1

EXPLORING THE REAL ECONOMIC BENEFITS THERE IS IN OIL AND GAS :

GIVEN THAT MAJORITY OF THE OIL AND GAS EXPLORATION IN GHANA IS

UNDERTAKEN BY FOREIGN MULTINATIONALS

BY:

GIDEON AKUFFO

NOVEMBER 2015

TABLE OF CONTENT

1. Introduction

1.1 Background to Research………………………………………………...2

1.2 Statement of the Problem………………………………………………3

1.3 Goal and Objectives of the Research…………………………………4

1.4 Research Questions………………………………………………………….5

1.5 Scope of the Research………………………………………………………4

1.6 Rationale of the Study………………………………………………………4

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2 Literature Review........................................................................................ 5

2.1 Introduction.............................................................................................5

2.2 Local Companies in Oil and Gas..............................................................6

2.3Factors influencing participation of foreign investors....................... 7

2.4 Conclusion.................................................................................................14

3. Research Methodology.........................................................................................15

3.1. Research Design................................................................................................16

INTRODUCTION

1.1 Background to Research

The African continent is surely blessed with huge deposits of natural resources. Oil and Gas

features much among these high earning and enviable natural resources. Libya, Nigeria and

Algeria including Egypt are known to have discovered this precious resource decades ago.

Countries like Ghana, Kenya, Tanzania Uganda and Mozambique are however the newest to join

this discovery. As a result of this, the spotlight has usually been on these countries when it

comes to Oil and Gas trade by other continents.

Oil in Africa

Country or Region Proven Reserves of Crude Oil (billion barrels) 2012

Production of Oil (‘000 bpd) 2011

Exports of Oil (‘000 bpd) 2010

AFRICA TOTAL 124.209 9,378 8,371

Libya 47.100 502* 1,378

Nigeria 37.200 2,528 2,341

Algeria 12.200 1,884 1,097

Angola 9.500 1,840 1,928

Sudan and South Sudan (combined)

5.000 455 389

Egypt 4.400 727 85

Gabon 2.000 244 225

Congo (Brazzaville) 1.600 298 288

Chad 1.500 124 126

Equatorial Guinea 1.100 303 319

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Uganda 1.000 - -

Ghana 0.660 78 -

Tunisia 0.425 70 78

Cameroon 0.200 62 56

Democratic Republic of Congo (DRC)

0.180 20 22

Ivory Coast 0.100 41 32

Mauritania 0.020 8 7

Sources: US Energy Information Administration (International Energy Statistics), Oil and Gas Journal

Please Note: This table refers to proven oil reserves which may be very different to reserve estimates.

The table above shows the billions of barrels of oil per country on the African continent.

1.2 Statement of the Problem.

Cocoa, God, bauxite, manganese and other non-traditional exports like foodstuffs are key foreign

exchange commodities Ghana can boast of to depend on for its GDP growth. The country since its

discovery of oil in June 2007, has since been controlled by foreign giants even until in December

2010 when it started production commercially. But the question is, where does the billions of

Dollars oil monies end up and what is at stake for the ordinary Ghanaian?

1.3 Goal and Objective of the research

1. To adopt a formalised and academic approach to analysing what effected citizens feel

economically about the influcks of foreign multinationals in the sector.

2.The prime objective of this research is as stated, to probe into the real economic benefits there

is to ordinary Ghanaians considering these larger percentages going of profits going to these

foreign multinationals.

3. This work therefore will seek to dissect into some specific expectations and anticipations of

most Ghanaians before the commencement oil and Gas production.

4. We will analyze if indeed these gains have made any significant economic impact at all on the

soil of Ghana.

