GNPC’s Chief Engineer explains

...Positive Lessons from elsewhere to serve as guide
...As he Rolls out the Great Opportunities Available
By J. Ato Kobbie, Managing Editor
As the country waits with baited breath for the first flow of its ‘black gold’ in the final quarter of the year, many have expressed concern regarding what opportunities exist for local participation in this multi-billion-dollar production process, and whether Ghanaians are ready to take up the challenge.

Some of the answers to the many nagging questions have been provided by the Chief Petroleum Engineer of the Ghana National Petroleum Corporation (GNPC), Mr. Victor Sunnu-Atta. At a presentation to stakeholders recently, the Chief Petroleum Engineer noted that Ghana is better placed to learn from the Norwegian, British and other examples, to make oil a blessing to Ghanaians and not a curse.

Mr. Sunnu-Atta said Ghana has the requisite human resource to make local content work in the oil and gas industry, citing successes chalked in the country taking over the leadership of such mega-projects like the Tema Oil Refinery (TOR) and the Volta River Authority (VRA).
“Those entities are running and expanding; they have not failed,” he said, adding that these organizations surmounted challenges that confronted them and that, “It will take hard work, a lot of innovative brainwork and, above all, strong willpower to make it a success; we have no choice other than to make oil a blessing for Ghana.”

The Ghana National Petroleum Corporation (GNPC), with a mandate to develop a national petroleum service industry, has pursued its mission over the past 25 years through competence, capacity building and investment facilitation.
In pursuing its objective of deriving maximum benefits for the people and government of Ghana, while creating a win-win condition for its partners, the GNPC embarked on an accelerated promotion of the country’s hydrocarbon potential from the mid 1990s.

Success crowned these efforts, when in June 2007, the Mahogany Well within the West Cape
Three Points block, operated by Kosmos Energy with a consortium of international oil companies (IOCs) comprising Anadarko, Tullow Oil, Sabre Oil and Gas and the EO Group, encountered oil assessed to be a commercial discovery. Within a matter of days, a second well, Hyedua, operated by Tullow Oil in their Deepwater Tano block, also hit a commercial discovery.


JUBILEE FIELD
The Jubilee Field, which is an area straddling two oil blocks, the West Cape Three Points (WCTP) operated by Kosmos Energy and Deepwater Tano, operated by Tullow Oil, is estimated to have reserves ranging between 400 million and one billion barrels of crude oil. After each of the two fields struck oil commercial in commercial quantities, the field was unitised (joined) to ensure efficient and cost-effective production process. Tullow Oil is the operator of the unitised field.
The Jubilee field is attracting investment of over US$5billion.

These investments are needed first in preliminary field development in Floating Production Storage Offloading (FPSO) vessels, sub-sea trees, kilometers of infield pipeline, flow lines etc. and natural gas pipeline to shore. The FPSO, which would be the main production infrastructure, is currently under construction in Singapore and is close to completion.

Revenues from petroleum production, in the form of income taxes, royalties, and Government of Ghana’s interest, is projected to be in the range of US$840 million and US$1.6 billion per annum depending on the level of production.

LOCAL CONTENT – The Opportunities
It is through the participation of indigenous businesses in the development and production operations of Ghana’s oil that this resource will have the potential of transforming the economy.

Even though the Petroleum Agreement provides for the use of Ghanaian goods and services in all phases of petroleum operations, it comes with a caveat that this condition becomes mandatory ‘insofar as they are of quality and quantity comparable to industry standards and are priced competitively.’

Local content is defined in the oil industry as ‘the quantum of composite value added or created in the Ghanaian economy through the utilization of Ghanaian human and material resources for the provision of goods and services to the petroleum industry within acceptable quality, health, safety and environmental standards in order to stimulate the development of indigenous capabilities’.

Criteria for defining such local content include:
? Percentage of Ghanaian management in service companies set up in Ghana
? Infrastructural investments in Ghana
? Percentage of Ghanaian ownership in company
? Percentage of Ghanaian employees (skilled and unskilled)
? Percentage value of services provided by Ghanaians.

And also:

? Percentage value of Ghanaian raw materials utilized
? Percentage value of Ghanaian finished goods utilized
? Technology transfer/capacity development programmes
? New employment opportunities for Ghanaians and
? Ghanaian participation in the procurement of imported goods.

Some of the ancillary business opportunities that might become available include:
? Dedicated shore-base to where a dedicated mini harbour with large acreage of land for warehousing and services will be available to service the industry; onshore support and logistics; and office accommodation for numerous oil service companies that will move to set up in the area
?Other opportunities are in the area of supply chain services to manage supply of materials like cement, mud, tubular, casing, lubricants, fuel, and water to the Mahogany and Hyedua discoveries as well as the entire West African sub-region.
? Expansion and rehabilitation of the Takoradi airport as well as enhancement of facilitites for helicopter and fixed wing aircraft transportation; supply boats, anchor handling boats, and diving vessels, bring along major opportunities.
? Real Estate: housing of the numerous expatriate staff of oil companies and service companies;
?Telecommunications, weather forecasting, search and rescue facilities, bring with them growth in the real estate industry.

