There have been tons of assertions that Sankofa Gye Nyame (SGN) projects’ fuel value is bigger than the price tag of Fuel that is landed in Ghana from Nigeria or is bigger than the price tag of Jubilee gasoline or Ten gasoline. In the progress of a task, whether ENI was to develop the challenge or GNPC was to develop the venture, the expense would be about the exact or probably even fewer when ENI develops it since ENI is the one-A rated organization or at worst B+.
If ENI goes to raise income for the venture, it would elevate income at a much much less expensive price tag than Ghana will elevate for the reason that this is a 25-year undertaking at the very least. So we have to glance at the total economics of the challenge and then choose no matter if we want to embark on this task or not and that was the principal conditions for negotiation amongst ENI and the federal government of Ghana, compared with Jubilee which is an oil challenge.
There was no gasoline in the calculation of no matter if they would do this challenge or not. ENI experienced to make a selection regardless of whether they would invest in ‘SGN industry growth which has about 150million barrels of oil (oil in condensate put together). It also experienced fuel of close to an extra 180/190 million barrels of gasoline equal. That was the info they submitted to us in the plan of growth.
If you appear at the amount of the gasoline, it is considerably larger sized than the oil and the income or the economics of the oil alone will not be ready to guidance the growth of this job. So the only way this job could be developed is if gasoline and oil subject is made as an built-in challenge and that was the decision the govt took at that time, that indeed we want the gas to be the driver of this undertaking.
In summary, it is predominantly a gasoline industry growth that was approved. The oil is likely to be 40,000 barrels a day for about five a long time and it drops to 20,000 for the subsequent 3 a long time or so and finally dwindles to 10,000 and no economical institution or no investor would devote in the challenge only based on the oil flows.
The only way an trader would spend in this individual task is if the gas was provided. Now we had a significant dilemma with the gasoline mainly because they had an choice to liquefy the gas and export it which would then make the hazards and economics related to that of an oil only progress.
Don’t forget, with oil, it’s rather uncomplicated to finance for the reason that there is a very little country hazard in the off-taker. Very first of all, the discipline is offshore fuel. Secondly, the off-taker would be an global trader or a refinery of repute like TOR. So anybody who is funding this challenge would appear at the risks and economics of the undertaking and the rate of return and also the funding cost. They would also want to know no matter if funding establishments would be equipped to get enough banking institutions who have a place possibility for that tenure.
Try to remember, most banking institutions have a region hazard for one particular 12 months, some even 6 months. When you go to 3 years, the amount of banking institutions drop exponentially. When it goes to five yrs I can rely on my fingers the variety of banking companies that would finance a Ghana job with that tenor. When it goes to 10 several years now we have left banking companies I can count on my fingers on 1 hand.
It also is dependent on what aid government is heading to give to the challenge. If federal government is not going to give any guidance there would be no financial institution. I can guarantee you that for a 10-year gas improvement challenge with no government guidance there will be zero Banking companies intrigued. This particular sector is really complex, it is pretty economical and a lot of men and women are misconstruing dependent on literature that they are looking at. I even read someplace someone stated the cost of recovering oil from the floor is $10/bbl.
Jubilee area which is a earth-course subject has reserved, we just cannot even rely. It’s heading to develop 120,000 barrels a day for the following 10 several years or so. The value of generating oil from Jubilee is far more than $24/bbl. Jubilee is a world-class industry. There are no quite a few globe-course fields in the environment. 10 nor SGN are not entire world course fields. The price tag of producing this oil has been misconstrued to make persons think that the individuals negotiating on behalf of the Govt of Ghana know nothing at all and never have knowledge to support the negotiations.
The negotiations that are finished whether you do it by tender or you do it by concession or by direct negotiations is all dependent on the economics. How a lot is the trader geared up to choose as the fee of return for the danger he is using? Ghana government’s danger is nearly zero possibility in Ghana however investors in GoG 10year bonds in Ghana are paying 19% in cedis and pretty much 10% for the same possibility greenback bonds. An trader who is coming in this article and added hazard of an offshore field, deep h2o – extremely risky situations – they count on a bigger fee of returns.
The selling price of gas from these kinds of a advancement will depend on the quantity of reserves you have, how rapidly you are heading to generate them, and the price tag of the undertaking, and the return to the trader. There is no magic, if you improve the charge of return you get a diverse fuel value. If you alter the expense of advancement, you get a different gasoline value. If you alter the amount of reserves you get a unique gasoline rate.
At the time when the petroleum PoD was brought, specific assumptions have been built, they assumed how substantially reserves they can extract from the field primarily based on the science – not the actuals but projections backed by science. This is the proposal that was in the PoD. They assumed the price tag of the venture of about 7.3bn which includes the value of the FPSO lease and functions for 20 years.
All of that was assumed in the PoD doc that went to the ministries.
Of course, the ministry had to seek advice from all the corporations like GNPC, Petroleum Fee, most possible in parliament. It’s a public document. It is stated particularly how this task is heading to be financed primarily based on how the assumptions are created. It was also mentioned that if there were any charges cost savings it would mirror in the value of gas not the selling price of oil. The challenge cost would break up concerning gasoline and oil.
Any personal savings on the challenge would only influence the fuel rate and that is where the target really should be for the reason that there have been significant financial savings at the time of executing this job oil price ranges had been about 4 dollars. The time the PoD was submitted the oil costs had been in the 80/90 dollars array. By the time of executing the job selling prices of oil had dropped and selling prices had also dropped on the services.
In the negotiation on the fuel value the to start with info that were being been given were personal savings of 691 million which translated into some superior savings of 55 cents per hundred million. All of a unexpected the savings dwindled from 691 million to about a lot less than 200 million. Why? How clear was that? There had been other fees to be incurred. In the arrangement, GNPC was supposed to bear all those fees. Why?
If you have a task, an overall task in which the level of return is better than 10% and you can finance considerably less than 10% why would you permit anyone finance it. GNPC made a decision that they could increase some cash 5/6 % may possibly be lessen than government and finance these added part of the job which had been not as risky as drilling the ENP. GNPC was meant to raise the funds. GNPC experienced the dollars.
GNPC experienced access to the cash to raise. What did GNPC do with the revenue, they lend it to BOST as a substitute of employing the money for the venture. So at the time that they were meant to finance it, they did not have the income to do it. So they experienced to go back again to ENI. When they went back to ENI, this savings dwindled from 691million to fewer than 200million.
So the selling price that were set at 9.8 which would then have benefited for the deductions from the financial savings of 691million now is going to final result in a lot less than $1.5mmmtu which is yet another challenge we have. We really should have authorized the complete reductions based mostly on the 691million. Then absent and sat down with ENI and our financiers to see how we are heading to finance the remaining total of how considerably it was going to expense. If we had carried out the calculation we would have understood that it was much better for us to decrease the gasoline rate than to make it possible for ENI or somebody else to invest in this.