Ghana, now in its fourth year of oil production, has projected that its oil reserves could yield about $20 billion in revenue within the next five years, and it wants a fair share of the amount to remain in the country.

A new law, the Petroleum (Local Content and Local Participation) Regulation, 2013, to achieve this goal has come into effect in Ghana. It requires oil and gas companies to make greater use of local products and services. The law, which was passed by the Ghanaian Parliament in November 2013 but took effect Feb. 1, 2014, is expected to ensure that oil discoveries benefit Ghanaians, while also allowing foreign companies operating in the country to get fair returns on their investments.

The law’s main purpose is the maximization of value addition and job creation through the use of local expertise, local goods and services, local business and local financing in the petroleum industry. Other aims of the local content are developing local capacity through education, skills transfer, expertise development and the transfer of technology; increasing the capability and international competitiveness of domestic businesses; creating petroleum and related supportive industries; and providing for robust and transparent monitoring and reporting systems to ensure the delivery of local content policy objectives.

Under the law, Ghanaian companies will be given first preference in bids for petroleum licenses and petroleum agreements. The law further gives Ghanaians the opportunity to own a minimum 5% stake in any investment by an international company other than the Ghana National Petroleum Corp. (GNPC) before an international company is deemed qualified to enter a petroleum agreement or a petroleum license, unless otherwise approved by the minister.

The government of Ghana aims to achieve 90% local participation in the country’s oil industry by 2020, which the Oxford Business Group (OBG) in the U.K. said “is an ambitious target that will require significant investment in human resources and local capacity in the short and medium term.”

The Ghana Oil and Gas Service Providers Association (GOGSPA) demands that Ghana achieves 60% of the local content within the next three years.

Challenges, solutions

A major challenge facing growth and development of the oil and gas industry in Ghana is the lack of funding, according to Nuetey Adzeman, executive director of the GOGSPA.

Most banks in Ghana charge high interest rates ranging from 20% to 30% on loans, Adzeman said, adding, “You can’t do any business and make profit and pay back a loan of such a rate.”

With the commercial production of oil, Ghana at present lacks the sophisticated technology, highly-skilled labor force and capacity to provide certain core upstream oil and gas activities like seismic operations, exploration and drilling appraisals, and construction of installations for production among others, said Dr. J.K. Kwakye, an economist and senior fellow at the Institute of Economic Affairs (IEA) economic and governance think-tank.

“It may be more realistic to give specific targets for different segments of the oil industry,” Kwakye said.

Many stakeholders in the industry view a gradual implementation of local content as the best way forward.

Sanmi Longe, country manager of International Energy Services, was quoted by the OBG as saying the industry can build local capacity in a few ways. The first is for international companies to subcontract smaller jobs to domestic companies. The second is for specialist local firms to pool their resources and join forces when applying for a big job. At the moment, however, there is a tendency for local startups to operate alone, he said.

The new regulations need to be implemented in phases and should be based on capacity-building efforts already in place, Longe added.

A seven-member local content committee of the Petroleum Commission was inaugurated July 16, 2014, to implement and monitor local content targets. Benjamin Dagadu, Ghana’s deputy minister of energy and petroleum, said the committee must ensure sustained growth of local service providers in the oil sector.

Damilola Ogunsola, a petroleum technology expert in Abuja, Nigeria, said, “Ghana needs to train the high-level manpower for the industry, and this takes a long time to achieve. The country has to go step-by-step.”

The Ghanaian government commissioned the Enterprise Development Center (EDC) in May 2013 to support Ghanaian small and medium enterprises (SMEs) and help the companies take advantage of business opportunities in the oil and gas sector.

“In the Ghanaian context, the term 'local content' is defined by law as the quantity or percentage of locally produced materials, personnel, finance, goods and services rendered in the petroleum industry value chain and which can be measured in monetary terms,” said Yen Sapark, head of training, development and research for the EDC.

Since the EDC’s birth, the center has been engaged in building a comprehensive database of competitive and efficient local suppliers in the oil and gas industry, enhancing and increasing local supplier capacity, providing consultancy services on SMEs' development interventions and requirements of the oil and gas industry, and network leveraging—identifying local SMEs that can be integrated into a value chain of the oil and gas sector, Sapark said.

Huge discovery, more potential

After discovering the Jubilee oil field in 2007, Ghana’s energy sector has expanded considerably. The field came online in 2010, and production in Ghana has since jumped from 7,000 bbl/d in 2009 to 80,000 bbl/d in 2012, according to the U.S. Energy Information Administration (EIA).

Proved oil reserves are 660 MMbbl, as of Jan. 1, 2013. However, given recent discoveries and further oil explorations, proved reserves are expected to rise, the EIA said.

The total reserve potential for the Jubilee Field is nearly 1.5 Bbbl of oil by other oil sources, which described the field as one of Africa’s largest discoveries.

While presenting the 2014 national budget estimates to parliament, Ghana’s Minister of Finance Seth Terkper said crude oil production from the Jubilee Field averaged 102,503 bbl/d in third-quarter 2013. Total petroleum receipts at the end of third-quarter 2013 were $707.28 million, of which $171.2 million were corporate tax.

Initial expectations were that Ghana could produce 225,000 bbl/d, but that may not be achieved until Ghana’s second major offshore development—the Tweneboa-Enyenra-Ntomme project near the Jubilee Field—is brought into production. The startup target is in 2016.

Ghana’s Minister of Energy and Petroleum Emmanuel Armah-Kofi Buah said oil reserves are projected to yield $20 billion in revenue for Ghana within the next five years, and the law would ensure that most of that amount was spent in the country to ensure that Ghanaians had a fair share of the returns.

“Ghanaians had been moved from the back of the bus to the front,” Buah told The Daily Graphic while commenting on the importance of the law.