Banking Services: financing for the GNPC’s interests, bank transfers, letters of credit, financing, rigs and supply vessels, and importing foreign flagged rigs, all create new opportunities for the banking industry.
???? Insurance: all equipment, facilities and personnel will have to be insured



Construction Opportunities:
?LNG pressure vessels
? Petroleum separation
? Construction, installation and commissioning of offshore structures
? Pipeline manufacturing from steel
? Electrical wiring of platforms and vessels
? Installation and maintenance of instrumentation for production plants
? Welding and joinery
? Hooking up of pre-fabricated structures from other countries
? Assembling of knocked down structures in yards in Ghana

The Tema Shipyard and Dry Dock is about to witness a flurry of activities as the many vessels, including rigs and tankers, will call in from time-to-time requiring dry dock services.

Even before this commercial discovery, local content in exploration and production activities in the country had comprised direct jobs, with the GNPC carrying out its promotional and facilitation activities as defined by policy, including permitting and liaising with other agencies. Also, a couple of fishermen are employed in chase boats during data acquisition.

Again, fuel supply for petroleum operations by oil marketing companies (OMCs) and Water supplies bring along expanded market to suppliers in those sectors.

Ghana Ports and Harbours Authority
Shore-base facility by the Air Force and harbour facility by the Navy

As far as low skilled labour is concerned, employment opportunities during drilling (from roustabout to floor-men), facilitated by a couple of human resource companies, will see welders, painters, mechanics, electricians, and radiomen having options to choose from.

Catering and housekeeping services on board drilling vessels, as well as segregated waste from offshore petroleum operation disposal in Takoradi open new doors for people and companies in those areas of operation as well as for new ones to enter.

An example of this is seen in the case of the Saltpond Offshore Producing Company Limited (SOPCL), which sources most of its services in the country or the sub-region.

Indirect Jobs:
?Clearing and forwarding of petroleum equipment by agents
?Employment for drivers, car hiring services, hospitality (restaurants, hotels, etc) and other areas for temporary employment
?Legal services
?Accountants and Accounting Firms
? Fixed Wing Aircraft (Helicopter services from out of country)
?Banks and financial institutions already started something in the area of local participation.

Successful national policies possess
? Critical vocational training and small- and medium-sized enterprise support programs
? Transparent and independent regulatory oversight
?Some form of preference for local industry and workers that also sets standards for sustainable commercial success.
?Procurement policy i.e., preference for Ghanaian goods and services

Revealing these opportunities while addressing stakeholders in the industry two years ago, Mr. Sunnu-Atta emphasized the importance of local content as the key driver of the economic boom expected from Ghana’s oil find, with reference to the experiences of other countries.

“Norwegian and United Kingdom experiences demonstrate that the oil and gas sector can be a powerful engine for economic growth, for industry and employment, and for enhancing the country’s economic basis.

“An analysis of the elements of the local content programmes in countries shows that successful national policies have all had critical vocational training and small and medium sized enterprise support programs, transparent and independent regulatory oversight, and some form of preference for local industry and workers that also sets standards for sustainable commercial success,” said the Chief Petroleum Engineer.

“Joint ventures in which local personnel actively work alongside those of the international oil companies have proven especially effective at transferring technology, the skills and operating practices of the oil industry, and business acumen. Government support for local companies in the form of research and development (R&D) assistance, including the requirement that international companies engage in research in the host country, has been an important factor in building internationally competitive local companies as well as labor skills.

“As already defined, local content means value addition activities taking place in Ghana. In this sense, a ‘Ghanaian’ company is any company with ownership and/or infrastructure in Ghana that allows it to conduct manufacturing and service production in the country. Local value addition will then be directly linked to the magnitude of manufacturing and service production that is taking place in Ghana,” he elaborated.

He then touched on the keys to realizing effective local content to derive maximum benefit:
“Thus, two interrelated processes are required that both will contribute to local capacity expansion:

“One is to stimulate the development of indigenous companies; the other is to encourage foreign investments and participation. These two processes are key to how local content is increased by the collective and collaborative efforts of both the oil and gas companies and the government. It takes both to build industrial capacity that will increase local content in a viable and sustaining manner.”

Challenges for developing local content for the E& P industry in Ghana

The key challenges for developing an effective local content for the exploration and production (E&P) in the oil industry are:
a. A relatively undeveloped industrial base
b. Inadequate electricity and water supply, together with the lack of infrastructure to support an expanded manufacturing base
c. Obstacles to the development of small and medium sized enterprises
d. Mobilization of capital from a developing capital market.

The response of the Ghanaian business community to the opportunities would also be a key factor.

According to the GNPC official, “For Ghana to successfully implement and expand local content, we have to understand the needs of the petroleum sector and have an objective baseline assessment of our domestic capacity, both human and industrial/enterprise capability.”

Ghana has some of the following as challenges in developing local content for the E&P industry, with a relatively undeveloped industrial base characterized by inadequate electricity and water supply, as well as the absence of other vital infrastructure to support an expanded manufacturing base:
?Obstacles to the development of small and medium sized enterprises and mobilization of capital from a developing capital market
?Response of the Ghanaian business community to the opportunities by setting up institutions to train personnel for the industry, and to supply the required goods and services, some of which have been identified above.

