IHS Global Insight Perspective | |
Significance | The government of Ghana has officially approved the Jubilee field Phase 1 Development Plan and Unitisation Agreement. |
Implications | Final negotiations were held up until Ghana was able to reach the most beneficial deal for utilising Jubilee's associated gas, which will be used to increase power generation and possibly later, form a petrochemicals industry. |
Outlook | First oil from the Jubilee field is expected in the second half of 2010. The field will ramp up over a 9-month period to 120,000 b/d, making Ghana one of the world’s top 50 oil producers. |
Jubilation for Jubilee
The government of Ghana has officially approved the Jubilee field Phase 1 Development Plan and Unitisation Agreement. The offshore Jubilee oil field is regarded as a single continuous trap, extending across the West Cape Three Points and Deepwater Tano blocks, and the companies involved are developing the asset as a single "Jubilee Unit Area". The consortium involved is led by operator Tullow Oil (34.70%), while other partner interests are Kosmos Energy (23.49%), Anadarko Petroleum (23.49%), Sabre Oil & Gas (2.81%), EO Group (1.75%), and the Ghana National Petroleum Corporation (GNPC) (13.75%, of which 10% is carried interest). The project is on course for delivering first oil in the second half of 2010 and the rapid progress means the consortium will have achieved this target in just over three years since the first discovery well was drilled.
The Jubilee field is regarded as a world-class prospect and could hold reserves of up to 2 billion barrels of crude. It is one of the largest discoveries in West Africa to be made in the past decade. Capital costs of approximately US$4.3 billion are required for the Phase 1 development of the Jubilee development, which is based on a conventional subsea design located in approximately 1,300 metres of water. Japan's Modec is providing a floating production, storage, and off-loading (FPSO) vessel, which will be capable of processing more than 120,000 b/d of crude, and injecting more than 230,000 b/d of water and 160 mmcf/d of produced gas. Around 20 mmcf/d of the associated natural gas produced will be used as fuel on the FPSO leaving 120 mmcf/d, which will at first be re-injected to maintain reservoir pressure. Work on the FPSO and subsea facilities was initiated in July last year and the FPSO is designed to remain on the field for up to 20 years. According to the oil companies the Phase 1 development plan calls for up to 17 wells, including up to nine oil producers, five water injection wells, and three gas injection wells.
Power to the people
Earlier this month Reuters quoted Tim O'Hanlon, vice-president of Tullow's African Business as describing negotiations with Ghana's Minister of Energy as "feisty". The final agreement was reached on 13 July and the crux of the negotiations appears to have been the utilisation of associated gas from the Jubilee field. Tullow's chief executive Aidan Heavey was quoted by Bloomberg as saying; "Ghana has a huge gas demand itself. They will use all the gas we can deliver from Phase 1 for power generation and local use in the country". Brian F. Maxted, chief operating officer of Texas-based Kosmos said in a company statement; "Kosmos and its Jubilee Field partners are providing the first 200 billion cubic feet of natural gas to GNPC at no cost to help fund the development and construction of the country’s initial gas infrastructure". The government of Ghana has stated that it will pay for the gas from Phase 2 of Jubilee. Ghana's state-backed NOC GNPC has said that up to US$1 billion in investment is needed to fund the necessary infrastructure for monetising the associated gas including the construction of an 80-km dense-phase pipeline from Jubilee to a location near Effasu. A gas processing facility capable of delivering about 300 mmcf/d of gas to existing power plants must also be built, likely at Atuabo, a coastal town in the Western Region. This will then be used as feedstock for a gas-fired power station at Effasu. A 123-km lean gas pipeline will also need to be built to Takoradi to provide feedstock for the Aboadze power plant. The processed gas will also provide liquid petroleum gas (LPG) for domestic consumption, and propane and condensates for export. Phase 2 of the Jubilee project due in 2012 could see the development of the petrochemicals industry, set up to produce ethanol, methanol, and propane for export, fertilisers for domestic use, and granules for the plastics industry. The natural gas project will generate employment and create new infrastructure, leading to economic growth for Ghana in the Western Region.
