Oil Exploration is Ghana Ready?

There has been much talk about Ghana’s oil find and expectations are high even with the announcement of a last quarter deadline for the drilling of the country’s first commercial oil from the Jubilee Oilfield.
Politicians, analysts, economists, movers and shakers of the economy continue to shed light on how Ghana can avert the resource curse, which has its devastating impacts.
“We do not have to look far to learn lessons. Our neighbors in Nigeria are prime examples because of bad governance of their oil resources,” said Kojo Asante, Head of Programs at Ghana Center for Democratic Development.
There is no doubt that the discovery of oil and gas in commercial quantities in Ghana has raised the expectations of many Ghanaians.
Indications are that many Ghanaians see the oil discovery as the country’s last opportunity for national prosperity, which has eluded it after several years of dependence on cocoa, gold and timber.
President John Evans Atta Mills in his recent state of the nation’s address to Parliament was sure of the transformation of the Ghanaian economy as it becomes an oil-producing country.
President Mills explained that he would use the oil revenue that would accrue from the oil and gas discovery to propel the industrial development of Ghana.
This surely is good news as the people of Ghana currently depends largely on export of raw materials and would like to be counted among the rich industrial countries of the world.
The first major discovery on Ghana’s coastline was announced in June 2007 though exploration of oil and gas in Ghana started in 1896 in the onshore Tano basin.
31 wells were drilled between 1968 and the 1980s.
The oil industry in Ghana is significant as key international oil companies, including Tullow oil, Kosmos, Anadarko, ENI, Vitol, Afren, Hess, Vanco, Exxon Mobil and CNOOC have expressed interest in the sector.
The resource potential of the fields could be 4.5 billion though only 10 percent has been discovered so far.

The first phase of the oil exploration is expected to produce 120,000 barrels and 120 million cubic feet of gas daily while the second phase is projected to start by 2012 is expected to produce 250,000 barrels of oil and 250 million cubic feet gas per day.
It is projected that fiscal benefits for Ghana from the Jubilee Field per year base on a projected daily 120,000 barrels at the current world price of $60 per barrel would be $1 billion.
The amount represents less than 5.0 per cent of the country’s Gross Domestic Product of over $18billion.
The benefit, which is in respect of royalties, income tax and interest payments, if is to be shared among 23 million Ghanaians, will result in each receiving a paltry sum of GH¢17 per day,
To the Minister of Energy, Dr. Joe Oteng-Adjei, this amount is “woefully inadequate.”
According to him, however, this is an opportunity for Ghana to effectively reduce foreign exchange requirements for the importation of oil while increasing the country’s export earnings.
But the main question most observers ask when the issue of Ghana’s commencement of oil drilling comes up is, “Is Ghana ready?”
The Energy Minister acknowledges that the main challenges to be encountered when production starts would include issues of regulation, accurate tax assessment and collection, management of oil revenue and the continued increase in the use of local goods and services in petroleum operations.
“The discovery of oil and gas in commercial quantities has thrown up the challenge of how Ghana plans to manage its hydrocarbon industry and whether the country has the necessary legal and institutional framework in place to manage the industry,” he said.
Some of the existing petroleum legislations such as the Petroleum Exploration and Production Law, (PNDC Law 84), petroleum taxation and revenue laws, are yet to be amended.
PNDCL 84 spells out the rights and objectives of parties, and the sanctions to be applied in case of breaches and also provides a framework for the management of oil, gas exploration development and production. It states clearly that all petroleum products in its natural state are the property of Ghana.
Some experts have criticized the apparent delay in passing the law to regulate the sector ahead of the planned drilling, but government reacted by saying that it would not be rushed into commencing production.
Government says it would ensure that the exploration, development and production of petroleum are done in accordance with the terms of a petroleum agreement that is regulated and executed with the Minister of Energy.
Christina Samiah Yaba Nkrumah, Member of Parliament (MP) for Jomoro, whose constituency is one of the communities along the shores where the oil was discovered, is advocating for good policies that would protect the interest of Ghanaians.
The Minister of Energy said it is currently working on legislations to address the concerns of most people, assuring that laws would be put in place to ensure the provision of an investor friendly environment for domestic and international investors and to safeguard the maximization of benefits that would accrue from oil and gas discovery.
Currently, there are no concrete laws to dictate the fiscal regime that would demarcate the right level of income tax, resource rent tax, royalty and bonus payments to ensure that the government secures a fair share of all profits.
“We need to keep an eagle eye on the contracts that we are signing with the oil companies,” said the Executive Secretary of Transparency International’s local chapter, Vitus Azim.
Another crucial step in the management of the country’s oil industry is the need to address the shortage of the human resources.
Government has announced plans to set up a Petroleum Regulatory Authority (PRA) to oversee the industry’s operation, but does it have the technically qualified personnel in place?
With Ghana National Petroleum Corporation (GNPC) already lamenting over lack of professionals, it is likely that the emerging oil industry would come with human capital challenges.
This is not to say that GNPC does not have the capabilities, as it is on record that the corporation performed upstream assignments internationally in Angola and other places.
But it is a known fact that the upstream sector, which is technical as it entails exploring for prolific fields, is different from the downstream exploration.
“At this point, we acknowledge that we lack the know-how to manage this enormous resource but we are blessed with the experience of others,” said Francis Ackah, Engineering Manager at GNPC.
One can not rule out the issue of environmental challenges, but checks at the Environmental Protection Agency, the main body responsible for protecting the environment, shows that there is only one personnel with knowledge in oil.
We should also forget that oil is noted as a high risk for fire outbreaks. A visit to the Ghana National Fire Service (GNFS) Headquarters in Accra revealed an appalling state of the tenders, backup appliances, ambulances and command vehicles.
Also, one must also ask if our Ghana Navy is fully equipped to patrol and guard the coast of Ghana as the story of pair-trawling is not far-fetched.
“Government is fully aware of these challenges and is making every effort to overcome them,” said Joe Oteng.
Consequently, he said his outfit has put together a strategy to recruit and train professionals and other technical staff for the PRA.
There are many who agree with Catherine Abelema Afeku, MP for Evelua-Gwira, who thinks that it is important to get Ghana’s oil and gas governance right.
“We must not wait to have everything in place before exploration starts.”