Friday, July 29, 2011

Shell Defends Sale of Nigeria Oil Blocs as Legal

Written by Joao Peixe

Shell Petroleum Development Company of Nigeria Ltd (SPDC) has defended its decision to divest itself of some of its equity in oil concessions in Nigeria’s contentious Niger Delta region.

SPDC maintains that its divestiture was compliant with both its contractual rights and the regulatory frameworks for Nigeria’s oil industry.

SPDC Vice President for Safety, Environment, Sustainable Development and Communications, Shell Sub Saharan Africa, Tony Attah, stated, "Since we commenced the process last year, we have been open and transparent and have given equal opportunities to all interested buyers. We went through very rigorous regulated processes, often spanning several months, before possibly reaching any agreements which are also subject to requisite government approvals. SPDC has repeatedly made it clear that the planned divestments do not mean it is leaving Nigeria, but a strategic refocusing of its portfolio, including investment and necessary asset sales aimed at strengthening "our long-term position in the country," This Day newspaper reported.

The former Group Managing Director of the Nigerian National Petroleum Corporation Funsho Kupolokun countered, "In 2006, we commissioned Hart Group of UK to conduct audit and we discovered that indigenous companies do not pay tax. We cannot support a company that does not pay tax, just because it is a Nigerian company. So, if we must support indigenous companies, there must be an index to measure their performance, side-by-side the multinationals. It is not just supporting a few billionaires to take over the oil industry and when you ask them to pay tax, they turn around to bribe everybody. If they don't pay tax, how can the government get the revenue to provide essential services to the people? If I survive in Lagos, how will my father in the village survive without basic amenities? We should not support a company that does not pay tax."

By. Joao Peixe, Deputy Editor

Italian oil company, Eni strikes oil in Ghana

Italian oil explorer, Eni S.P.A says it has discovered hydrocarbon at offshore Ghana at the Gye Nyame 1 well. The well is located Offshore Cape Three Point (OCTP) block 50km offshore Ghana.
“The well, which was drilled in 519 meters of water, was drilled to a total depth of 3,349 meters and encountered significant thickness of gas and condensate sands with excellent reservoir characteristics,” said Eni in a statement July 28, 2011.

Oil mineralization was also discovered in the underlying sands with a delineation programme undertaken to asses its significant potential, said the Milan-based company.

Eni, the operator of the OCTP license, has a 47.22% interest with Vitol Upstream Ghana Limited having 37.78% stake.

Ghana National Petroleum Corporation (GNPC) has a 15% stake with a back-in option for an additional 5% of the license.

By Ekow Quandzie

Pirates seize second tanker in Gulf of Guinea

Pirates have hijacked an Italian tanker off Benin in West Africa, the second tanker to be captured in the area in a matter of weeks.

In the latest incident, they boarded the Bottiglieri controlled Aframax ‘RBD Anema e Core’ early on Sunday in the Gulf of Guinea, officials in Benin and Italy confirmed.

Two of the 23 crew are Italians, the others are Filipinos plus a Romanian, who was the vessel’s master.

Benin's navy said Monday that it was following the hijacked ship while Italy's foreign ministry liaised with Bottiglieri.

According to Italian sources, three pirates managed to board the ship 23 miles south of Cotonou, the economic capital of Benin.

Italy stepped up its measures against piracy earlier this month by allowing vessels sailing through dangerous waters to use private security guards, or soldiers for protection.

The Italian shipowners’ association, Confitarma, has called for ships to have armed guards on board in the wake of several attacks on Italian controlled vessels by Somali pirates.

A week earlier, armed gunmen seized the Greek tanker ‘Aegean Star’ off the coast of Benin, only to release the vessel and its crew two days later.

The Gulf of Guinea has become increasingly important for its potential energy reserves which have attracted international interests, according to reports appearing on the BBC website.

For example, the US hopes to import about a quarter of its oil supplies from the region by 2015.

West African coast guards have been receiving US training to combat growing maritime insecurity.

Meanwhile, the 17 crew members of the 4,831 dwt Emirati bunker tanker ‘Jubba XX’ captured by pirates earlier this month off the coast of Somalia have been freed unharmed along with the vessel, the vessel’s manager said Thursday.

‘Jubba XX’ was captured on 16th July while sailing from Umm al-Quwain in the UAE to Berbera in the breakaway northern Somali province of Somaliland.