5. To finally have an authoritative unbiased conclusion on the proposed research work.

1.4 Research Questions:

1. How effective is government in dealing with this matter

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2. What practical avenues are put inpace for Ghanaians who want to invest in this sector

3. What real benefits are there for Ghanaians directly from the foreign investors.

A direct and clearer line of question ing will facilitate finding solutions to help get the research the needed attention. They are as follows:

o How has lives improved since the oil find?

o What is the health status of those living in the area ?

o Are there any job placements or employment opportunities created?

o Has there been more skill development, training for institutions upgrade for inhabitants

o Is there is there infrastructural development in the area

o Are there perceived corruption in the sector?

o Is there any faul play in award of contracts to foreigners instead of locals?

o How effective is government in dealing with this matter o What practical avenues are put implace for Ghanaians who want to invest in this sector

What real benefits are there for Ghanaians directly from the foreign investors

1.5 Scope of the Research.

This work will be focused primarily on the business angle as well as the socioeconomic benefits

at stake in the oil and gas sector for Ghanaian indigenous people and the citizenry as a whole.

1.6. Rational of the Study

Like many other oil producing countries on the African continent, much of the stakes or profit

from this lucrative venture to the foreign multinationals.

This discovery was first by Kosmos Energy at the Jubilee Fields. There was also the Mahagany-1

exploration, meaning the country has huge potential of producing billions of barrels in some

years to come which will compete with other nations on the world market.It is estimated that

Anadarko Petroleum Corp has 23.49%, Kosmos Energy 24% ,Tullow oil 36.05 , Sabre Oil and Gas

2.81 and Ghana has 13.65% stake. This is in respect to the Jubilee Fields discovered by Kosmos

Energy.

Anadarko Petroluem Corp. which is US based also discovered more oil deposits on the West

Cape Three Points of Ghana. It had its stakes as follows :

Kosmos enrgy:30.875% , Ghana: 10%, Tullow Oil: 26.396 , Anadarko Petroleum Corp: 30.875

and sabre Oil and Gas: 1.854%

Source: Reuters

2 LITERATURE REVIEW

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2.1 Introduction

This section places foremost attention on the initial relevant information to be on actual

expectations of the citizens conceding this sectory. Government per its discursssions with other

stakeholders , trade unions and economic pressure- groups was to create a special fund or

account before the commencement of the oil exploration in large commerrcial quantities . this

anticipated revenue was to paramountly provided educational facilities first, secondly an

improvement in health facilities in the Central and Western regions of Ghana and the rest for

roads in the hinterlands. Source: (Imani Ghana)

The Government of the day failed to adhere to those plans as usual. But then other pressure-

groups came in to ensure the passing of a long awaited bill which will make clear clear

regulations governing the oil and gas sector. This is seen to be a benchmark and blueprint as

done by other oil exploring countries.

The petroleum regulation on Local Content and Participation in Petroleum was approved by

parliament on the 3rd of March 2011 and was enacted in 2013. This encourages and legally

backs indigenous people giving them the right to participation in our oil and Gas sector. It is

geared towards progressive inclusion of Ghanaian citizens into most if not all areas of the oil and

gas industry so as to fully develop through expertise maximization, skill and education including

effective transfers of technology and know-how.

The Ghana National Petroleum Corporation (G.N.P.C) is mandated to regulate and ensure the

implementation of the Local Content Policy especially within the upstream petroleum sector for

the interest of Ghanaian citizens. But the upstream is where there is rather low participation of

indigenous firms in operation.

Most of the areas the policy had to address are as follows:

• Increase capacity and international competitiveness of domestic businesses

• Maximization of value-addition through the use of local expertise. Local goods

and services including local financing in the petroleum industry

• Creation of petroleum and related supportive industries

• Providing for robust and transparent monitoring and reporting systems to

ensure the good delivery of local content policy objectives.

There has been several events of maltreatment and infringement of rights of local workers but

foreign companies. Tullow Oil lay effort 100s of workers during the oil price downtown. They

rather maintained the foreign workers with the justification that their services and expertise

were much needed.

The government spokespersons on energy were silent over this matter until the masses and

pressure groups,through the media came hard on them. Although they were reinstated, those

who had to finally go home were not given full retrenchment benefits.

In spite of that, it must be said that Tullow Oil has make some bit of strides in promoting

education. There is a scholarship scheme to annually sponsor needy but brilliant students. This

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and other activities are held annually but there is more economic impact expected by majority of

the locals.