The key to success, according to Mr. Sunnu-Atta, is for Ghana to create the proper framework within these economic, social and industrial constraints:
? The ‘Open Door’ licensing system practiced in Ghana could give the government more control over intricate details of each contract awarded, including requirements for local participation.
? Education and research

The type of licensing system operated under the petroleum exploration and production laws allows the government to choose which E&P companies would be granted concessions.

This ‘Open Door’ licensing system practiced in Ghana gives the government more control over intricate details of each contract awarded, including requirements for local participation.

Mr. Sunnu-Atta said, “The development of the Ghanaian upstream petroleum industry must be accompanied by the development or enhancement of an impressive array of education, training, research and development facilities and associated world-class equipment. These will make a major contribution to petroleum-related and other education and training, and research and development.”

The Kwame Nkrumah University of Science and Technology (KNUST) has already started training petroleum engineers for the industry. The first set of graduates passed out in 2008. KNUST’s initiative could see the institution at the forefront of technological research in the Ghanaian petroleum basins.
Other related institution, for example the Maritime Academy and others that could spring up, will result in industry-related training and employment, producing highly skilled local workforce able to design, maintain and operate petroleum systems in a safe and environmentally responsible manner. Other local firms could benefit from these pools of expertise and experience to develop other petroleum related or unrelated industries in the country.

Oil companies should be encouraged to form partnerships with educational institutions, e.g. universities and polytechnics, to develop local training programs and curriculum that meet their specific requirements, thus reducing training costs and developing local competencies.
The emerging petroleum industry could also provide on-the-job training or internship for students from various institutions, which would serve as a workforce for the industry.
In addition to education and training programmes and initiatives, a significant amount of innovative petroleum industry related research and development opportunity could come up for institutions.

These works could be in the area of;
? Engineering and design (e.g. vessel design, mooring options)
? Operational studies (e.g. seismic survey techniques, vessel offloading, safety equipment and procedures)
? Environmental Investigations (e.g. wave and current studies, beached bird surveys, fish habitat compensation).

These activities would sustain and further build the local research and development community, assisting them in serving local interests in the petroleum and other industries. This could also develop Ghana as a centre of excellence in petroleum technology, marine and earth science, not only in the sub-region but in the world wide industry.
These competences to be acquired in the Ghanaian oil and gas industry will result from cooperation and competition. The interaction between the different players in the sector –foreign companies, local companies, the government and the research institutions – will be a prerequisite for developing the Ghanaian competence.

?Attract the best of international expertise and to promote cooperation between domestic and international companies
?Transfer of technology and experience from international companies has to become key to the development of national petroleum capabilities
?Technology transfer clauses in petroleum law and agreements
?Training programmes
?Targeted R&D efforts
?The present openness towards international companies combined with a strong focus on national control and value creation

To this end, we must thrive to attract the best of the international expertise and to promote cooperation between domestic and international companies. Transfer of technology and experience from international companies has to become key to the development of national petroleum capabilities, Mr. Sunnu-Atta explained.

He pointed out that this could be done through enforcing the technology transfer clauses contained in petroleum law and agreements, with the international oil companies. Also, this could be achieved through training programmes organised by international oil companies, staff exchange as well as integrated project teams to help develop national competences.

Through targeted R&D efforts, Ghana can manage to overcome the technological challenges and barriers that are associated with exploitation of petroleum resources.

The present openness towards international companies when combined with a strong focus on national control and value creation will lead to local companies taking advantage of business opportunities associated with the E&P industry, which will ultimately benefit the development of the Ghanaian oil and gas industry.

?A formally elaborated policy, with a basis in law, including an unambiguous definition of what constitutes local value added, realistic targets, an implementation plan and schedule and clearly defined evaluation measures
?Creation of a dedicated body in the GNPC responsible for monitoring and enforcing compliance with a public outreach and analysis office
?Implementation of a capacity building plan
?Promotion of in-country technology development would be critical

In order to develop and implement a comprehensive framework to achieve an increase in local content with measurable, realistically achievable milestones in the oil and gas industry, the following elements should be considered:
?A formally elaborated policy, with a basis in law, including an unambiguous definition of what constitutes local value added realistic targets, an implementation plan and schedule and clearly defined evaluation measures
?Creation of a dedicated body in the GNPC responsible for monitoring and enforcing compliance with a public outreach and analysis office to develop a registry of competent and qualified local vendors and to work with the domestic and international industry and other stakeholders in the economy to help facilitate joint ventures and other mechanisms for cooperation.

Implementation of a capacity building plan to educate and train workers and to support the business development of local companies is necessary, just as promotion of in-country technology development would be critical.

A strategy to identify and support the most likely opportunities to build and expand domestic capability and employment is needed.

The GNPC is well placed to make local content a reality. To really make an impact, GNPC as a commercial entity could be used as a vehicle for local content development. Through GNPC, procurement of goods and services could be directed at local companies; in addition conditions should be created to enable other indigenous Ghanaian companies like GOIL participate in the exploration and production industry sooner than later.