Omar al-Khair, general manager of Emirates International Shipping, the ship’s manager, told The Associated Press the tanker was freed late Wednesday following negotiations involving Somali tribal elders and government officials in Puntland.

No ransom was paid, though pirates did steal money, clothes and other belongings from the crew, al-Khair said.

Thursday, July 28, 2011

OPEC spare capacity concerns support oil-Shell

* Output capacity, rising demand, geopolitics support oil

* OPEC spare capacity now below 2 million bpd - estimates

* IEA stocks release a "temporary measure" (Adds detail, quotes)

LONDON, July 28 (Reuters) - Concerns over rising demand, geopolitical tension and falling output capacity are supporting oil prices, Shell (RDSa.L) Chief Executive Peter Voser said on Thursday, citing estimates that OPEC spare capacity was below 2 million barrels per day (bpd).

Voser told Reuters Insider Television that he was sure energy prices would rise "over the next decades" and that oil was now being bolstered by several factors:

"It is reflecting obviously today expectations that demand will still go up and supply will be in a catch up mode.

"It also reflects that OPEC spare capacity is now below 2 million barrels (per day), according to the latest numbers, and there are some geopolitical tensions in it," he said in an interview.

Voser said he did not support the release of oil from strategic stocks, announced by the International Energy Agency at the end of June, because it would not bring long-term relief to global oil markets.

"I don't believe in these measures," Voser said. "These are very short-term measures and do not bring any medium and long-term benefits."

He said the oil market instead needed long-term measures such as new sources of oil and called for access to reserves in areas including the United States and the Arctic as well as faster development of oil resources in Iraq.

Such moves would be "much more important than releasing some short-term inventories, because that will really drive a sustained supply to meet demand in the longer term". (Reporting by Dmitry Zhdannikov and Christopher Johnson; editing by Jason Neely)

Venezuela: OPEC shouldn't attempt to lower prices

Venezuela's energy minister said Tuesday that OPEC shouldn't intervene to lower oil prices, which he said will come down only if military actions such as NATO airstrikes in Libya cease.

Energy Minister Rafael Ramirez echoed President Hugo Chavez's opposition to the strikes in Libya while announcing the financial results of state oil company Petroleos de Venezuela SA.

Ramirez said net earnings declined to about $3.2 billion in 2010 from $4.4 billion a year earlier. The decline came despite higher revenues.

Ramirez said current world oil prices are fair. As for concerns about instability in the oil market, he said: "Well, stop the bombings against Libya, stop the aggression against Iran."

Chavez has defended Iran's nuclear energy program as Tehran has confronted U.N. sanctions. Chavez has also condemned the involvement of U.S. and European militaries in Libya and has defended embattled Libyan leader Moammar Gadhafi.

"The industrialized countries, the most aggressive ones, the United States, incite destabilization" in oil-producing countries, Ramirez said at a news conference.

"It's aggression against OPEC," Ramirez said.

Venezuela is traditionally a price hawk within OPEC.

"Some sectors, big consumer countries, put a great deal of pressure on our countries," Ramirez said. "They would like us to have production above what the market requires."

Meanwhile, benchmark West Texas Intermediate crude for September delivery rose on Tuesday above $100 a barrel on the New York Mercantile Exchange.

Despite long-standing tensions between Chavez and the U.S. government, the United States remains the top buyer of Venezuelan oil.

The last thing we need is the head of Iran's Revolutionary Guards running Opec

By Con Coughlin

At a time when the world economy is teetering on the brink of collapse, there is alarming news that Iran is trying to get one of its top Revolutionary Guards commanders appointed president of Opec, the organisation that represents the world’s leading oil producing nations.
Rostam Ghasemi, the 61-year-old head of the Revolutionary Guards, has been nominated by President Mahmoud Ahmadinejad to become president of Opec. Under Opec’s rotating presidency system, Iran has held the presidency since last October. But Mr Ahmadinejad’s decision to nominate Mr Ghasemi, who is currently the subject of international sanctions for his links to Iran’s illegal programme, to take over the office of president should send shock waves throughout the global economy.

The appointment has yet to be approved by the Iranian parliament, but if it goes ahead the fate of world oil prices could rest in the hands of a man who has devoted his whole life to opposing the West. Oil prices are high enough as it is, and the prospect of Iran using oil prices to hold the world to ransom is something that should give all of us sleepless nights.