Local businesses must be given first preferences in any petroleum bid including licensing. There

must also be at least 5% stake of local involvement in any deal awarded to international

multinationals.

2.2 Local Oil Companies in Business

Local investors in the oil and gas sectors of Ghana are mainly found in the midstream and most

especially in the downstream sectors where oil and gas finally gets to the local consumer. Most

local companies rather do well in the downstream ironically . there are over 137 companies in

the downstream with about 10% being foreign owned. These include Shell, West Africa

Petroleum Companyn (Wapco), UBI , Oando Energy and So energy.

Some midstream foreign operators are Ebony Oil and Gas, Blue Ocean, Viva Energy, among

other.

Government is said to owe the Bulk Distribution Companies to the tune of over $600million.

This has impeeded their operations leading to several job cuts in recent times.

It is estimated that a total of 1,451,767,250 liters of Petroleum and 110,364,470 liters of Gas

were consumed through the Oil Marketing Companies (OMCs) from January to June 2015 about

15% higher compared to 2014.

The table below depicts the performances of OMCs both multinational and local from January to

May 2015 from a sampled number out of the 137

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OMCs PERFORMANCE STATISTICS FOR JANUARY-MAY 2015

COMPANY GASOLINE GASOIL LPG

GHANA OIL COMPANY LIMITED 105,657,600 107,021,100 5,331,240

TOTAL PETROLEUM GHANA LIMITED 80,823,000 104,814,000 1,165,600 VIVO ENERGY GHANA (SHELL) 92,020,500 102,305,500 - STAR OIL CO. LTD 31,451,000 33,598,200 679,890 ALLIED OIL COMPANY LIMITED 16,285,000 13,803,500 - UNION OIL GHANA LIMITED 15,125,500 18,565,000 175,210 MODEX OIL CO. LTD 14,259,600 12,574,200 491,500

PETROLEUM SOLUTIONS LIMITED 10,250,000 13,922,000 267,230

FRIMPS OIL CO. LTD

12,447,500

13,523,500

866,070 STRATEGIC ENERGIES LIMITED 6,201,000 10,014,000 248,250

SUPERIOR OIL COMPANY LTD. 1,675,000 2,188,500 1,563,990 TEL ENERGY 1,305,000 6,085,000 - TOP OIL COMPANY LIMITED 11,250,000 19,954,000 930,300 UNIQUE OIL COMPANY LTD. 2,736,000 4,000,500 2,309,290 UNITY OIL COMPANY LIMITED 7,919,000 9,253,500 22,080

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UNIVERSAL OIL COMPANY LIMITED 4,562,000 5,003,250 -

VENUS OIL COMPANY LIMITED

2,213,000

2,010,000

15,900

FRAGA OIL GH. LTD

4,143,000

4,110,500

- WEST AFRICAN PETROLEUM COMPANY (WAPCO) 4,502,500 6,995,500

-

GALAXY OIL CO. LTD

6,030,000

7,819,500

53,840

UBI PETROLEUM GHANA LIMITED

3,119,000

8,980,500

-

HOSSANA OIL

2,076,000

1,274,000

-

OANDO GHANA LIMITED

4,256,700

3,757,200

-

JO & JU OIL COMPANY LTD

2,014,200

4,354,200

-

JOEKONA COMPANY LIMITED

-

-

2,476,360

JUSBRO PETROLEUM CO. LTD

5,845,500

7,879,500

356,500

SO ENERGY GH LIMITED

805,500

1,912,500

32,530

Source: National petroleum Authority (NPA) of Ghana

Hint: companies in red are multinationals operating in the downstream or retail sector

2.3 Factors Influencing Participation of Foreign Investors.

We delve more into circumstances leading to the called-up or interference of foreign

multinationals in the sector. This will give a better understanding of the core issu es at stake in

the sector being addressed. It forms part of the contextual information required to make a case

out of the whole study.

