In very bizarre circumstances, Ghana is set to spend about US$ 200 million to decommission the country’s first oil-producing field, Saltpond Oil Field, the Vice President of IMANI Africa, Bright Simons, has revealed.
Interestingly, according to Bright Simons, the 55-year-old oil field throughout its existence earned Ghana revenue worth about US$ 10 million, which is even adjusted for inflation.
The Saltpond Oil Field
It is often said that Ghana first discovered oil in commercial quantities in 2007 with production commencing in 2010. This is incorrect as Ghana first discovered oil in commercial quantities as far back as 1970 by Signal Amoco although the volume found in the Saltpond Oil Field was relatively small, according to Mr. Simons.
He revealed that the field produced 3.55 million barrels when it started production between 1970 and 1985 under different operators. The small potential made the oil field unattractive to the operators anymore causing its closure in 1985.
However, there was a brief revival between 2000 and 2015 after the field was handed over to a new company, Lushann to operate. This period also recorded 1.4 million barrels.
With the very low production levels, although the contract with Lushann was expected to run till 2024, the company shut down the field and abandoned it in 2016.
“In 2000, it was revived and an agreement was signed with Lushann, run by a Ghanaian based in Texas and two Nigerian partners. He tried to milk it for what it was worth. But by 2015, it was clear that the whole setup was a mess and the field was shut down again. In 2016, Lushann’s agreement, initially scheduled to end in 2024, was canceled,” Mr. Simons stated.
The Revenue Story
Per analysis of Bright Simons, if operators of the field were duly paid what was due the state and government were diligent in collecting its due share, the country would have accrued about US$60 million over the lifetime of the field.
However, in reality, just about $10 million were accrued to the state in the total 55-year lifetime of the field. The big question is why? The delinquency of investors, and erratic payments coupled with the government’s lackadaisical approach accounted for this.
For instance, between 2002 and 2011, the operator of the field Lushann paid just US$500,000 in royalties after the government intensified efforts to seek its rightful share. However, the company failed to pay taxes and dividends citing poor cash flow.
“Unfortunately, the companies were not consistent. There were many years during which nothing at all was paid. For example, between 2002 and 2011, Lushann refused to pay most of what it owed to Ghana citing poor cashflow,” Bright Simons noted adding that, “when the government sat up and pushed hard, royalties totaling about $500,000 were paid for the 2 years of 2012 and 2013, but not the taxes and dividends. Lushann said they just couldn’t afford.”
The Decommissioning Effort
The offshore oil field after it was abandoned in 2016 still has the jack-up rig named “Mr. Louie” standing in the sea of Saltpond. The rig which was installed in the 1970s by Agripetco, experts have noted as rotting away posing an environmental hazard and threatening wildlife and vessels on the sea. Per the laws of Ghana, it was the responsibility of the operator to decommission/clean the field after production.
However, since all investors abandoned the field, that exercise has automatically become the responsibility of Ghana.
The first attempt to decommission the field began between 2016 and 2018. A contract was awarded to Pap Energy with some payments made to conduct all the preliminary works leading to the clearing of the site. However, a change in government in 2017 witnessed a new consulting contract awarded to Ensol-TSB to “provide project management consulting ahead of the removal of the Mr. Louie jack-rig.”
Additional US$ 3 million, Bright Simons says was paid to this new company. The main contract for the removal was awarded to Hans & Co. in 2022 at a cost of a whopping US$96 million. Their work involved plugging potential leakages and stabilizing the rig structure. By 2024, $89 million of the contract amount had been spent, but much of the physical structure remains in place.
Hans & Co has since suspended operations, citing a need for an additional US$81.11 million to complete the job. This would bring the total cost of decommissioning to nearly US$200 million, an amount that dwarfs the US$10 million the field earned for Ghana in 55 years.
“In October 2023, the work was suspended and a few months later the Hans and Co crew left the country. The contractor claims that it can’t continue to remove the physical structures without more money,” Bright Simons said, in a post on his X handle.
He added “How much more money do they say is needed? A whopping US$81.11 million! What I am telling you is that to remove a rotten rig from offshore Saltpond, Ghana is very close to spending US$200 million! For an oil field that has not generated even up to US$10 million in 55 years!”
Despite the millions of dollars spent by the government in decommissioning the field, the rotten rig still stands in the Saltpond Sea showing very little improvement as the threat continues.
Ghana is still grappling with the headache of a costly clean as the situation underscores the importance of stringent oversight in resource management. It also highlights the need for a robust regulatory framework to ensure that operators fulfill their financial and environmental obligations.
But for now, more money is needed the fully decommission the Saltpond Oil Field, he detailed.
