The fall in oil prices will not affect the time lines and cost of ongoing works on the Twenenboah-Enyera-Ntomme (TEN) Project, the General Manager of Tullow Ghana Limited, Mr Charles Darku, has said.
TEN, which is operated by Tullow, is the second largest oil project in the country and is currently under development at a cost of US$4.9 billion. The field development work is 67 per cent and expected to be completed in mid-2016.
The project is a cluster of oil fields that will start production with a daily output of 80,000 barrels of oil per day (bopd) before ramping up to 100,000 bopd towards the first half of 2017.
While admitting that the price drops from US$110 in March, 2014, to US$45 on September 11 have forced Tullow Ghana to “run a lean operation”, Mr Darko said it did not have a direct impact on TEN as funds for the project had been set aside and ring-fenced against eventualities.
“We are responding to the oil price fall as any prudent business will. One, it means you cut your costs and run a lean operation and so we are actively looking at every area of our business to improve efficiency, reduce cost and maximise the value of the funds that we have,” he said in an interview in Accra.
“However, in respect of the key projects in Ghana, which is the TEN Project, it is completely unaffected. This is because we have mobilised the funds already, and we have ring-fenced the project to bring it to successful completion because it is a key project in our largest scheme of things,” he added.
Farm-down
As a further commitment to the Project, Mr Darko said the company had put on hold earlier plans to reduce its stake in TEN to be able to properly concentrate on the development works.
“We suspended the farm-down for now and we are focused on getting first oil, making sure that the project gets past the construction and development level, and when we get past that level, we will take our position,” Mr Darko said.
The latest decision means that Tullow Ghana will continue to hold on to its 47.2 per cent stake in the project, leaving the remainder to four other oil companies, including the Ghana National Petroleum Corporation (GNPC).
The corporation holds a 15 per cent stake in the project.
Reasons for farm-down
The intention to farm-down was to help reduce Tullow’s “exposure” in the project, its global Head of Media Relations, Mr George Cazenove, said in an earlier interview.
“The risks in the oil industry is high and so we think it’s not prudent for us to hold on to about half of the total stake. It’s too risky,” he said, mentioning the associated costs and possible investment failures.
In the oil business, as is the case with most partnerships, investments, revenues and risks are shared base on the shareholding structure of the project in question.
With Tullow’s majority holding in the project, therefore, its financial and risk exposure would be the highest compared to Kosmos and Anadarko, the second biggest shareholders with a 17 per cent stake each.
That notwithstanding, Tullow Ghana’s GM said the company was prepared to shoulder on with the associated responsibilities just to be able to concentrate on the germane issue – the development and delivery of first oil within budget and schedule.
“It’s because first things first. First is to get the construction out of the way, deliver the project, it maximises its value and then you can look for farm-down,” he added.
Beyond giving Tullow the latitude to concentrate on the development of the project, delaying the farm-down until first oil is delivered would also enhance the value of Tullow’s stake in the project thereby giving it more funds at the time of the sale.
The country’s national oil company (NOC) – the GNPC – is entitled to prior notification of any partner’s decision to offload its stake in a field and the government of Ghana, through the corporation, also has a first right of refusal, according to the Petroleum Agreement (PA) governing the project.
Source: Graphic