According to the Africa Center for Energy Policy analysis of the deal, the fiscal benefits of the entire project based on the working interests of the parties give ENI Ghana and Vitol Ghana (Contractors) 56% of total cash flows and profits of US$7billion, equivalent to the cost of the project.
It explained that, based on after tax working interest, the contractor group will be entitled to US$14.3 billion (56%) of total cash flow over the project life whilst the state is entitled to US$11.1 billion (44%).
This reveals that, the country’s take is lower than what pertains in previous contracts.
Given that the project is a US$7 billion project, the contractors will be making profit of US$7billion. This makes the project a profitable one at an oil price of US$90 per barrel and gas price of US$9.8 per mmBtu, Dr. Mohammed Amin Adams, Executive Director of African Center for Energy Policy had revealed.
However, another local policy think tank, Imani Ghana has demanded that, the Government of Ghana must make full disclosure on the US$7 billion gas deal.
The Founding President Franklin Cudjoe had said, the Government must learn from the current suspicion-riddled power purchase deal with AMERI Energy and try to avoid a similar fate with the ENI/Sankofa gas project.
Speaking at the 5th IMANI Inspirational Public Sector Leadership Awards last week, Mr Cudjoe stated that, “it will be in the interest of the government and Ghana to consider critical commentary that have been made on energy projects such as AMERI power and ensure that the biggest one to come, the US$7bn Eni project, is equally devoid of suspicion.”
“Most importantly, government should publish all these contracts so we can all make positive contributions and remove the elements of surprise. It makes no good reading suspicions in the international media about your country’s energy deals when we can avoid them altogether by first accounting to us locally. Government should make us prouder defending them internationally by giving us the tools of non-negotiable transparency,” Mr Cudjoe said.
ENI recently gave the government of Ghana the assurance of its commitment to the development of the West African oil producer’s oil and gas industry despite the continuously falling price of crude oil on the world market.
ENI’s Executive Vice-President for the oil firm’s sub-Sahara African Regional Branch, Mr. Umberto Carrara, gave the assurance to the Government of Ghana when he paid a courtesy call on Petroleum Minister Emmanuel Armah-Kofi Buah earlier this month.
He said despite the fact that the oil price fall has forced many Exploration and Production (E&P) companies to cut tens of billions of dollars in capital spending, ENI will remain committed to its operations on the Offshore Cape Three Points (OCTP) Sankofa Gas Project.
This assurance statement has raised follow-up questions as to why the keen interest of Eni Ghana to still remain committed to the development and production of the gas field, despite the unattractive pricing of the commodity on the market which is likely to affect the profit margins of the company.
Further analysis of the terms and conditions of the Agreements and Term Sheets by Economy Times showed that, the deal is fraught with badly negotiated terms, and at most is serving the interest of the Contractors rather than Ghana’s.
The findings from the analyses show that the government offered over-generous terms to the Contractors just to satisfy Ghana’s thirst for gas supplies. In trying to satisfy the country’s demand for gas, the incentives provided to the Contractors exceeded what pertains in international transactions of similar nature.
It could be recalled that, President John Dramani Mahama recently witnessed the signing of Agreements between GNPC and the Offshore Cape Three Point (OCTP) Partners; ENI Ghana and Vitol Ghana over a US$7 billion integrated oil and gas development in the Sankofa-Gye-Nyame Fields.
The Agreement covers terms and conditions for the financing of the project by the Contractors and for the sale of the Contractors share of gas produced to GNPC.
Again, the analysis of the deal revealed that, the Government’s fiscal support package, which included an exempt debt-to-equity ratio of 2:1 at 7% interest on the commercial loans of the Contractors, would lead to significant revenue losses to the state over the project life of 20 years, since interest expenses are tax deductible.
According to the agreement, the state must guarantee that at any time, the free fiscal support to the Contractors remain US$125 million to make the initial gas price of $9.8 per mmBtu.
This could run into several millions of dollars when gas prices fall. In the event that the contractors source the loans from their affiliates, the gains to the Contractors could increase at Ghana’s expense.
The dangerous part of the term and condition of the contract is that, the Government is required under the Security Package and Fiscal Support Agreement to issue five (5) different Sovereign Guarantees estimated at about US$1.5 billion in addition to World Bank and IDA guarantees. This situation over-exposes the state to too many risks and demonstrates the lack of investor confidence in the Ghanaian Government.
Dr. Amin Adams in the past challenged that, GNPC is required to make an upfront payment in cash to the Contractors or allow the Contractors to over-lift GNPC’s share of oil at the beginning of production of oil, for the purpose of making Gas price of US$9.8 per mmBtu viable.
However, although the amount is expected to be recovered at the end of production, the recovery amount does not attract interest charges. This is not consistent with sound financial management, he noted.
The Government is required to allocate the maximum 55% Net Carried and Participating Interest to GNPC beyond the 15 year period for the capitalization of GNPC as provided in the Petroleum Revenue Management Act 2011 (Act 815) or PRMA. This violates Section 7.3 of the PRMA and will therefore amount to an illegality.
According to the details contained in the Ghana gas masterplan, gas from the fields will be processed in the FPSO and transported via a pipeline to onshore gas-receiving facilities located near the village of Sanzule in the Western Region of Ghana. The gas will further be compressed and injected into the Western Corridor Gas Pipeline and supplied to domestic industrial customers. Crude oil will be stored in the FPSO and will be supplied to international markets by means of tankers.
Ghana’s Ministry of Energy has further agreed to enhance the gas transmission system with compression stations and connections to industrial users, to complement the OCTP project.
The Offshore Cape Three Points (OCTP) Integrated Oil and Gas Project includes the combined development of the Sankofa Main, Sankofa East, Gye Nyame, Sankofa East Cenomanian and Sankofa East Campanian fields. The former three are non-associated gas fields while the latter two are oil fields. The development of the fields started in January 2015.
The fields are located within the OCTP block in the Tano Basin, at water depths ranging from 600m to 1,000m and are approximately 60km off the coast of Ghana. The area covered by the fields is approximately 694km².
Eni’s subsidiary, Eni Ghana Exploration and Production, is the operator of the block and holds a majority stake of 47.22% in the same. Vitol Upstream Ghana holds a 37.78% interest in the block and state-owned Ghana National Petroleum Corporation holds a 15% interest, with an option to further increase its share by an additional 5%.
The overall investment on the project is estimated to reach US$7bn. The World Bank is providing a partial risk guarantee for the project.
The offshore fields are estimated to hold approximately 1.5 trillion cubic feet (tcf) of gas and approximately 500 million barrels of oil. The reserves are expected to continuously feed Ghana’s thermal power plants for more than 20 years.
Oil production from the project is expected to start in 2017 and peak at 80,000 barrels of oil a day in 2019, whereas gas production is expected to start in 2018, with a daily production capacity of 170 million cubic feet. This would be enough to generate an additional 1,100MW of power for Ghana.
The development plan calls for the installation of subsea production systems, in addition to flowlines and risers connected to a leased floating, production, storage and offloading (FPSO) vessel.
Source: Adnan Adams Mohammed
