Falling production, waning investment leave Ghana's oil sector at a crossroads

Ghana's path from commercial crude discoveries in 2007 to first production in 2010 occurred at lightning speed by industry standards. By 2019, the West African country was pumping roughly 200,000 b/d, fueling an economic boom and infrastructure-building spree.

But output has since fallen amid underinvestment, insufficient exploration, occasional government intransigence, the coronavirus pandemic and the global energy transition, which has shifted capital away from African oil and gas.

Meanwhile Ghana's economy is experiencing its worst crisis in a generation, with crippling shortages of foreign exchange tanking the Ghanaian cedi and driving inflation to 25%. Still on the hook for major government spending, it owes billions to foreign creditors.

Fourteen years on from first oil, Ghana's once lofty production targets are unmet, the country is reeling from high fuel prices, and the industry finds itself at a crossroads.

"We are suffering from what everybody else is suffering, the global shut-off of funds," energy minister Matthew Opoku Prempeh told S&P Global Commodity Insights on the sidelines of an energy conference in Accra, the country's capital.

"In our basins you have to really invest to keep up with production. It's not like some other basins where once you dig, for the next 40, 50 years it pumps oil. With ours you always have to have a drilling campaign. So we are challenged when we don't get funds."

Currently, Prempeh said, Ghana is producing some 130,000 b/d of crude, most of it from the Tullow Oil-operated Jubilee field, which is pumping over 100,000 b/d after a successful 2023 infill drilling campaign. Tullow's TEN and Eni's Sankofa fields, in which Vitol is a stakeholder, make up the remainder. Almost all of Ghana's sweet crude is exported, primarily to China and the Americas, according to S&P Global Commodities at Sea data.

While Ghanaian production is higher than some African OPEC+ members, such as Equatorial Guinea and Sudan, it remains well below its previous medium-term target of 420,000 b/d.

Meanwhile, the country's Tema refinery is idled and its new Chinese-built Sentuo refinery is running at just 30,000 b/d, Prempeh said, a quarter of its nameplate capacity. Lacking sufficient foreign exchange reserves to import fuel, Ghana in 2023 launched a gold-for-fuel swap scheme. "The policy is still in place and we want to even expand it," said Prempeh, without offering detail.

Still, taxi drivers in car-heavy Accra grumble about fuel that costs 25 cedi ($1.94) per liter and constant volatility, while "the electricity company of Ghana is a complete disaster," said Robert Jackson, US ambassador to Ghana from 2016 to 2018. In February, the utility cut power to parliament during President Nana Akufo-Addo's state of the nation address to make the point that the government was not paying its bills.

New fields

Prempeh would not offer a new crude production target, saying only that "we'd like to get as much as we can through exploration." Jackson said the 420,000 b/d goal was "unrealistic", but 200,000 b/d is more feasible. Prempeh, Jackson said, is a "fast-learner" who entered parliament at a young age and previously excelled in the education ministry.

The West African nation will sign four new exploration licenses, on and offshore, in the coming months, Prempeh said, mostly to local Ghanaian companies. The discussions have been ongoing for three years.

A well-placed source said the country could soon be producing 250,000 b/d of sweet crude thanks to the delayed 80,000-100,000 b/d Pecan field, which could start up as soon as 2025. Lukoil is a 38% stakeholder -- alongside Lagos-based operator Africa Finance Corp -- leaving would-be investors fearing Russia-related sanctions. Lukoil had been in discussions with Indian companies to sell its stake, but the source said the Russian company now plans to stay put.

"They are working on FID, there are a few delays. They want to complete that as quickly as possible," said Prempeh. "Lukoil has always been part of the Pecan field, since I've been minister. We have not been told that because of Lukoil they are finding it difficult."

Meanwhile, Eni has made further discoveries but is locked in an unhelpful unitization dispute with well-connected local company Springfield E&P over the Sankofa field, which is now in international arbitration.

Prempeh said the furor was overblown. "Unitization issues are part of oil extraction business. I'm not sure it prevents anyone from investing in a country," he said, emphasizing that "Eni is not in dispute with Ghana's government."

"Eni is interested in other blocks in the country. They are appraising two or three wells," Prempeh added. Eni's website suggests it is producing about 10,000 b/d of oil in Ghana, as well as gas, from the Tano Basin.

The energy minister also talked up offshore exploration possibilities in the east. "[Chinese state-owned] CNOOC took some blocks in the east but it got caught up in conflict over our maritime boundary with Togo. Now that has been settled between Ghana and Togo and CNOOC is back again."

Looking ahead, Prempeh would like Ghana to join OPEC, which just lost Angola over a quota row. Secretary-general Haitham al-Ghais is seeking to expand the group to boost its market share.

"If we get to where we need to to become members, we would," said Prempeh. "The secretary-general of OPEC has wanted to meet me. We are members of the African Petroleum Producers Organization, and OPEC is on the horizon. I believe we will get there."

Business climate

That looks like a significant challenge if Ghana cannot secure further oil and gas investment amid an exodus of big international oil companies from mature African basins.

And executives at junior oil companies told S&P Global on condition of anonymity that Ghana's government had been less welcoming to smaller firms than other African producers, like Angola.

"We've been in Ghana for a long time. It's kind of like home for us," said Rahul Dhir, Tullow's CEO. "We see it very differently from a lot of other people." The company is nevertheless in multiple arbitrations with Ghana's government.

Ida Hockerfelt, a senior research analyst at S&P Global, said: "While Ghana's 2016 Petroleum Law provided a clearer regulatory framework for the upstream sector, Tullow Oil's recent arbitration requests over tax disputes with the government indicate uneven -- or unpredictable -- application of fiscal assessments."

Prempeh blames Ghana's challenging outlook on the pandemic and the environmental backlash against Africa hydrocarbons development, even as Europe embraced oil and coal following Russia's invasion of Ukraine.

"We got caught up with a bad COVID situation. Companies that were on the brink of even bringing rigs to drill have all dried up," he said.

But Prempeh remains bullish. Telling African nations like Ghana not to tap their resources, he said, "just does not make sense".