Companies seeking to develop new oil blocks off the coast of Ghana are likely to run into challenges owing to the devastating effects of the novel coronavirus, a petroleum economist, Dr. Theo Acheampong, has said.
Ghana was betting on the development of new oilfields in deep waters to entrench its position as a full-grown oil producing country—but with COVID-19 crashing the price of crude oil, Dr. Acheampong argues that such developments will likely not see the light of day.
The country’s current oilfields, Jubilee, TEN and Sankofa, produce about 200,000 barrels of oil per day, and a development plan submitted by Norwegian firm Aker Energy last year for its Pecan oilfield was expected to nearly double that output by 2023.
But with the price of crude oil falling below US$30 per barrel, the Norwegian firm has pulled the plugs on its US$4.4bn development, located in the Deepwater Tano Cape Three Points block offshore, until further notice.
The company subsequently announced a termination of its agreement with Malaysian ship-builder Yinson for the provision of a Floating Production Storage and Offloading (FPSO) vessel for the project.
The freezing of the Pecan field development, according to the petroleum economist, reflects the turmoil in the industry, adding that indigenous oil company Springfield may follow the path of the Norwegian firm due to the same challenges.
The Ghanaian firm, which made headlines last year for discovering significant oil reserves in the West Cape Three Points Block 2, was in the market for a technical partner to help develop and operate the field, expected to be one of the largest in Africa.
“For Springfield, they need to find a very reputable farm-out partner, an international oil company, because they have 85 percent equity in the field, and I don’t think they will be able to raise the financing in this environment to do the development,” Dr. Acheampong stated.
Business24’s source at Springfield who asked not to be named confirmed that development plans have been iced for now, with discussions currently ongoing between the company and government.
“Currently, we have put everything on hold; we are waiting till at least June 2020 to see how the situation will evolve,” he said.
With the delay likely to affect Springfield’s bid to become the first fully-fledged African company to drill in deep waters, Dr. Acheampong said there is little government can do to heal the company’s woes.
“There is very little that government can do at the moment beyond the fiscal incentives. If you look at the contract [with government] there is royalties, additional rent entitlement, corporate income tax—and the way the system has been designed, if oil prices go down government will be earning lower revenues from these fields.
On the tax side, I don’t think there is much that the government could actually do for them because of the stabilisation and the ringfencing provisions in the petroleum agreement, which was supposed to be fiscally-neutral and progressive and react to swings in oil prices.”
However, Dr. Acheampong believes that one of the ways government could probably help the cause of Springfield is to fast-track the approval process should the company decide on its partner for development.
According to him, beyond that, any help government may seek to extend to Springfield must be an industry-wide approach that benefits all players. However, judging by how government’s revenues have been hit by the virus, such a fiscal stimulus may not be prudent, he said.