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Attempts to produce commercial quantities of oil in Ghana date from the late 19th Century, and at regular intervals between that time and the present the West African country has had its hopes dashed by enthusiastic announcements of commercial oil finds that have later turned out to be premature.

Anticipation was therefore far from fervent when the current crop of successful oil exploration companies expressed interest in prospecting for the valuable black stuff off the South-western coast of Ghana. It was a bold move, considering that just a few months before, Dana Petroleum, following a persistent pattern, had been compelled to abandon their concession in the area after failing to convince partners like Woodside and others that the commercial petroleum resource potential was worth their while in a risk-sharing joint venture.

Dana's experience was part of a trend that has dogged the West African country's oil ambitions throughout the 60s and 70s, the peak of the first phase of government of Ghana's relentless search for black gold.

By the early 80s, a decade of strained hopes had compelled the “petroeconomic establishment” in Ghana to seriously consider reform. A revolutionary-military government was then in power and felt obliged to demonstrate its technical and managerial superiority over the “inept” civilian and praetorian regimes it had overthrown. The Ghana National Petroleum Corporation, formed primarily to harness Ghana's engineering talent, was placed at the vanguard of the new thrust. Plans were drawn to set up an integrated gas production and thermal generation system to produce electricity to power local industries, and to pay for this relatively ambitious scheme by exporting Ghanaian expertise abroad, particularly to Angola and the South-West Atlantic littoral shelf in Africa. Energy distribution infrastructure also received attention, with intra-country pipelines and storage depot networks, as well as upgrades to the country's only refinery, forming part of a $100 million strategy to alleviate the country's energy poverty.

Oil majors like Amoco were enticed to engage, and soon, with the Tano basin having become the prime focus, some exploratory wells begun to bud, confirming the earlier evidence of commercial potential. Companies such as Devon and Vanco begun to move in.

The gradual shifts of focus from shallow to deep waters, and from the eastern to the western shore, accounted for the increasingly favourable results, so that Dana Petroleum, its funding constraints notwithstanding, could confirm the presence of petrologically significant structures in 2003. The residual emphasis at this time on shallow exploration however meant nevertheless that resources continued to be misapplied, as they'd been for several decades, well until mid-2003. It was Dana Petroleum's highly favourable assessment of the Western Tano deep water section that in subsequent years changed the game.

Even so, it was not until 2007 that the transition of emphasis to deep water was consolidated with the entry of an alliance of mainly British and American prospectors – Tullow, Anadarko and Kosmos – and in their wake a flurry of spectacular early exploratory successes.

While much of the action today is happening on the Western Coast, the eastern Keta Basin continues to attract attention, most recently from UK-Nigerian firm Alfren and Japan's Mitsui marking the first foray into Ghana of a Japanese player, albeit one backed predominantly by Japanese Government money. In the 1980s Keta was a major drawer, pulling in E&P operators like Diamond Shamrock into its inviting bosom.

According to the Ghana National Petroleum Corporation, a regulator cum government interest vehicle, 89 wells have so far been drilled in Ghana, and six discoveries have resulted from them, with 75% of 50 exploratory wells encountering “varying degrees of hydrocarbon shows”. There are at least 15 active players, spread along the Ghanaian shoreline and parts of the coastal interior. They include Gulf investors; Russia's Lukoil, which has committed to spending upwards of $100 million to onshore activity; and oilfield services companies from Norway and elsewhere in Europe, with one such company already providing equipment for the ongoing appraisal program in Jubilee.

Stakes in the Jubilee Field*

West Cape Three Points
Anadarko - 30.875%
Kosmos Energy -30.875%
Tullow - 22.896%
Sabre Oil & Gas - 1.854%
E.O. Group (only Ghanaian private interest) - 3.5 percent
Ghana National Petroleum Corporation - 10%

Deepwater Tano
Anadarko - 18%
Tullow - 49.95%
Kosmos Energy - 18 percent%
Sabre Oil & Gas - 4.05%
Ghana National Petroleum Corporation - 10%

*”Jubilee field” refers to oil discoveries made separately in the two blocs but, because they are linked, are required to be developed in unison according to Ghanaian law by means of a “unitization agreement”.