There has rather been low participation of local companies in many African countries like Ghana

where there is oil and gas drilling and exploration (upstream). This is due to many challenges

which are now considered realities.

Foreign investments into the country in the oil and gas sector have been on the rise but it has nt

resulted much in job creation for citizens of the country. This has been a major challenge for the

government.

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Technological infrastructure is contributing factor. Ghanaian indigenous firms lack the know-

how, exploration gadgets, machinery and technical logistics to embark on new discoveries,

exploration and operation of any serious business concerning oil and Gas in the country. This

has therefore necessitated foreign collaboration or intervention.

Tullow Oil which is British owned, apart from operation on the Jubilee Field is working on other

oil prospects in the country including Enyenra, Tweneboa and Ntomme (TEN) fields in some few

years to come. This of course has not local company participation in this stream which carries

much revenue and profitability all on the basis of their low technological expertise.

Dana Energy Corporation of United Kingdom, Hunt Oil Company and Devon Energy Corporation

all from United States were announced to have also commenced operations on various blocks in

the country in . (Dr. A Ofori Quaah , Acting Chief Executive of the National Petroleum Corporation

(GNPC)

Corruption and lack of transparency in government can also not be over emphasized. There has

been suspected alliances between government officials and foreign investors in the sector to the

detriment of local companies who compete for contracts. Some African countries including the

Democratic Republic of Congo set up the Extractive Industries Transparency Initiative (EITI)

which focus on complaints of locals in the oil and gas sector on corrupt practices. Though not

much, such a move has brought some corrupt government officials to books.

Not much has been heard about the Ghana in terms of dealing with corruption in this regard. Country GCPI 2014 Rank (out of 175) Ghana 61 South Africa 67 Egypt 94 Algeria 100 Tanzania 119 Mozambique 119 Nigeria 136 Kenya 145

Source Data: Global Corruption Perceptions Index 2014, Transparency International

Lack of funds also play a role . Ghana’s only refinery , The Tema Oil Refinery (TOR) since 2012

have lost more than $63 million as a result of its inability to refine crude oil. This is due to

broken down but very expensive equipment. It had the capacity to produce over 45,000 barrels

daily years back. (Source: Reuters)

The facility needs about $900 million to run effectively. This has resulted into laying-off and

relieving of duty of over 400 local workers so far.

TOR is highly indebted to many banks both domestic and foreign. To adversely worsen the plight

of local workers, it is alleged government may sell it out to competing foreign multinational oil

companies. This will further lead to laying off more workers.

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The massive taxing and continuous tax increment of petroleum products is also stifling growth

in general in this sector. Though is it a relief to assume locals are participating in the

downstream sector, the heavy taxes placed on petroleum product has been a disincentive and

even led to the collapse of over 40 Oil Marketing Companies just under 5 years, creating the

avenues for more foreigners with huge capital to take over.

When such happens, less local people get to be trained or employed and much of their profits are

repatriated to their countries. Successive government have failed on this part since they place

their main source of revenue on taxing petroleum products in the country.

2.4 Conclusion

.conclusions to these types of research are mostly portrayed to be bias , tilting to the

already formed opinion of the researcher. But I'd must be noted that participants,

interviewees and those interrogated best feel the assertion being places or formed by the

research. The work will loose its value if there is no clear reason supporting a claim or an

ideology of the beginign stated problem.

the sector has arrived at a point where there seem to be little or no hope assured the citizenry as

government seem not to be proactive in implementing effectively the Local Content policy,

ensuring knowledge transfer, skill and capacity building . There is not clear application of

revenue generated in the economic growth of the Ghana since from the inception of the oil find

though the expectation was on improving our education and health sectors with these huge

gains.

Our subsequent study will deal with an analysis on research conducted in these oil drilling areas

to seek opinions on the natives on this matter so as to get further empirical evidence.

We anticipate that the findings and concerns revealed by participants of this research work in

the oil and gas industry will be duely recognized as the true picture on the ground so as to help

the government of Ghana and other stakeholders in this sector to make reforms , restructure and

enforce or implement already known existing policies in the sector to protect and promote

economic growth especially in those operational areas.

