Four years of Oil Production in Ghana under the modern concession system: An Independent Operational result, 2010 – 2014
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- Created on Monday, 02 March 2015 14:19
The fourth year of oil production in Ghana, precisely in the Jubilee Fields which is our test case for advocating for adoption of pure Production Sharing Agreement (PSA) to regulate our Upstream Oil Industry, has ended with the economy of Ghana in the doldrums. The country and her citizens are facing numerous challenges which are affecting peace, stability and security.
With the publication of the Petroleum Receipt and Distribution 4th Quarter Report of 2014, we want to bring to the notice of Ghanaians and the whole world how Ghana fared after four years of oil production under the current prevailing hybrid system – the Modern Concession – which the Draft Bill currently before Parliament intends to consolidate into Law to give retrospective legal backing to, because all the Agreements and Contracts signed up to date are based on it. We do so by issuing our Independent Operational Result from 2010-2014.
The second part represents what Ghana’s position would have been by adopting pure Production Sharing Agreements which countries with lesser stature than Ghana are adopting. Currently, there are over 80 oil and gas producing countries in the world operating under the PSA because it is the most equitable and fairer fiscal regime for sharing oil revenue with the foreign oil companies. This guarantees them equally good returns on their investment, as well as equitable and fair share of the oil revenue to host countries.
The sources of data from which we have prepared our report are from 10th July, 2008 Daily Graphic publication on the Upstream Oil Industry in Ghana by GNPC, Petroleum Receipts and Distribution Reports from 2011 – 2014 published by the Ministry of Finance and Economic Planning and Petroleum Holding Fund and Ghana Petroleum Funds, Semi-Annual Report by Bank of Ghana.
TABLE 1
OPERATIONAL RESULTS OF JUBILEE FIELDS FROM JANUARY 2011 – DECEMBER 2014 UNDER CURRENT HYBRID SYSTEM- MODERN CONCESSION
| Barrels | US Dollars | US Dollars | % | |
| Total Volume Lifted | 124,947,373 | 13, 496,815,231 | ||
| Due Ghana | ||||
| Royalties, Carried and Participation Interests. | 21,428,281 | 2,305,440,869 | ||
| Corporate/Profit Taxes | 448,379,663 | |||
| Surface Rentals | 1,264,419 | |||
| 2,755,084,951 | 21 | |||
| Net Due to FOCs | 103,519,092 | 10,741,730,280 | 79 | |
Table 1 shows 124,947,373 barrels of oil valued at US$13,496,815,231 were produced and exported within the 4 years. Ghana was allotted a total of 21,428, 281 barrels made of Royalties, Carried and Participation Interests valued US$2,305,440,869; Corporate Taxes of US$448,379,663 and surface rentals of US$1,264,419 were paid by the foreign Oil Companies all totaling US$2,755,084,951 representing 21% of total Production Revenue and Gross Yearly Average Revenue of US$688,771,237.75.
The 21% represents the Minimum Government Take which is far below the 42% International Standard set by the US Government Accountability Office [GAO]. Minimum Government Take is the Total Economic Returns that accrues to the host Government or Country from Total Production Revenue by allowing its oil and gas resources to be exploited under any fiscal arrangement or contract. The total economic returns are made of royalties, profit taxes, bonuses, participation and carried interests and any other form of payments in kind. Estimated Government Take in sub-Sahara Africa is between 44 – 85%.
The 21,428,281 barrels allotted Ghana in the 4 years are below Ghana’s 1 year requirement of about 24 million barrels. The foreign Oil Companies whom we call our contractors made away with 103,519,092 barrels of oil valued US$10,741,730,280 representing 79% of Total Production Revenue, an yearly average income of US$2,685,432,759; a Gross Return of 64 percent on initial capital investment per year. This awkward and exploitative situation is what the Petroleum Exploration and Production Bill currently before Parliament is seeking to consolidate into Law to continue to rob us of an equitable and fair share of our oil and gas resources in the name of investment.
