GHANA NATIONAL PETROLEUM CORPORATION(GNPC)- PRESS STATEMENT

RECENT MEDIA DISCUSSIONS ON GNPC AND JUBILEE OIL

19^TH JULY, 2012. ACCRA

In the  past weeks , the media  has published  allegations  about  the Ghana National  Petroleum Corporation attributed  to senior  public  officials speaking on platforms organized by the Extractive  Industries  ‘Transparency Initiative  and Star Ghana  or to  IMANI  Ghana. The published allegations are that:

1. GNPC does not account to national authorities for the resources entrusted to our management including an amount of US$207.96 million ceded to GNPC in 2011.
2. GNPC unilaterly appropriate public funds under our stewardship and has for example refused to pay dividends on its 2011 earnings.
3. GNPC is misleading the public  regarding Jubilee oil  production prospects
4. The costs of the Jubilee field developments and particularly the costs  of the Jubilee Phase IA remediation programme are far  above  comparable costs around the world  and that  Ghana is not  getting value  for money.

We wish to respond formally to these allegations and set minds at rest.

GNPC ACCOUNTABILITY TO PUBLIC AUTHORITIES.

It is completely inaccurate to state that GNPC does not render accounts  to the state  for oil  revenues . GNPC is in compliance with our statutory reporting and accountability obligations.

1. GNPC  is audited  by the Auditor –General  every year  and our audited  accounts  are  submitted  to all  relevant  Government  Agencies  including  the Ghana Revenue  Authority (GRA) in accordance  with Article  187 of the  Constitution and Section 12  of the  Ghana National  Petroleum Law, 1983 (PNDC Law 64).
2. GNPC submits  its annual work programme to Parliament for review  and approval as required  by the  Petroleum Revenue Management  Act, 2011, (ACT 815)Indeed it  is parliament that approves  the allocation of a  portion  of revenues from  Jubilee production to the corporation.
3. GNPC  has  accounted  to Parliament  for its  annual  budget  allocation from Jubilee revenue through  the Ministry of  Energy and Ministry of Finance and Economic  Planning  as required by the  PRMA.
4. GNPC regularly  submits Financial Statements and Quarterly  Reports  on our  operations  to the Ministry  of Energy ,  Ministry for Finance  and the State  Enterprises Commission .
5. GNPC  submits Daily  Production Reports  to the Minister  for Energy, the Minister  of  Finance  and  Economic Planning , the Governor  of the Bank  of Ghana: the  Commissioner –General , Ghana Revenue  Authority  the Executive  Secretary  of the Energy Commission  and the Chief  Executive  of the Petroleum Commission.

In 2011, Parliament allocated US$207.96 million from Petroleum Revenues to GNPC. During the 2012 budget hearing. GNPC accounted  to Parliament  through  the Honorable Minister  for Energy  and the  Honorable  Minister for Energy and the  Honourable  Minister for Finance  and Economic Planning  on the use  of these funds  as follows-

“US$132,484,815(or 63.7%) went to repay part of the money. GNPC borrowed from the Jubilee partners to pay for our US$165.8 million share of field development costs incurred since 2008.

“US$30,315.185(or 14.6%) went towards the acquisition, processing and interpretation of 2,612km of 3D Seismic. Data for the Southwest Deep Tano Block.

“US$28,119,624 (or 13.5%) was used in fabrication and installation of 14km of deepwater pipeline as part of the Natural Gas infrastructure.

“US$7,661,475(or 3.7%) went to staff costs.

“US $9,383,204(or 4.5%) went towards General Operational and Administrative Expenditure.

These  receipts and  expenditures  are captured  in detail  in our 2011 financial  statements  currently  undergoing  external  audit. Our 2011 external  audit  is behind  schedule  because  it took  us some  time  to work  through  some  of the accounting policy  impacts  of the  2011 Petroleum  Revenue  Management  Act- and  not  because  we are  reluctant  to account  for these monies .

Once the audit is concluded we will circulate our accounts as required by law.

GNPC DIVIDEND AND PAYMENTS

It is completely incorrect to allege that GNPC withholds revenue from the Government. This reflects a misunderstanding of the working of the PRMA. The practice has been that GNPC does not directly retain any revenues from the participating interest in Jubilee production. Rather GNPC hands over 100% of the gross revenues to the State. The State then cedes  such funds as Parliament  considers  necessary to cover  GNPC ‘s share  of development  and production costs , annual administrative  costs  and its  long-term capital needs. GNPC therefore  has no  discretion  over dividend  payments  because  this would  mean  that GNPC  would  not have  the resources  required to execute the projects Parliament  and the Executive  have approved.

JUBILEE PRODUCTION PROSPECTS

Contrary to IMANI‘s pessimistic assessment, the Jubilee field operations have been competent .Jubilee has delivered industry-leading operational and safety performance .The field was brought on-stream in record time and within budget. It has a record of 98% uptime and has suffered no lost time incidents. Production has been lower than originally projected. Both GNPC and Tullow the operator have offered truthful public explanations for the decline in production and explained the remedial works underway to reverse this decline.

Also contrary to IMANI’s claims, the jubilee team’s production projections for end -2012 and beyond are scientific and consistent with the results of the remedial works conducted so far and the pace of phase 1A development. The jubilee team has completed remedial work on three on three of phase 1 production wells and brought them back on-stream at increased rates and at reasonable costs. The jubilee  team plans to conduct  similar remedial work  on three more wells this year .The jubilee team has also drilled two new phase 1A production wells and one injection well. We will produce from these new wells in the last quarter of 2012.