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RESEARCH METHODOLOGY

3.1 Research Design Strategy

For the purpose of effectiveness and a better appreciation of this work, more of Qualitative

approach will be adopted to arrive at a valid conclusion on the findings of this work. This

approach is seen to be best for this research work since it deals with the perception and beliefs

or the citizenry in the oil and gas sector.

Qualitative approach is shaped to understand people’s experiences, perspectives and

understanding of aspects of their socioeconomic lives .

The line of questioning to the parties include the use of ‘WHAT’ , ‘HOW’ and WHY and qualitative

methodology is adopted when confronted with such a study.

(Nouria Bricki,Judith Green hdl.handle.net)

One aspect of this research with the use of the qualitative approach is the fact that the sample

size is small leading to a perception that the true picture of the research may not be arrived at.

There is the believe that is also difficult to exclude the biases of the researcher with this type of

methodology.

3.3 Research Technique

A survey is used to aqquire information from persons thus within a population. This can be in

comparism to variables or interrelationship between variables among a group of people

Data collection could be: Personal interviews, telephone calls and questionnaires.

Polit and Hungler (1999) Principels and Methods (6th Ed) Philadelphia,Lippincott.

Group interviews

3.4 target Population

The population focuses on the people of Takoradi in the Western Region of Ghana where much

of the oil exploration started. this is areas was also considered because of the fact that the

inhabitants have a better feel on any impact be it negative of positive since the oil find.

3.5 The sample population

Workers in the oil and gas sector including the offices of the National Petroleum Authority( NPA)

in Takoradi, The Bulk Oil Storage and Transport (BOST),local wokers Jubilee Oil fields sub-

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traditional chiefs of smaller towns in the Takoradi municipality , a section of Takoradi

Polytechnic students since they have expectations of working in the sector after school, ordinary

low-class or low income level citizens as well as the middle-class.

Consideration will have to be made to include a few workers of TOR in the Tema Industrial Area.

3.5.2 Sample Size and Method

For the sake of the qualitative method applied, there is the need to stick to a smaller sample size

so as to engage more with the participants since it all about knowing their perception on the my

area of research. In this regard, more and clearly answers to the research questions are given

(Ingleton and Seymour 2001)

Ther is a point of diminishion return on any qualitative research sample because of the fact that

more at collected will not lead to more information with respect to this research I am embarking

on.(Ritchie et al.,Lewis and Elam,2003)

At least 9-11 workers of BOST, traditional chiefs in the area, final year students of the Takoradi

Polytechnic, 10-15 local workers of Jubilee Fields, 5 low income level citizens, 4 senior level

TOR workers and 5 foreign workers of

3.6 Data Collection Method

Since it is a survey, there is the one-on-one interviews including questionnaires sent out to those

who are not within my immediate reach considering the timeframe and the level of accessibility

to them.

The questionnaire contains questions the bothers of the oil and gas sector as stated to help

arrive at the fact that indeed the inception of multinationals in the game has rather had an

adverse effect on the people.

The questionnaires will exhibit the following:

o How has lives improved since the oil find?

o What is the health status of those living in the area ?

o Are there any job placements or employment opportunities created?

o Has there been more skill development, training for institutions upgrade for inhabitants

o Is there is there infrastructural development in the area

o Are there perceived corruption in the sector?

o Is there any faul play in award of contracts to foreigners instead of locals?

o How effective is government in dealing with this matter o What practical avenues are put implace for Ghanaians who want to invest in this sector o What real benefits are there for Ghanaians directly from the foreign investors

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QUESTIONS OPINIONS

How has lives improved since the oil find? 1 2 3 4 5

What is the level of health of those living in the area?

