Boundary Applicability of the Ghana’s Oil Block Fiscal Regimes

Abstract

Abstract

Attractiveness of fiscal regime has become more important in oil and gas investment decision than the rather geological prospectivity of the province. The terms and conditions contained in the fiscal system influence the investor’s evaluation of project. As Ghana determines to benefit greatly from the exploitation of the oil and gas resources, a robust fiscal system attractive in all economical and technical conditions needs to be designed. Ghana has recently become one of the frontiers in the oil and gas industry following its commercial discoveries of hydrocarbons in Deepwater Tano-Cape Three Point, the Jubilee field. Ghana’s oil industry is very young and some of the basins are under exploration surveillances waiting for commercial discoveries. Ghana’s Jubilee field uses various terms and conditions in her fiscal arrangement to govern the upstream operations. For continuous realisation of economic benefits to the State as well as the contractor, it is important the applicability of Ghana’s fiscal regime at varying boundary conditions of oil price and field reserves are evaluated. Discounted cash flow economic model which considers the major uncertainties was developed to evaluate the economic implications of the Jubilee field fiscal regime. Different price scenarios and varying field sizes were taken through rigorous sensitivity analysis. It was determined that for all field sizes considered at oil prices above $ 40/bbl, contractor’s NPVs are positive. The project take statistics are averagely around 64% for Government and 36% for contractor under the various scenarios except for oil prices less than $40/bbl where the State’s take statistic is above 80% and contractor’s take below 20%. The State receives Additional Oil Entitlement(AOE) only when the oil price is above $40/bbl and the AOE increases steadily with the oil price for all the various field sizes. In general, the Jubilee field fiscal regime is fairly attractive and flexible and ensures stable shares of economic rents between the State and the contractor as the profitability of the field increases.

Keywords: Reserves, Fiscal Regime, Cash Flow, Take Statistics, Net Present Value