Outlook and Implications
Receiving formal approval from the government is a considerable milestone for the companies developing Jubilee. The consortium has drilled seven consecutive successful exploration and appraisal wells with a 100% success rate so far offshore Ghana. Exploration continues in the second half of the year in Ghana with two wells planned, Mahogany-4 and Mahogany-Deep-2, which could further upgrade the reserve estimate of the Jubilee field. In January this year the Mahogany-3 well discovered the Mahogany Deep reservoir, which was immediately regarded as a significant new find. The well encountered 17 metres of good quality oil pay in a formerly untested, stratigraphically deeper, and separately trapped reservoir. Fluid samples recovered indicated an oil gravity of approximately 35° API.
The project appears to be on schedule and the oil companies developing Jubilee have the necessary funds in place to meet the target of first oil in 2010. Kosmos has secured a US$750-million debt facility that will enable it to fully fund Kosmos' share of the offshore Jubilee field in Ghana, including funds to cover costs already incurred in the development. Bloomberg reports that Standard Chartered Bank Plc, BNP Paribas SA, Societé Generale SA, International Finance Corp., Absa Bank Ltd., and Calyon are among the financial institutions involved in the loan agreements. The US$750-million of debt is divided among a senior facility of US$550 million, a junior facility of US$100 million, and facilities of US$100 million from the International Finance Corporation (IFC), a member of the World Bank Group. The facilities include an early-draw tranche of up to US$300 million that Kosmos can access immediately on receipt of the Ghanaian government’s approval of the security package, which is consistent with ordinary practice for this type of debt facility, according to a company release. Kosmos is part backed by private equity firms Warburg Pincus and the Blackstone Group, which last June committed an additional US$500 million in equity funding to Kosmos. GNPC is seeking proposals to finance its equity in the oil development and to support the gas infrastructure development, with the equity requirement in the oil development project coming to about US$161 million. Additionally, GNPC is seeking its equity financing for the gas infrastructure development from various sources including development and commercial banks. Meanwhile Tullow secured access to US$2 billion of new reserve-based debt facilities in March. According to Tullow the US$2-billion of debt is split between a senior facility of US$1.785 billion, a junior facility of US$100 million, and an IFC facility of US$115 million with a final maturity of December 2015. Concluding negotiations while conditions are extremely tight in the credit markets shows the strong relationships Tullow has forged with the banking community.
However, there are still plans for Kosmos to sell or reduce its stake in the Jubilee field. There is huge interest in the Jubilee field and among the companies that have looked at Kosmos' stake are U.S. supermajors Chevron and ExxonMobil, Italy's Eni, and Anglo-Dutch firm Shell. There has also been interest from Asian NOCs, with India's Oil & Natural Gas Corp. (ONGC) expected to bid while China National Offshore Oil Corporation Ltd (CNOOC) has hired Goldman Sachs to advise on its own bid. Rather surprising is GNPC making a late attempt to acquire a greater stake in the country's offshore Jubilee oil field. The NOC hired the investment bank Morgan Stanley at the end of June to advise on offshore oil reserves. Media reports says bids must be submitted by the end of July.
The Jubilee oil field will create a new era for Ghana where petrodollars fund substantial investments throughout the country. The future is bright for Ghana, which was recently deemed a beacon of democracy and good governance and was chosen as the first Sub-Saharan African country to be visited by U.S. President Barack Obama. Yet it is the strategic decision by the government to not allow gas flaring from the Jubilee field and to hold up sanctioning the project which deserves recognition. By utilising the gas, Ghanaian industry should see accelerated economic development and job creation. Jubilee's associated gas will also be used to generate much lower cost power while increasing electrification. When the Jubilee field comes online Ghana will become one of the world’s top 50 oil producers. The field will ramp up over a 9-month period to 120,000 b/d, commencing in the second half of next year. Production is expected to reach 250,000 b/d in the subsequent development phase which should be complete two years later.