U.S. DOE Weekly Petroleum Status Report for July 22

U.S. crude oil refinery inputs averaged about 15.4 million barrels per day during the week ending July 22, 261 thousand barrels per day below the previous week’s average. Refineries operated at 88.3 percent of their operable capacity last week. Gasoline production decreased last week, averaging nearly 9.2 million barrels per day. Distillate fuel production decreased slightly last week, averaging about 4.6 million barrels per day.
U.S. crude oil imports averaged 9.8 million barrels per day last week, up by 497 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 9.5 million barrels per day, 447 thousand barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 662 thousand barrels per day. Distillate fuel imports averaged 161 thousand barrels per day last week.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.3 million barrels from the previous week. At 354.0 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 1.0 million barrels last week and are in the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 3.4 million barrels last week and are in the upper limit of the average range for this time of year. Propane/propylene inventories increased by 1.6 million barrels last week and are below the lower limit of the average range. Total commercial petroleum inventories increased by 11.4 million barrels last week.
Total products supplied over the last four-week period have averaged just under 18.8 million barrels per day, down by 2.9 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged nearly 9.1 million barrels per day, down by 3.3 percent from the same period last year. Distillate fuel product supplied has averaged just about 3.5 million barrels per day over the last four weeks, down by 3.5 percent from the same period last year. Jet fuel product supplied is 0.3 percent higher over the last four weeks compared to the same four-week period last year.
To contact the reporter on this story: Stephen Rose in Washington at
To contact the editor responsible for this story: Alex Tanzi at

Nigerian future oil output in the balance

LAGOS — Nigerian oil output has rebounded to levels not seen in years, but crucial issues after April elections remain unresolved and could have a major impact on future growth in Africa's largest oil producer.
The boost in production has occurred thanks to relative calm in the main oil region, the Niger Delta, hit by years of militant attacks before a 2009 amnesty deal. According to OPEC's 2010 figures, Nigeria overtook Iran as the cartel's second-largest crude exporter.
But new investment has stalled over long-delayed reforms, expired leases for major oil firms are yet to be renewed and the relationship between the industry and the country's oil minister has been brought into question.
At the same time, the calm in the delta is a fragile one, analysts say, since it has been achieved mainly through payouts to ex-militants, with underlying issues of poverty and unemployment unaddressed.
"You're back to where you were 10-15 years ago," Kayode Akindele of Greengate Strategic Partners financial advisers said of production, adding that it will now be vital to focus on the future.
Some industry figures have privately criticised the oil minister, Diezani Alison-Madueke, and President Goodluck Jonathan's decision to reappoint her following April elections raised eyebrows.
Criticism has ranged from her ministry's alleged ineffectiveness to accusations of corruption under her watch and claims that certain companies have been shown favouritism.
Some, however, call such criticism unfair and point to alleged misdeeds by her predecessors, questioning whether she would face the same accusations if she were not the first woman to hold the post.
A spokesman for the state oil firm, the Nigerian National Petroleum Corporation, called the accusations against Madueke unfounded.
"It will not," Levi Ajuonuma said when asked whether the relationship between the minister and major oil companies would be affected. "She has a job to do."
It is one of the most important jobs in Africa's most populous nation, a country where the oil-and-gas industry accounts for some two-thirds of government revenue and more than 90 percent of export earnings.
Production has risen to some 2.3 million barrels per day, according to June figures from the International Energy Agency.
One of the first post-election tests for Madueke will be how she resolves issues surrounding leases for US oil giant ExxonMobil's Nigeria unit.
The three leases -- believed to have a capacity of some 500,000 barrels per day -- were agreed to in 2009 under a previous minister, but were recently ruled invalid, with discussions now ongoing to resolve the matter. Exxon declined to comment in detail.
Ajuonuma said he expected a deal in the coming days, and that would be followed by renewals for long-expired leases for other oil majors, including Shell and Chevron.
"It was just that we need to ensure that due process, transparency and accountability are adhered to," he said of the Exxon leases.
Meanwhile, new investment in oil projects has ground to a halt over uncertainty linked to proposed sweeping reforms to the industry years in the making.
Madueke and others have repeatedly given deadlines for when the legislation would be passed -- all of which have come and gone without action.
Oil firms cannot be sure how much they will have to pay in taxes and royalties when the new rules take effect.
"Nobody wants to make any further calls and investment decisions until they are sure what the taxes are going to be," said Victor Ndukauba of Afrinvest financial advisers.
Other moves have begun reshaping aspects of the industry. Shell, historically the largest producer in Nigeria, has been seeking to sell off its share in four onshore oil blocks viewed as marginal.
Analysts say the moves appear to indicate a willingness by Shell to move more of its focus offshore, where the risks of militancy are lower.
It has also come under pressure to increase local involvement in the oil industry and Shell says it is committed to that goal.
Increased local investment is partly aimed at preventing further flare-ups of violence in the delta, but analysts say the risks remain strong.
"The security issue is really not solved," said Benjamin Auge, deputy chief editor of Paris-based Africa Energy Intelligence, saying calm has been maintained through payments to militants under the amnesty programme.
"Imagine one day if the price of oil goes down."
Ajuonuma, the state oil firm spokesman, acknowledged that new investment was stalled, but he pledged changes soon.
He also had a warning for traditional investors, saying countries such as China were eager to gain a greater foothold in Nigeria.
"Everybody knows that when the Chinese get involved, you better speak up," he said -- though some have speculated that the Nigerians have used the Chinese to gain leverage over traditional Western investors.

