Jubilee Oil Cash -Battle Over War Chest

..Who keeps watch and who benefits?

By J. Ato Kobbie, Managing Editor

When oil finally gushes out from the belly of the Jubilee Field, six partners will share the raw crude and Ghana will smell commercial oil dollar from the field for the first time.

But even before December arrives, Government’s attempt at managing public expectations from the oil resource appears to have coincided with a fierce battle as to who controls the kitty or who butters his daily bread from the oil revenue.

Whilst a debate over whether to set aside a chunk of the oil revenue or not raged on, Chiefs from the Western Region, the region closest to the offshore Jubilee Oil Field, have stepped in with a stake.

Plea for 10%

The chiefs are asking for the setting aside of 10% of oil revenue to take care of the region’s development, since it trailed in infrastructure development in the country. The Chiefs’ petition, which they submitted to Parliament last week Wednesday, November 17, 2010 had various proposals they wanted incorporated into the Petroleum Exploration and Production as well as Petroleum Revenue Management bills currently before Parliament.

The Chiefs, who went to Parliament House, led by Awulae Attibrukusu III, President of the Western Regional House of Chiefs, are also asking for a quota in the membership of the various committees to be set up for the management of the oil and the revenue.

'We are ten Regions so even if we are dividing it Region by Region, it’s ten percent to each Region but we want exclusively that because of the neglect we have been subjected to by various Governments to be exclusively for the development of the Western Region,' Awulae Attibrukusu III said in response to questions from the media.

Meanwhile, some Parliamentarians are themselves trying to angle out the setting up of an external body to take charge of transparency and monitoring of the revenue, insisting that both the Assurance and Public Accounts committees of the House have responsibility of keeping watch over such revenues.

JUBILEE CASH MIX

With the Jubilee Field commercial oil production contributing approximately GHC587 million, constituting 6% of total national revenue in 2011, it is now becoming clear how unrealistic some of the expectations from the oil resource were.

For now, what is obvious is that the partners in the field, at least for the initial period of production would be recouping some of their investments, which totals close to $5billion.

Since the windfall from the oil would come in the form of corporate income tax, which is around 35% on profit, the real benefits from the oil on an even keel would be after the partners have recouped a chunk of their investments, which would leave the country with higher participation and corporate tax as well.

With the initial gross production pegged at 50,000 barrels of oil per day (bpd), Ghana, which would be the first to reap from the oil, would harvest only 2,500 bpd, which is the country’s 5% royalty entitlement under the terms of the petroleum agreements covering the Jubilee Field.

It is from the ensuing net production after this stage that the ongoing production cost would be deducted.

This would be followed by GNPC taking its 10% carried interest and 3.75% additional interest of oil.

The next stage is the setting aside of oil in repayment for the partners’ development cost, followed by a deduction of oil in repayment of GNPC’s share of the development cost, based on its 3.75% additional oil entitlement.

When the various costs have been deducted, the contractors (partners) will then share the remaining oil in proportion to their stake holding.

It is this share of the oil that would be subject to 35% corporate tax deduction.

Even at this stage, the state is still entitled to a proportion of the remaining oil based on the economics of the petroleum agreements signed.

Higher crude oil prices increase the potential of early recovery of investments by the partners. However an environment of high crude oil prices is normally accompanied by high costs of production as well.

In the first year of commercial production, for instance, nothing much can come in the form of corporate income tax, as the stakeholders would not have recouped any significant portion of their investments, let alone declaring profit.

However, since the investment is deemed to be recoverable over a defined period of time, a high world market price of crude oil, could accelerate the rate at which the partners recoup their investments and vice versa.

Tullow Oil, which is Operator of the Jubilee Field holds the highest stake of 34.7046%, with Kosmos Energy (Technical Operator) just as Anadarko, each holding 23.4913%. GNPC holds 13.7500%, with Sabre Oil and Gas and the E.O. Group, holding 2.8127% and 1.7500% respectively.

Each partner’s holdings would determine how much oil it carries away after the deduction of production and the field development costs, which would be spread over a period.

The Ghana Revenue Authority has already declared the FPSO a port and would therefore deploy Customs Officials on board the vessel to monitor oil flow.

Phase One

Under phase one of the phased production of the Jubilee Field, the floating production, storage and offloading (FPSO) Kwame Nkrumah MV 21 vessel, would exploit a 278 million barrel reserve of oil at 120,000 bpd together with gas at 120mm scf/day.

Already, 16 wells have been drilled and tied back via subsea infrastructure to the FPSO.

FPSO Kwame Nkrumah has a production and processing capacity of 120,000 barrels of oil and 160 million cubic feet (mmcf) of gas per day, with storage capacity of 1.6 million barrels of oil. The field is to be exploited in a water depth of approximately 1,300-meters, using the FPSO.

The first 200 billion cubic feet of natural gas is already forming the basis of the development and construction of a gas processing complex, which is currently planned to be sited at Bonyere in the Western Nzema Area of the Western Region.

Commercial oil was discovered in the Jubilee Field in successively in 2007 by Kosmos Energy and Tullow Oil operated fields respectively.

Phase Two

The phase two of the Jubilee field production requires additional infrastructure, to double production to 240,000 Barrel/Day Oil Production and also 240 MMSCF/Day Gas Production