GHANA INSTITUTE OF GOVERNANCE AND SECURITY(GIGS)
FOUR YEARS OF OIL PRODUCTION IN GHANA UNDER THE MODERN
CONCESSION SYSTEM: AN INDEPENDENT OPERATIONAL RESULT, 2010 – 2014.
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
Total Volume Lifted
Barrels
124,947,373
Due Ghana
Royalties,
Carried 21,428,281
and
Participation
Interests.
Corporate/Profit
Taxes
Surface Rentals
Net Due to FOCs
103,519,092
US Dollars
US Dollars
13, 496,815,231
%
2,755,084,951
10,741,730,280
21
79
2,305,440,869
448,379,663
1,264,419
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$2,685,432,759; a Gross Return of 64 percent on initial
capital investment per year. This awkward and exploitative situation is what the Petroleum
Exploration and Production Bill currently before Parliament is seeking to consolidate into Law to
continue to rob us of an equitable and fair share of our oil and gas resources in the name of
investment.
TABLE 2
PETROLEUM REVENUE FROM JUBILEE FIELDS AND OTHERS, JANUARY 2011DECEMBER 2014 AND DISBURSEMENT
US$
Jubilee Fields
Surface Rentals from other fields
Royalties- Others
Saltpond, Lushana, Omikron
Price Differential-Unipec
907,050.59
555,262.14
297, 248.72
1,759,561.45
2,756,844,512.45
Grand Total
Transfer to GNPC
Equity Finance
Carried & Participation Interest
Sub Total
Ghana Stabilization Fund
Ghana Heritage Fund
US$
2,755,084,951
369,597,233.67
501,430,399.12
871,027,632.79
1,885,816,879.66
438,640,000
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
Total Volume Lifted
Less
Royalty 5 percent
Production Cost
[10,000 x 365 x 4years]
Capital Cost Recovery
[10,500 x 365 x 4years]
Total Direct Cost of Production
Profit Oil to be shared
Barrels
124, 947,373
US $
13,496,815,231
6,247,368
14,600,000
674,840,691
1,577,092,000
15,330,000
1,655,946,600
36,177,368
88,770,005
3,907,879,291
9,588,935,940
Ghana 60percent
FOC 40%
53,262,003
5,753,361,564
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) 42% - 60%.
TABLE 4
Due Ghana
Royalties
Profit Oil
Total
Barrels
6,247,368
53,262,003
59,509,371
US Dollars
674,840,691
5,753,361,564
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
Production Cost
Capital Cost Recovery
Profit Oil
Total
Barrels
14,600,000
15, 330,000
35,508,002
65,438,002
US Dollars
1,577,092,000
1,655,946,600
3,835,574,376
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
Production Sharing Agreement
Modern Concession
Losses
Barrels
59,509,371
21,428,281
38,081,090
US Dollar
6,428,202,255
2,755,084,951
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
signed
Senior Research Officer
Oil and Gas
GIGS
David Agbee
signed
Executive Director
GIGS
www.gigsg.org
+0233 0266 592323