Nigeria: National Airlines Owe U.S. N5 Billion -Oil Marketers

Lagos — The Major Oil Marketers Association of Nigeria (MOMAN) has explained that the reason why it decided to stop supplying aviation fuel to Nigerian airlines was the huge debt running to N5 billion.

National chairman of the association, Wale Tinubu, said yesterday at a media parley in Lagos that his members could not continue to operate a debt regime in the face of their mounting overhead cost.

Tinubu, who said there is no scarcity of aviation fuel in the country, debunked the allegation of sharp practices levelled against marketers by airline operators.

He confirmed that few airline operators that have shown financial commitment have been supplied fuel by his members.

Airline operators had in recent times blamed marketers for deliberately hoarding the product with a view to hiking its price.

They said the development caused them to increase airfare.

Tinubu, who is also the Chief Executive Officer and Managing Director of Oando Plc, spoke on plans by his company to capture the nation's energy mix through investment.

He said in the next 10 years, Oando's investment portfolio and diversification would spread across the shores of the country.

He said in the next 26 months, his company would commit the sum of $500 million dollar into gas projects in the country while also thinking of subsidizing the cost of Liquefied Petroleum Gas (LPG).

He also said the company intends to increase its LPG plants from 7 to 15 before last quarter of this year.

Europe Gasoline/Naphtha-Gasoline strong on tight supply

LONDON, (Reuters) - Tight supply continued to
support gasoline barge prices in northwest Europe on Wednesday,
boosting refining margins and helping the market shrug off
bearish data from the United States.

The Energy Information Administration reported that U.S.
gasoline stocks rose by 1.02 million barrels week on week,
exceeding consensus forecasts for a 400,000 barrel build.

Analysts also noted that U.S. gasoline demand figures were
weak. "To see summer gasoline demand down under 9 million is
pretty abysmal," said Carl Larry, director of energy derivatives
and research at Blue Ocean Brokerage in New York.

In Europe, prices remained bouyant despite thin trading as
the market is still tight. "Northwest Europe seems quite dry for
oil in the first half of August," said one gasoline broker.

"Lots has been flowing out to the U.S., West Africa and the
Middle East. I am hearing the arbitrage window is now closed but
lots has gone."

He added that gasoline components were expensive due to
tight supply following lower refinery runs, also impacting
gasoline supply.

In addition, Bulgaria revoked the tax fuel depot licences of
the 142,000 barrels-per-day Neftochim refinery, controlled by
Russian oil major Lukoil , effectively blocking its
operations and sales .

One gasoline trader said that with the Mediterranean market
so tight at the moment - partly due to Egyptian demand
and lower refinery runs - any unprogrammed
stoppage would affect prices.

Another trader said he had not seen many cargoes from the
Bulgarian Black Sea port of Bourgas lately, adding that he
thought the dispute had been going on for a while already.


* It was another quiet trading day with the summer holiday
season now well underway. No barges of benchmark Eurobob traded
in the window.

* Only 4,000 tonnes traded ahead of the window, at
$1,052-$1,058 a tonne fob ARA, with the price falling during the
day. This was still stronger than Tuesday's $1,043-$1,053 a
tonne fob ARA range, however.

* Trafigura and Mabanaft were sellers and Cargill, Gunvor
and Morgan Stanley were buyers.

* Some 3,000 tonnes of premium unleaded gasoline traded in
the window at $1,075 a tonne fob ARA, in line with Tuesday's
range of $1,074.75-$1,076 a tonne fob ARA.

