliance company should be setting goals to render particular services for a project that are feasible given the level of know-how, all while developing additional skills through knowledge transfer.”

Technical Training

To help build up the needed capacity within the workforce, a number of initiatives are currently under way to improve training. Kosmos Energy and the other Jubilee concession partners, such as Tullow Oil, have sponsored a training centre at Takoradi Polytechnic in Ghana’s Western Region that aims to equip students with marketable skills and knowledge. In 2011 the World Bank provided the government with a $38m loan to support petroleum and petrochemical engineering instruction and research at the Kwame Nkrumah University of Science and Technology, as well as training at three technical institutes.

Getting Ready

For Harriette Amissah-Arthur, executive partner at Arthur Energy Advisors, this type of capacity building is crucial, as “the wholesale promotion of local content without first making locals ready to participate could cause problems down the road.” Sampson Akligoh, the head of research at Databank Financial Services concurs, telling OBG, “If you force localisation without market-friendly policies, it will not work. Ghana must focus on technology transfer, technical education, and research and innovation, so that international players have the confidence to hire and procure locally, and financial institutions also have the confidence to lend to local enterprises.”

Providing just that sort of environment is a priority for the government, to ensure that skills are transferred to the domestic workforce without negatively impacting investment potential or returns. For the Petroleum Commission’s Ahwireng, there is still a clear need for rules and provisions to govern this transition. “There is nothing in the local content act that takes away from an investor being guaranteed a recoupable rate of return, so there should not be any cause for opposition. In contrast to Norway, which also discovered hydrocarbons comparatively recently, we lack other industries from which to convert skills. We need to make sure that oil and gas projects allow us to create transferable skills, such as IT and welding, that we can then use to develop other areas of the economy.”

From Draft To Resolution

In April 2014, during an oil and gas summit hosted in Accra, the Ministry of Energy and Petroleum announced that the draft of the Petroleum and Exploration Bill, which was first tabled in 2010 and has been undergoing fine tuning since, had been approved by Cabinet and is now subject to final ratification by lawmakers.

According to local press, some of the key components of the draft reportedly include regulating the industry’s upstream sector and streamlining regulations; however, it will take time to actually be ratified and implemented. For an industry prefaced around balancing risk and reward in the face of large capital injections, investors want regulatory stability and predictability, especially in a climate of constrained balance sheets and rising project costs. Romain Gras, the managing director of engineering and fabrication firm Orsam Ortec, told OBG, “If Ghana is to remain an attractive investment destination in the region, improvement in productivity must accompany the rising costs of labour.”

Fortunately for Ghana, working in its favour is an encouraging track record, included a comparatively high success rate for drilling and fast turnaround for larger blocks, as well as a record of policy stability. The country’s hydrocarbons sector is still in its infancy, and the drafting and ratification of legislation, while protracted, has involved a level of openness and engagement that should provide investors with the long-term assurance they require. Bea Mensah-Tayui, Cybele Energy’s CEO, told OBG, “If local content initiatives are to be successful, local companies must have accountability on the deliverables. If contracts are awarded arbitrarily, this won’t inspire the local industry to develop skills.”