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Ghana to vote on local content regulation before year end

Eni discoveries trigger debate on upstream localization

In September 2012, the Italian national oil company Eni and its partners, Vitol from The Netherlands and the Ghana National Petroleum Company (GNPC), made the first oil discovery in the Offshore Cape Three Point (OCPT) block in the Tano Basin about 50 kilometers offshore Ghana.

The exploration and production activity started in Ghana in 2007, mostly at the initiative of junior oil and gas companies such as Kosmos Energy, Tullow, Sabre Oil and Gas, Afren, Vanco Energy or Tag Oil.

Then bigger players such as Anadarko, Eni, Hess, Lukoil, Mitsui Oil Exploration Co., Vitol, joined forces with junior companies to drill after oil and gas in the Ghana portion of the Gulf Guinea.

As a first result, Eni‘s Sankofa East success with Vitol and GNPC in the OCPT block is the first offshore discovery in Ghana to have a potential for commercial development with significant reserves in crude oil, natural gas and valuable condensate.

From this success Eni is planning an extensive drilling campaign of its OCTP block. 

In addition this discovery motivates the other companies to enhance their exploration efforts or to find larger partners to sign Farm-out agreement.

Tullow is reported to have discussions with ExxonMobil not yet on the blocks.

To support this offshore development, GNPC awarded the chinese company, Sinopec International Petroleum Services Company (Sinopec) the construction of a 110 kilometers natural gas pipeline from the future gas central processing facility planned in Atuabo on the coast side to the Aboadze power plant in the Ellembelle District. 

Ghana to vote bill for local content on goods & services

All these exploration and production capital expenditure drag in foreign companies with their own staff and organization from neighboring countries where they have already all the facilities in place.

In this context, the debate about the local content started smoothly at the end of the 2000s years.

But the recent discoveries and the award of large contracts by the national oil company GNPC to foreign companies triggered to submit the new local content regulation to the parliament.

Named as Petroleum Regulations (for Local Content and Local Participation in Petroleum Activities), the new law should be part of the coming Petroleum Bill to regulate the exploration and production activities. 

If approved and in respect with the duration of the parliament session this new regulation could be voted before the end of 2012 to come into force in 2013.

This new local content regulation presents major changes:

 – It should apply to the upstream sector

 – Ghana local partners must have at least 5% of the exploration licenses in addition to the stake owned by the national oil company GNPC

 – 90% of the goods and services should be procured locally

 – 20% maximum of the work force should be staffed with expatriates

 – Indigenous locally incorporated companies must have 51% Ghana ownership equities and 80% of the management Ghanean

 – Local subsidiaries of foreign companies must have 10% shares left to a local partner

 – Local companies will be win tendering processes as long as their price does not exceed the lowest bidder by 10%

 – All tenders above $100,000 will be subject to Petroleum Commission assessment

 – Local companies are banned to be taken over by non-indigenous companies

 – Front end engineering and design work (FEED) will require 20% indigenous manhours at start, 50% in 5 years, 80% in 10 years

 – Offshore engineering shall start with 10% to reach 70% in 10% years

 – FEED and detail design for liquefied natural gas (LNG) project should include 10% first to end at 60% in 10 years

 – Drilling module construction will start with 20% indigenous manhours to aim at 90% in 10 years.

 Targeting all the activities including, research and development, engineering services, legal and insurance services, the new regulation shall request the contractors and subcontractors to fill in plans to align their actual local organization and practices on the new regulation requirements.

These plans will be reported periodically to the recently created Petroleum Commission to highlight skill shortages and propose remediation action plans.

This new regulation shall apply to previous agreements signed with companies already operating in Ghana.

This new regulation will have an impact of the capital expenditure of the projects, including on the exploration and production programs in progress with Anadarko, Eni, Hess, Lukoil, Mitsui Oil Exploration Co., Vitol in the Tano Basin.

 For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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