* Northville sold 2,000 tonnes to Mabanaft and 1,000 tonnes
to Totsa.

* Eurobob's crack to dated Brent BFO- rose to $7.57 a
barrel, up from $6.09 a barrel on Tuesday.

* ICE Brent crude futures LCOc1 were down 11 cents at
$118.17 a barrel at 1552 GMT, after falling as low as $117.18
earlier in the session.

* U.S. RBOB gasoline futures RBc1 in New York were up 0.27
percent at $3.1620 a gallon, while the crack was up at $31.77 a
barrel, from $30.43.


* There were no trades in the European physical naphtha
window once again. Gunvor bid $999 a tonne cif NWE, and Glencore
offered $998 a tonne cif but then withdrew the offer.

* This was down from Tuesday's bid-offer range of
$1,002-$1,006 a tonne cif NWE.

* Naphtha is still being supported on product filtering into
the gasoline pool for blending, although a surplus in Europe has
also been reported by some.

* "Demand in the Mediterranean is absorbing some Black Sea
length," said one broker. "Red Sea product is seen as possibly
moving to Mexico and the U.S."

Wednesday, July 27, 2011

Tuesday, July 26, 2011

Oil goes offshore to make way for U.S. SPR barrels

By Sarah Kent

--Floating storage off the U.S. Gulf Coast rises as SPR stocks begin to hit the market.

--Six tankers currently chartered for offshore storage in the area, says ICAP.

--Interest in floating storage due to lack of capacity onshore, not contango play.

LONDON (MarketWatch) -- More crude oil is moving into offshore storage in tankers off the U.S. coast to make way for some 30 million barrels of crude being released into the market from the U.S.'s Strategic Petroleum Reserve as additional supplies start to strain onshore storage capacity.

The number of vessels storing crude offshore the U.S. has risen to six since the beginning of June, according to shipbroker ICAP's weekly overview of very large crude carrier storage published Friday.

Three very large crude carriers, or VLCCs, which can carry 2 million barrels of crude each, and three Suezmax tankers, which are able to carry around 1 million barrels of crude each, are currently chartered as storage vessels, ICAP showed in a table of VLCC storage.

However, the renewed interest in floating storage is more likely due to a lack of capacity in onshore storage rather than a financial play to profit from the cheaper oil prices now compared to the higher prices in the coming months, shipbrokers said.

"I'm pretty sure none of it is making money on a floating storage basis," one ship broker said Monday.

The use of floating storage became popular at the end of 2008 when the crude oil market flipped into a contango structure--when the front-month futures contract is cheaper than the subsequent months.

If the front-month contract is cheap enough in relation to later dates and freight rates are low enough, traders can lock in a tidy profit by storing crude offshore for a number of months.

However, since the second half of 2010 the number of vessels used for floating storage has dwindled to a handful and it is rare to hear of new vessels being chartered for storage purposes.

The U.S. has committed to release a total of 30.64 million barrels from its strategic petroleum reserve this month and next as part of the International Energy Agency's plan to ease the impact of the loss of Libyan crude.

Of that amount, 8.74 million barrels of crude are scheduled for delivery in July, with the rest due to hit the market in August and barrels are being moved offshore to make room for the influx.

Exxon orders tankers for North Slope crude

IRVING, Texas,(UPI) -- Exxon Mobil said it signed a letter of intent with a U.S. shipbuilder for two crude oil tankers that would transport crude oil from Alaska's North Slope.

SeaRiver Maritime Inc., Exxon's marine affiliate in the United States, signed a letter of intent with Aker Philadelphia Shipyard for two crude oil tankers. Exxon said the vessels would transport crude oil from the North Slope from Prince William Sound to destinations along the U.S. West Coast.

Exxon said it expected delivery of the two U.S.-flagged vessels by 2014. Each would be capable of carrying 730,000 barrels of crude oil, which the company said would help meet U.S. energy needs.

"Today's announcement is consistent with our long-term ongoing commitment to safe and reliable marine transportation in the United States and throughout the world," SeaRiver President Will Jenkins said in a statement.

The oil tanker Exxon Valdez ran aground in Prince William Sound in 1989, resulting in the worst oil leak in U.S. waters until last year's Deepwater Horizon spill in the Gulf of Mexico.

