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November 26th, 2019

Kofi Buah writes: The Springfield discovery; a clear vindication of our local content and participation policy

Kofi Buah, former Petroleum Minister

The story making rounds that Springfield oil has made a huge discovery must make every Ghanaian proud but it gets even more exciting if one takes the trouble to understand the journey that brought us to this place.

This block is a subject of a Petroleum Agreement by and among GoG/GNPC/GNPC Exploration/ Springfield Exploration in respect of West Cape Three Points Block 2 Offshore Ghana
History:

In furtherance of clause 4 (10) of the West Cape Three Points (WCTP) Petroleum Agreement, Kosmos Energy Ghana Limited relinquished approximately 1,370 square kilometres of its contact area to the State. Kosmos now holds the discovery area for Mahogany, Teak and Akasa (MTA).

Read: Akufo-Addo calls for local content in media programmes

The relinquished area was then divided into two blocks, that is, blocks 1 and 2 and declared open for petroleum operations by the Minister for Petroleum in December 2013.

In all, twelve (12) companies expressed interest in the blocks and were subsequently invited to review geological and geophysical data in respect of the area.

Springfield Exploration and Production Company Limited was among the companies that visited the GNPC Data room to review data over the area in April, 2014.

Following this, Springfield E&P and Talervas Limited (Taleveras) submitted a joint application for exploration and production rights over blocks 1 and 2 comprising 1,370 square kilometres in June, 2014.

The Block Application Evaluation Committee evaluated the joint application for application between July and August, 2014 and thereafter informed the applicants that they would be considered for only Block 2 which is approximately 673 square kilometres.

Taleveras, the proposed operator, however, did not meet the required technical and financial criteria. In view of this, the Minister directed that Taleveras be replaced with a technical partner with requisite technical and financial capabilities.

Accordingly Vaalco Energy Inc. replaced Taleveras in October, 2014 as a joint applicant and proposed an operator for the Block.

Vaalco Energy was evaluated and found to possess the required capabilities by the Block Evaluation committee and approved by the Minister. However, in the course of negotiations, Vaalco Energy withdrew from the partnership, citing the continuous slump in oil prices and its corporate decision to cut down on exploration budget, as reasons for its withdrawal.

In view of this late withdrawal, and considering Springfield’s well established credentials in the downstream petroleum sector, and President Mahama’s strong conviction that Ghanaian businesses must assume the commanding heights of the Petroleum sector, clearance was given for negotiations to continue. Springfield Exploration and Production Company however, shall be required to bring on board a technical partner with requisite financial and technical capabilities, who will be a joint operator of the block within three hundred and sixty-five (365) days, after the effective date of the Petroleum

Some of the key provisions in the Agreement are:
Duration of the Agreement
Per article 23 of the Petroleum Agreement, the term of the Agreement is 28 years. The Agreement would however expire after five and a half(5½) years if no commercial discovery is made within the term of the Agreement.

Read: Government to develop new local content law for mining industry

Exploration period and work programme
This exploration period is five and a half (5½) and divided into three phases as follows:

i Initial exploration period
The initial exploration period has been agreed to last for two and a half (2½) years. During the period, the contractor shall conduct geological and geophysical studies and drill one (1) exploration well.

The contractor has undertaken to expend at least thirty million United States dollars (US$30,000,000) as its minimum expenditure obligation.

ii. First extension period
The first extension period is one and half (1½) years. During this period, the contractor shall conduct geological and geophysical studies and drill one exploration well.

The contractor’s minimum work obligation is thirty million Unites States dollars (US$30,000,000).

iii. Second extension period
The second extension period is one and a half (1½) years. During the second extension period, the contractor shall conduct geological and geophysical studies and drill one (1) exploration well.

The contractor’s minimum expenditure obligation for the work is forty million United States dollars (US$40,000,000).

Fiscal Terms;
Royalty Oil 12.5
Royalty Gas 10%
Carried Interest 11%
Additional Interest 17%
GNPC Explorco 5%
Corporate income tax 35%

This Petroleum agreement was ratified on the 11th of March 2016

This bold decision to give an indigenous Ghanaian company a chance in the upstream sector was summed up this way
“ I am now happy going forward we are going to be united in our quest to strengthen Ghanaian companies, especially in the upstream industry” ( Parliamentary Hansard 11th March 2016 Emmanuel Armah-Kofi Buah)

This was against a background of the fight for local content in the upstream sector.
It would be recalled the grueling fight for the passage of LI 2204 with the major IOC’s opposed to it.
Today the verdict is out and again
The Decision by the then NDC government led by President Mahama to ensure Ghanaian participation by law has paid off
According to the petroleum commission, all contracts executed since the passage of LI 2204 between 2014 and quarter 3, 2019 had a minimum of 10% local participation. Infact contracts awarded to Indigenous And joint venture companies amounted to $7. 3 billion
( indigenous companies $ 1.2 billion
JV $ 6.2billion
This is clearly a vindication of our local content policy

If indeed it is confirmed as we are picking up that Springfield has made a discovery then it will again be a good victory for our belief in the Ghanaian, President Mahama’s decision to pass the local content and participation law and the wisdom of awarding the first oil block to a Ghanaian.

 

Source: Kofi Buah