Tullow: confidence in GhanaMay 4, 2022
Wissam Al Monthiry, managing director of Tullow Oil Ghana, talks to The Energy Year about the factors creating a positive business environment for upstream activities in Ghana and how the company plans to grow its production and continue its support for local content. Tullow Oil is an independent, Africa-focused exploration and production company.
What makes Tullow confident Ghana is an exciting oil and gas investment destination?
We’re big believers in Ghana. There is more oil to be explored and produced here. This is a country where the demand profile around those resources is growing significantly. The demographics are very exciting, so we are extremely bullish on Ghana.
Unlike other nations, Ghana has achieved a liquid connectivity to global debt markets, despite a larger balance of payments and debt than one would like. This unique access to global debt has allowed them to be able to honour cash calls and payment timeliness.
Tullow went out for a significant bond raising in mid-2021. While that may have been a testament to Tullow, it’s also a demonstration that international markets believe investments in Ghana will yield returns. Global investors everywhere from California to Hong Kong are putting their money in investments that directly depend on the success of Ghana.
Transparency, consistency and stability of the regulatory regime are hugely important. We were fortunate enough to sign our agreements relatively early on in the life of the industry here. We will likely uphold them as we grow in the future. We absolutely support further investment. The consistency of transposing those investments for 10, 20 or 30 years longer is also important. If you have uncertainty in terms of what it’ll cost you to develop and produce going forward, it’s really hard to make long-term investment decisions.
We also enjoy a collaborative relationship with the Petroleum Commission and a clear definition of where and how they work with us.
How can the government enhance the ease of doing business to generate more activity in the upstream sector?
As the government is not too enamoured with short-term gain in place of long-term benefits, their interpretation of the law allows for continued investment. Allowing companies to use their base agreements to produce and develop oil and gas further is key.
The transposition of terms and conditions from existing production basins to exploration basins is one way you could significantly promote additional investment from those incumbents that have already invested. It can also bring in new players, particularly indigenous companies. Places like Nigeria have achieved this admirable objective. Bringing down the cost structures or tax basis from the government will allow that. However, this has to be married with considerations surrounding governance, expertise, technological capability and the maturity of the market.
The government of Ghana is not unique in striving to allow its NOC, GNPC, greater direct access or ownership opportunity for the country’s assets and we respect that as a partner of GNPC. They are a fantastic partner and always will be.
Every country and economy can do things to boost investment. A simple example is regulatory transparency. Contrary to many other countries in the world, in Ghana there is a reasonable likelihood that every four years you will have a change in regime, which is fantastic for democracy. We need regulatory stability for the sector, which could be in terms of laws around access to oilfields or remuneration of contractor parties, revenue-sharing or cost sharing.
How did the Covid-19 pandemic affect IOCs’ relationship with the Ghanaian government?
One of the general themes that has come out of the pandemic globally is the evolution of the relationship between the private and public sectors. At Tullow, we benefited greatly from the support that the government of Ghana provided us. We haven’t had oil and gas production affected in any way, shape or form throughout this period.
Oil and gas produced from the TEN and Jubilee fields is important for the country’s economic sustainment through this difficult period. A simple example is the government providing air access to bring people in and out to work on the oil and gasfields. We had access to quarantine facilities and more recently, access to vaccines. These were not necessarily provided by the government, but access was facilitated through the government.
What is the remaining potential in Tullow’s Ghanaian fields and what is the company’s strategy to maximise recovery?
Jubilee is a 2-billion-barrel oilfield. Only 16% of those reserves have come to the market. For its part, TEN is a billion-barrel field with only 8% recovered. So there’s a lot more to do. We know that oil is there. In the conventional oil and gas sense, it’s not as exciting as a giant exploration find, but exploration finds are only valuable if you can bring that oil and gas to market.
We hope to maximise recovery from existing fields and incrementally add reserves. Utilising the infrastructure that exists is cumulatively going to add an equal amount or more value than brand new exploration finds with a much lower risk. The risk/reward profile is much more incremental over time and accumulates to get a similar value proposition.
With the infrastructure of two FPSOs and a significant amount of subsea infrastructure that’s been put in place over the years, there’s a high capital efficiency in incrementally growing the reserve and production bases.
What steps has Tullow taken to reduce and optimise production costs?
We strongly recognise the value in existing assets. The most prominent in Ghana are the TEN and Jubilee fields. So Tullow’s shift in strategy is moving from being an exploration-based company to a production and development company.
We’ve invested a lot of time and effort into further increasing control of our own operations. Historically, we had a third-party contractor-based approach to operating our fields, but recently we’ve taken more direct ownership and a hands-on approach. We’ve added a lot of capability in the operational space.
