Even as the projected US$1.5billion revenue from the petroleum industry will not be met due to the collapse of global crude price because of combined factors precipitated by COVID-19, the local industry is set for harder times.
Already, several analyses – including a presentation from Finance Minister Ken Ofori-Atta to Parliament earlier this week – show that the country is set to miss its revenue target from oil by more than 50 percent, which will curtail major infrastructure and social investment projects across the country.
As at yesterday at 2pm, the price of crude was pegged at US$25 per barrel; which further worsens the problem and could see government lose as much as 70 percent of its oil revenue, since its projection was pegged or anchored on a price prediction of US$62.6 per barrel.
To compound the issues, Aker Energy and its partners on Tuesday announced they are postponing development of the Pecan field in the Deepwater Tano Cape Three Points (DWT/CTP) block offshore Ghana, due to global disruptions caused by the COVID-19 pandemic.
Country Director of Aker Energy Ghana Ltd., Kadijah Amoah, explains in a statement exclusively seen by the B&FT that the main reason for the postponement is the significant restrictions imposed due to the coronavirus which will reduce capacity on the supply side.
“The ability to execute on schedule and within cost is critical for both tax returns to Ghana and profits to investors. The COVID-19 situation significantly hinders the ability to execute a plan from project start to first oil in only 37 months. Aker Energy has invested hundreds of millions of dollars so far, and is determined to ramp up investments again to realise the project when the time is right in the future,” says Mrs. Amoah.
A process to right-size the organisation has commenced, and a total of up to 150 employees and full-time consultants in Norway and Ghana may be affected. 16 employees in Ghana may be laid-off, but the majority – up to around 130 employees and consultants – may leave the company in Norway.
“We have worked hard to recruit competent, talented and experienced people to Aker Energy. It is very unfortunate being forced to lay-off such a strong team that has proven itself competent, resilient and loyal through two high-paced and exciting years. We however remain committed to ensuring that the project will be realised in the future, and hope the company again can offer existing opportunities when the situation stabilises,” says Mrs. Amoah.
Already, Tullow Oil is facing similar challenges at its two exploration fields – Jubilee and TEN. Early this year a petroleum economist, Dr. Theophilus Acheampong, predicted that the economy is likely to lose over US$110million in petroleum revenue this year, due to just the ongoing challenges with Tullow Ghana which forced the UK-based company to cut down its local production by over 30 percent last year.
Executive Director of the Institute for Energy Security (IES), Paa Kwasi Anamua Sakyi, said in an interview with the B&FT that the oil and gas sector will face great difficulties after COVID-19.
He explained that the supply chain disruption is a possible and unintended consequence of COVID-19. “It has interrupted both domestic and foreign travel as dictated by flight cancellations and travel restrictions. The flight cancellations, travel bans, import and export declines, and the decline in business activities are weighing heavily on the demand for oil and fuels – especially Aviation fuels, Gasoline and Gasoil, and by extension oil prices,” he said.
For Ghana, Mr. Anamua Sakyi noted that it is possible to see government’s projected 2020 crude oil output of 70.2 million barrels fall, as producers are forced to scale-down production in a low oil price environment.
With respect to contracts signed by oil exploration and production companies with the government of Ghana, Mr. Anamua Sakyi advised that the best bet is to invoke force majeure and other relevant clauses to either delay, suspend, or cancel contractual obligations.
“The implications are either a delay, suspension or cancellation of agreements, as has been the case with most producers – including some oil majors taking to cutting back on capital expenditure. In such a low price environment fuelled largely by COVID-19, oil and gas producers must rethink their traditional ways of sourcing for funds, putting them to use, and optimising the capital,” he said.
He therefore urged petroleum businesses to instead deploy their funds in assets or markets which present greater portfolio and operational flexibility. “They may consider cutting back on capital expenditure, optimising cost structures by integrating processes, reconfiguring and automating operations. Also, reassessing timing of work programmes, postponing staff recruitment and cutting back on staff,” he added.
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