Jubilee is the jewel in the crown of Ghana's nascent oil boom. No other prospect, notwithstanding recent hysteria about other plays in Deepwater Tano, comes close in terms of potential. Straddling between two rather fertile deep water blocs: West Cape Three Points and Deepwater Tano, Jubilee is said by its operators to hold between 500 million and 1.8 billion recoverable barrels of oil. Despite years of skepticism about the geology of this part of the Ghanaian territorial seabed, many analysts concur with the owners' analysis of ongoing appraisal work that the field is indeed world-class.

The development of Jubilee is proceeding on a “fast-track basis”, in which exploration, appraising and development appears to be going on concurrently. This has drawn some criticism from a number of observers, who have pointed out that a similar approach to the development of the nearby Ivorian Espoir field, of which one of the Jubilee partners, Tullow, is a principal developer, has not yielded the spectacular production results that were forecast. Indeed Tullow has had to endure some painful write-offs in its now overshadowed North Sea operation due to the same aggressive discover-to-production timeline model.

Other reservations that have been raised relate to the possibility that international oil industry culture may clash with policy culture in Ghana. E&P (exploration & production) companies like Tullow and Kosmos are rewarded on the market based less on their production successes or their hard assets than on their estimated proven reserves. Thus it is in the interest of such companies to drill aggressively and update the market frequently about any seeming success. Tullow has seen its share price boosted by more than 1000% over the cause of the past five years because of its intensive drilling program across the coast of West Africa. This kind of simulated hyper-optimism could easily saturate local discourse in cash-strapped countries like Ghana and lead to fiscal incontinence, as public purse holders scramble to sell their chickens before they have hatched.

During Ghana's recent electoral campaign, for instance, various members of the two major political parties were heard bandying about figures in the low ten figures as Ghana's likely take from the oil find. Tullow's aggressive development strategy has moreover emplaced in the public mind an oil delivery date of mid-2010. Some have argued that the prospect of inward-bound oil funds may have significantly raised the stakes in that election, producing some hair-raising moments and a tight finish for the current ruling party.

It is obvious however from basic calculations that Ghana can hardly look up to oil to remedy its short-term financial headaches, brought about by a bloated public sector expenditure profile (70% of revenues go to servicing this “burden”) and unaffordable utility subsidies which have nearly bankrupted various state-owned energy producers and distributors, and severely constrained the country's only petrochemical refinery. Even if oil does stay on the $50 mark for 2009, as predicted by Merrill Lynch and Moody's Investor Services, and climb to $55 in 2010 as the latter firm of analysts is forecasting, Ghana's deep water oil industry will still have little cause to celebrate. The comfortable range is between $65 and $75. One reason why the industry will forever be very sensitive to the price of oil on the international markets is the deep water profile of nearly all the best prospects. One of the partners in the project, Tullow, once offered a $15 per barrel production cost estimate. The United States Energy Administration suggests close to $30 is the more typical figure for West Africa deep water.

Already there are hints that the cost dynamics are constraining the ability of some of the partners to secure favourable financing, though of course the ongoing credit crunch has played no small a role. The Erik Raude semi-submersible which is at work on the Deepwater Tano bloc in recent months is reported to have been leased at a dayrate of $636,000 with an option to renew at $607,000. These costs are reflected in the $3.4 billion or so needed to develop the first phase of the Jubilee field in readiness for the production of 120,000 barrels per day. It is estimated that some $12 billion might be required to take the production level to 500,000 barrels per day. Credible reports suggest that all the Ghanaian owned interests will pull out before commercial production begins confirming rumors that they are struggling to raise their share of the funds. At least one major partner, Kosmos, is also said to be facing a financing hurdle, and rumours are rife that the Dallas-based firm will sell its stake, pocket the windfall, and move on.

By some calculations, 120,000 barrels per day over the first few years will bring in about $100 million in taxes and royalties, from a gross turnover of about $1.5 billion. The seeming discrepancy owes to the fact that Ghana's receipts from the oil sector, at least until the present agreement is modified, is heavily dependent on 30% corporate taxes to be levied on the production companies. Given the cost of developing the oil resource, and the cost of borrowing, it is unlikely that the companies will make sufficient profits for taxes to rein in much. Tullow recently refinanced its debt into a $2billion facility at 3.75% above the London inter-bank offered rate, nearly 300 basis points above what it had previously enjoyed. Continued    Source: Bright B. Simons

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