TABLE 2
PETROLEUM REVENUE FROM JUBILEE FIELDS AND OTHERS, JANUARY 2011- DECEMBER 2014 AND DISBURSEMENT
| US$ | US$ | |
| Jubilee Fields | 2,755,084,951 | |
| Surface Rentals from other fields | 907,050.59 | |
| Royalties- OthersSaltpond, Lushana, Omikron | 555,262.14 | |
| Price Differential-Unipec | 297, 248.72 | |
| 1,759,561.45 | ||
| Grand Total | 2,756,844,512.45 | |
| Transfer to GNPC | ||
| Equity Finance | 369,597,233.67 | |
| Carried & Participation Interest | 501,430,399.12 | |
| 871,027,632.79 | ||
| Sub Total | 1,885,816,879.66 | |
| Ghana Stabilization Fund | 438,640,000 | |
| Ghana Heritage Fund | 178,900,000 | |
| 617,540,000 | ||
| Net Due ABFA | 1,268,276,879.66 |
Table 2 above shows a Grand Total of US$2,756,844,512.45 was earned from the petroleum operations within the four years. Transfer to GNPC totaled US$871,027,632.79, 32% of the Grand Total. Payment into the Ghana Stabilization Fund and Ghana Heritage Fund was US$617,540,000 as at 30th June 2014.
Net Balance of US$1,268,276,879.66 due ABFA averages US$317,069,219.92 per year available to government for development.
The international practice and standard is, allocations are made from daily production to cater for daily operating technical costs. The lead operator under the current prevailing system is supposed to be lifting 10,000 barrels a day to take care of such costs. But under this hybrid system Ghana is being made to contribute also towards daily operating and technical costs apart from contributing towards Capital Development Cost. This we consider abnormal and a rip-off. Ghana therefore, within 10 years, would have to hand over US$1.8bn to the lead operator for participating in the project. Therefore, under the current prevailing system, virtually all the transfers to GNPC shown in Table 2 are paid back to the lead operator as Capital Development Costs and contribution towards daily operating and technical cost. GNPC is expected to be paying over US$180m yearly over the next 10 years to the lead operator (Energizing Economic Growth in Ghana 2013).
Ghana would be better placed, as illustrated in the Tables below, without participating in the project by adopting the simplest Production Sharing Agreement, giving all the most attractive investment incentives in the Upstream Oil Industry to the foreign Oil Companies. The incentives are exemption from import and export duties, unlimited capital cost recovery and long tax holidays. These are the basic assumptions underlying our calculation. In the subsequent tables 3 -6 are presented what Ghana’s position would have been operating under pure Production Sharing Agreements, giving out the above investment incentives, and then losses therein suffered operating under the current prevailing hybrid system – the Modern Concession.
TABLE 3
CALCULATION OF POSITION UNDER PRODUCTION SHARING AGREEMENT
| Barrels | US $ | |
| Total Volume Lifted | 124, 947,373 | 13,496,815,231 |
| Less | ||
| Royalty 5 percent | 6,247,368 | 674,840,691 |
| Production Cost[10,000 x 365 x 4years] | 14,600,000 | 1,577,092,000 |
| Capital Cost Recovery[10,500 x 365 x 4years] | 15,330,000 | 1,655,946,600 |
| Total Direct Cost of Production | 36,177,368 | 3,907,879,291 |
| Profit Oil to be shared | 88,770,005 | 9,588,935,940 |
| Ghana 60percent | 53,262,003 | 5,753,361,564 |
| FOC 40% | 35,508,002 | 3,835,574,376 |
| 88,770,005 | 9,588,935,940 |
Note GNP gave 10,000 barrels per day as production cost and 10,500 barrels as Capital Cost recovery on 10th July 2008 Daily Graphic.
If Ghana had adopted and were operating under the Production Sharing Agreement, Ghana would have received a total of 59,509,571 barrels of Oil worth US$6,428,202,255 within the 4 years of operation. This amount is exclusive profit taxes, participation interest and surface rentals. The 59,509,371 barrels of oil is equivalent to Ghana’s oil requirement for a little over 2 years as against less than a 1 year under the current hybrid system.