We are building a culture where every barrel and every dollar matters. We’ve done that through processes, systems and optimisation. If you add a few hundred barrels daily, the compounding impact of that is significant. This isn’t a mindset you would have as an explorer, but you do have that mindset as a producer.
We practice operational excellence and incremental development with Ghana’s shared prosperity in mind. Tullow has had some historic defects in Ghana in TEN and particularly Jubilee. Jubilee specifically was a project with quite a rush to first oil. We had issues with the turret bearing in the FPSO Kwame Nkrumah. Tullow has lived with a lot of band-aids, particularly on the Kwame Nkrumah, so we made a concerted effort to fix those things long-term.
How will the company’s Value Maximization Plan impact its overall oil production and revenue in Ghana?
The Value Maximization Plan is a 10-year plan with a USD 4.2-billion investment tied to it. From that, we will generate about USD 10 billion of ultimate benefit for the government of Ghana. That’s a combination of oil entitlements, revenues, taxes and royalties, as well as a slight gas benefit. The production benefit is quite pronounced.
Starting with the campaign this year, it will allow us to keep Jubilee’s production above 80,000 bopd and grow it from there towards facility capacity [the Kwame Nkrumah FPSO can process 120,000 bopd]. We will also do the same on TEN. We’ll get it back up to facility capacity [the FPSO Prof. John Evans Atta Mills can process 80,000 bopd], where we can produce around 60,000-plus bopd and keep it there, although this will happen later in this decade. The goal would be to sustain those numbers over the course of that 10-year period.
In which areas do you see further potential for Tullow’s development?
There’s more potential beyond it, but this 10-year window of the Value Maximization Plan has been our initial thinking point. We could have a second or third such plan.
Our Value Maximization Plan purposely excluded a number of clear value potential opportunities. We want further maturity in some of those options and more access or agreement with the government. There are exploration and appraisal opportunities, particularly around the TEN field, that aren’t clearly within our access rights.
For example, gas and non-associated gas opportunities are not in the Value Maximization Plan. There’s about 1.7 tcf of gas that we know of in between Jubilee and TEN. This is non-associated and completely separate from the associated potential; it is a resource to be brought to bear.
How is Tullow maximising local content across its activities given the ongoing disruptions to global supply chains?
We are expanding our supplier base. Tullow has awarded USD 16 billion of contracts in Ghana, of which USD 11 billion went to companies with some level of local participation – and in many cases, purely indigenous companies.
We have participated in the growth of some amazing suppliers across the sector and sub-sectors, from low-end suppliers like vehicle drivers to highly complex tubular manufacturers and directional drilling subcontractors – everything across the spectrum.
In local content development, we’re also adopting economic sectors to develop direct indigenous resources for the oil and gas industry. We recently took delivery of the first Ghanaian-flagged and -operated vessel to support us full-time, the MV Flat Confidence.
The Flat C vessel was birthed from Tullow’s Marine Sector Adoption Initiative. A couple of years ago, we embarked on a special initiative to adopt the marine sector and do more to deliberately support the creation of opportunities for local participation in the oil and gas industry.
The Marine Sector Adoption Initiative laid the blueprint for enhancing indigenous participation in the oil sector through the provision of technical and contracting support for marine services that will deliver 100% Ghanaian ownership and Ghanaian-operated and -flagged offshore vessels. Flat C Marine Offshore Ltd took advantage of Tullow’s initiative and procured the MV Flat Confidence.
As part of the implementation process to support acquisition of the first Ghanaian-owned vessel, Tullow Oil Ghana facilitated a marine suitability study and provided the necessary guidance and technical support to all interested parties. This process was followed by a competitive tender resulting in a contract award to Flat C Marine Offshore Ltd.
Seeing increased participation by indigenous Ghanaian companies in the oil and gas industry has long been Tullow’s ambition, and with the support of key government of Ghana stakeholders, we have made significant strides over the past decade to increase local content capacity and capability. We’re certain that this is going to be a template that can be replicated, not just across marine services, but across the other sectors as well.
As part of developing our suppliers, we invest a great deal in training; awareness and understanding of contractual terms, ethics and compliance; safety standards; and financial access.
What are the main targets the company sets while trying to develop local content in Ghana?
The first target is growing and diversifying the supplier base within each sub-sector. After we work with them, those suppliers should have access to contracts outside of Tullow, both in and out of our industry. We have achieved a supplier base that we’re quite confident about, and today they’re able to participate in contracts well beyond Tullow.
A second target is localising the workforce. Fortunately, Ghana is a place that has incredibly capable people in the technical sense. We’ve had great local engineers in areas such as drilling operations and highly astute people in our commercial, financial and government relations spaces.
We hope to create a pipeline of succession that leads to Ghanaian leaders leading Ghanaian businesses, including ours. This is the next chapter of our localisation story here.
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