In the first half of 2012 ,jubilee produced an average of about 63,000bopd.Jubilee is currently producing  at the same average rate  even though  at any particular point in time one well is off-line undergoing  remedial  work .As these wells and the new Phase1A wells are brought on-stream  we expect  jubilee  production to peak at 90,000bopd by the end of  the year and to achieve an annual average of between 70,000 and 80,000 bopd for 2012 .We expect to ramp up to plateau production of  120,000 bopd in 2013.

JUBILEE DEVELOPMENTS COSTS

IMANI alleges that the original  jubilee development costs are abnormally high .IMANI seeks to demonstrate this by comparing  jubilee costs to the costs  of what they  claim are comparable developments in Brazil and Angola .IMANI is misinformed .The comparisons they make are  superficial and simply unscientific.

Development  cost  are not the same across time or place .For example when oil prices are high ,development activity increases  and there is greater competition for equipment and services  thus driving costs upward .When prices are low ,activity falls and there is a lot idle capacity  available  creating a buyers’ market .The Jubilee field  was developed between 2009 and 2011 when oil prices  were at an all time high consistently exceeding US$70per barrel and often above $100 per barrel for prolonged periods. Rig rates during  this period ranged fromUS$440,00-US$650,000/day with aggregate  daily drilling costs(‘’spread rates’’)around US $1Million per day .By contrast ,Angola’s Girasol Field development  commenced in July 1998 and Brazil’s Roncador was discovered  in October 1996 with production commencing in 1999 .In this period ,oil prices averaged about US$20 per barrel and rig day rates were about  US$200,000 per day.

Further development costs depend on the physical availability of oilfield equipment and services  in the area of operations .Obviously ,the further  one has  to transport  equipment ,materials and experts the higher  the cost of the operation are likely to be. Again, Brazil and to a large extent Angola had mature oil and gas industries at the Roncador and Girasol were developed.

To a large extent equipment, material s and labor for these developments were available locally .By contrast, nearly everything and everyone had to be imported over long distances for jubilee development. Again comparison is unreasonable .To use Girasol or Roncador as benchmarks for jubilee is simply unprofessional.

1. IMANI ‘S claims that the cost of drilling  a well in water depths of less than 4,000 ft is US$220,000 per day  is simply wrong. IMANI‘s figure will at best cover only ‘’bare boat’’ cost of a drilling rig. It will not  cover  the ‘’spread rate ’’which includes all the facilities ,supplies and services without  which a drilling  rig is not of much use .These  include mud logging ,coring ,cementing, Remote  Operating Vehicles, support  vessels ,anchor –handling  vessels ,aviation support ,communication support ,supply base, freight and material handling ,mud and chemicals cement  and additives, drill consumables ,diesel fuel ,wellhead equipment, tubular and accessories, drill bits, completion consumables, supervision and administrative cost.

1. MANI’s assertion that jubilee wells are located in water depths of 3609 ft is non –factual and indeed baseless .3609ft is simply the depth at which the FPSO Kwame Nkrumah is moored. The Jubilee Phase 1A wells are spread over several kilometers not just clustered around FPSO. Water depth range from 3,600 ft to 5100 ft. If IMANI had checked their facts (instead of applying the FPSO mooring depth to all wells) they would have realized that the Jubilee phase 1A project requires rigs rated for water depths of more 4,000 ft. The bare boat rates for such rigs range between US$440,000 and US$650,000 and not the US$220,000 per day IMANI puts forward. Spread rates for these wells are around US$1.6million during drilling operations .During well completion (installation of all the equipment required to produce the oil from the reservoir safely) the spread rate increases further.
2. .IMANI’s figure of US$122.5Million for the Technip subsea facilities contract is also wrong .It does not represent the entire subsea infrastructure cost. That figure  covers only project  management ,engineering ,fabrication and installation of one new flexible  riser ,two rigid flow lines ,and 11 spools/jumpers, as well as the  installation  of two  manifolds and 5 kilometers  of umbilicals .It does not cover other necessary subsea components  including subsea Christmas trees, pipeline End termination (PLET),Connectors ,suction Piles, Umbilical Termination Assemblies (UTAs)and Multi-phase flow  meters. All these add substantial cost to the project CAPEX.
3. IMANI’s assertion that the 18-month project schedule (starting in March 2012) is inconsistent with a December 2012 first oil date is wrong. The jubilee phase 1A project  will not end  with First Oil .First Oil  will commence  with only 5 out of 8 wells completed The other 3 will be completed in 2013.This is a normal project management practice.

IMANI’s analysis of Jubilee Phase1A project cost is informed by wrong information and wrong extrapolation  from inadequate information .They could have spread  themselves  and the public  some anxiety by simply asking GNPC for the correct information and challenging us to explain before going public .Our doors are always open for constructive  discussion about the oil and gas industry in Ghana.

We wish to assure the public that we take our responsibility to inform and engage with stakeholders  very seriously .We understand  that with the commencement of production, public demand for information and analysis  about the sector  has grown  exponentially. We regularly respond to information and presentation requests from journalists and civil Society Organizations (CSOs).We make presentations to industry, Labour, Communities and civil society. We supported  this year’s New Year School platform  for engaging  a very wide spectrum of national opinion leaders .We participate actively  in the Extractive  Industries Transparency initiative  committee through  which information is available  to civil society  stakeholders and the  Ghanaian Public’s a national oil company ,we see these engagements as central to our core mandate.

Issued by:

Corporate Affairs Department

Ghana National Petroleum Corporation