(See Table 4 below) the 47.70% is the “Minimum Government Take” which falls within the standard set by the US Government Accountability Office (GAO).
TABLE 4
Due Ghana
| Barrels | US Dollars | % | |
| Royalties | 6,247,368 | 674,840,691 | |
| Profit Oil | 53,262,003 | 5,753,361,564 | |
| Total | 59,509,371 | 6,428,202,255 | 47.70 |
The foreign Oil Companies on the other hand would receive 65,438,002 barrels worth US$7,064,612,976,
[See Table 5 below].
Note: the Capital Cost Recovery plus Profit Oil totaling US$5,491,520,976 exceeds the initial Capital Investment of US$4billion which Ghana also contributed to. The profit oil due the foreign oil companies yielded 91.30% Returns on the total initial investment of US$4billion.
TABLE 5
Due Foreign Oil Companies
| Barrels | US Dollars | % | |
| Production Cost | 14,600,000 | 1,577,092,000 | |
| Capital Cost Recovery | 15, 330,000 | 1,655,946,600 | |
| Profit Oil | 35,508,002 | 3,835,574,376 | |
| Total | 65,438,002 | 7,068,612,976 | 52.30 |
For not operating under Production Sharing Agreements Ghana lost in the four (4) years 38,081,090 barrels of oil worth US$3,673,117,304.
[See Table 6 below].
TABLE 6
LOSSES SUFFERED BY GHANA OPERATING UNDER THE CURRENT PREVAILING SYSTEM – MODERN CONCESSION
| Barrels | US Dollar | |
| Production Sharing Agreement | 59,509,371 | 6,428,202,255 |
| Modern Concession | 21,428,281 | 2,755,084,951 |
| Losses | 38,081,090 | 3,673,117,304 |
Ghana would continue to lose heavily every year when other oil fields come on stream if the Petroleum Exploration and Production Bill is passed, despite the increase in the Carried Interest to 15% cap which has always been used by the supporters of the Bill as an improvement in the fiscal provisions.
Once again we want the whole world to know that the Government and the whole Ghanaian society have been deceived and misled to believe that what the elite technocrats in the Ministry of Energy, GNPC and allied bodies are foisting on us is the best that can be achieved and that the Bill is a good one in the interest of Ghanaians which is not true, but a deceit.
In the light of the above exposition, whereby Ghana would have earned US$6.428 billion in 4 years and over US$60 billion from the entire production life of the Jubilee fields by adopting pure PSA as against the US$2.75 billion in 4 years, and US$19.2 billion estimated by the World Bank under the current prevailing system, should we allow our representatives in Parliament to pass the Bill? Our answer is a BIG NO! We are ready and prepared to debate in public officers of the World Bank, Oxfam America, Revenue Watch Institute, the Leaders of the 135 CSO Platform on Oil and Gas, ACEP and other Think-Tank groups who are supporting this exploitative Bill which no progressive country in this 21st Century would pass to regulate her Oil and Gas Industry.
In the light of the above, we humbly appeal to the Regional and National House of Chiefs, the Trade Union Congress, the Catholic Bishops Conference, the Muslim Council, The Christian Council of Ghana, the Association of Pentecostal and Charismatic Churches, the National Union of Ghana Students, the National Peace Council, the Council of State and all other Organizations and Concerned Citizens to call upon the President and the Minister of Energy and Petroleum to withdraw the Bill, because the passage would amount to complete eternal economic and modern day slavery and unprecedented economic robbery in the name of investment Mr. Kofi Annan has been complaining about.
We also appeal to and plead with our representatives in Parliament to drop their political colours in the interest of Mother Ghana, the present as well as the future generations to return the Bill and call for a wider public discussion and debate to determine what would be beneficial to Ghanaians’ wider interest and needs. We have lost on gold, we cannot afford to lose this time round on the black gold. We live in the midst of plenty as a Nation, but we are poor and have become beggars. Let us adopt the pure Production Sharing Agreements to maximize the most potential benefits from our oil and gas resources.
…………………….
Solomon Kwawukume
Senior Research Officer
Oil and Gas
GIGS