1 2 3 4 5

Are there any job placements or employment opportunities created since the commencement of the exploration?

o YES

o NO Has there been more skill development centers, training for institutions upgrade for inhabitants?

o YES

o NO

The level of infrastructural development so far 1 2 3 4 5

Rate of perceived corruption in the sector 1 2 3 4 5

Is there any faul play in award of contracts to foreigners instead of locals?

o YES o NO

Rate government’s performance in dealing with this matter in locals’ interest

1 2 3 4 5

Practical avenues are put implace for Ghanaians who want to invest in this sector

1 2 3 4 5

Is there a direct impact economically in your life since the oil discovery?

o YES o NO

Ratings on the questionnaire:

1= very poor 2= poor 3= average 4=good 5= very good

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3.7 Data Analysis

Indeed the research must be analyzed to connect with the purpose or finding we want to

achieve. In analyzing the data or survey conducted, there is the need to interpret the survey,

interviews and observations including value judgement with a coding or computerised system

for a better arrival to substantiate the conclusion we expect to have concerning the Oil and gas

industry in Ghana.

It must be noted however that both quantitative and qualitative data analysis require good

coding and labeling so as to have an easy identification of similarities and differences.

For the purpose of this research it is presumed that our expected answers from our partakers

will be subjective, descriptive and interpretative in nature.

The analysis combine the concepts of phenomenology and case-study approach. These two

approaches are where there is a comparison and study over a period of time, the experiences

and grievance of a people or group in events or a setup ( oil and gas sector).

There are relevant steps to achieving a good qualitative analysis.

1.Organising the data collected

For the interviews made, we resort to the use of the HyperTranscirbe Software for transcription

of the voices heard. We use language translation software like the SYSTRAN since not all the

people would be comfortable expressing their answers in English which will lead to data

labelling of those transcripts

2. Identifying the Framework

This will set the explanations guided by the research questions asked, leading to the arrival of

the coding plan. The codes are then modified and entered into a computer software. One could

use the ATLAS or the SPSS.it is said that the use of computer softwares distances the researcher

from the text but it have the advantage of cutting and pasting by hand which causes delay.it

helps produce more powerful analysis by insertion of codes into the file and there is a better

way of retrieval of information when needed. Because of the population, scope and sample size

chosen, the Atlas software will be used for this exercise.( www.atlas.com)

3. Second order analysis

We identify the recurrent events or responses, look out for those respondents with far different

views and opinions ,build the sequence of events and we develop the hypothesis including

testing.

3.8 Ethical Guidelines

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For the fact that the area of study is very sensitive, politically motivated and risky, respondents

and most people contacted are aware of the purpose of this academic study and that their

personal details including identity will not be revealed or disclosed. In most cases, respondents

have been subject to isolation and even loss of jobs for disclosing or being part of such exercises

in our part of the world. (Nouria Bricki, Judith Green,16th,oct.2015)

3.9 Confidentiality

It is essential to protect identities of those who we got information from . When vital

information is given by respondents, we the researcher is expected not to expose or

disclose hardcore facts or data about respondents in unprotected files and dockets

3.10 Consent

People must be well informed about the purpose and full consequence of what they are doing so

as to have their candid and fair opinion. This may take for form of verbal consent since a written

form of consent usually scare ordinary and lay respondent off.

3.11 Limitation of Research

One aspect of this research with the use of the qualitative approach is the fact that the sample

size is small leading to a perception that the true picture of the research may not be arrived at.

It is also difficult to

REFERENCE

City fm Businee Desk,2007 edition.

Dr. A Ofori Quaah , Acting Chief Executive of the National Petroleum Corporation (GNPC)

Global Corruption Perceptions Index 2014, Transparency International

Ingleton and Seymour, 2001

Imani Ghana Press release, Feb,2010

16

Sen Hossi, Ghana Chamber of Bulk Oil Disributors

National petroleum Authority (NPA) of Ghana quarterly release .(2015)

Nouria Bricki,Judith Green hdl.handle.net

Nouria Bricki, Judith Green,16th,oct.2015

Polit and Hungler (1999) Principels and Methods (6th Ed) Philadelphia,Lippincott

Ritchie et al.,Lewis and Elam,2003

US Energy Information Administration (International Energy Statistics), Oil and Gas Journal