Read more:

Monday, July 25, 2011

Tullow Oil finally buys EO Group’s $305m interest in Ghana’s Cape Three Points

British oil producer, Tullow Oil announces today July 25, 2011 that it has completed the acquisition of E.O. Group’s stake in Ghana’s Cape Three Points. EO is a Ghanaian oil producer in the Jubilee partners – the number of companies drilling for oil in the largest oil field in Ghana.
In May 2011 Tullow said it had entered into a conditional agreement to acquire the interests of EO “consisting of its entire interests offshore Ghana, for a combined share and cash consideration of $305 million.”
According to Tullow, “all of the conditions to the acquisition were satisfied and the acquisition completed today.”
In a press release issued and copied to Thursday May 26, 2011, Tullow said this acquisition will increase its interest in the West Cape Three Points licence offshore Ghana.
Tullow explained that the acquisition will increase its interest by 3.5% to 26.4% and increase the Group’s interest in Ghana’s world-class Jubilee oil field, which it operates, by 1.75% to 36.5%.
The company says the number of shares has been determined using an average of the closing share prices and exchange rates for the five business days up to and including May 24, 2011.
Tullow also indicates that the receipt of its shares as part of the consideration gives EO the opportunity to retain an indirect interest in the upside potential of all of its Ghanaian assets.
The effective date of the transaction, Tullow says is December 1, 2010, and that was before commercial production of oil started in Ghana. Commercial production of oil began in Ghana on December 15, 2010.
By Emmanuel K. Dogbevi 

Slippery Steps In Oil Revenue Management

Ghana Oil Blocks Map

– The Case Of Ghana’s Supplementary Budget

Mohammed Amin Adam
Civil Society Platform on Oil and Gas

That good laws do not guarantee good application of the laws is a truism; and this is exactly the case in Ghana’s application of the Petroleum Revenue Management Law (Act 815), which has been described variously as one of the best laws in the world. The law defines a strong and transparent mechanism for monitoring oil receipts and more importantly for spending the revenues accrued to the state. So far, the government of Ghana has demonstrated significant degree of transparency judging from the detailed information provided in the supplementary budget of the Government of Ghana on expected inflows and out flows for the year 2011. But it is also true that transparency is not an end in itself, but a means to ensure public accountability and prudent management of public resources. The 2011 Supplementary Budget provides information which is very useful but which also exposes the slippery steps of a new oil producing country in the management of its oil revenues. This paper reviews aspects of the Supplementary budget which deals with oil revenues; and finds that there is both misapplication of the law and insufficient explanation for certain decisions.


Government has tried to play down the significance of oil revenues in the budget apparently to moderate expectations and that is very good. However, these revenues mean much more to the budget than presented. Oil revenues estimated at GHC1250.8 is 2.2% of GDP, a percentage more than the revised non-oil revenues of GHC698.8 in the Supplementary Budget. Also, with oil revenues, the revised budget revenues for the 2011 fiscal year increased by 39% over the 2010 out-turn compared to 21.6% of the increase from non-oil revenues. Revenues allocated for spending in the 2011 Supplementary Budget, the Annual Budget Funding Amount, also constitutes about 47% of total supplementary revenues due for spending. Thus the Supplementary Budget largely relies on the expected oil revenues.

In addition to oil revenues, the oil and gas sector contributes more to the estimated growth for the year as captured in the Supplementary Budget with oil induced growth rate put at 14.4% against a non-oil growth of 7.5%. Thus, the oil sector will continue to boost the economy both in revenue terms and in the growth of the productive sectors especially with increased production and rising crude oil prices. However, the quality and efficiency of the investments of oil revenues is a key determinant of the growth prospects in the economy. This is the reason public interest should be very high in the prudent management of the country’s oil wealth and off-course other non-oil public resources.


In Section 110 of the Supplementary budget, the Government justifies the rationale behind the budget by stating that ‘developments in the domestic economy that have necessitated the revisions to the fiscal framework are as follows: passage and implementation of the Petroleum Revenue Management Act, 2011, Act 815, coupled with changes in world crude oil prices and revised oil production levels…..’.

However, in the case of petroleum revenues, government knew well the implications of such volatility and adequately addressed them in the law. The law provides for the Stabilization Fund which will be deployed into the budget when oil revenues fall arising from unanticipated fall in crude oil prices or production levels (Clauses 9 and 12 of ACT 815). Also, in the event of unanticipated rise in crude prices and production, excess revenues arising are to be transferred to the Ghana Petroleum Funds in a 70:30 proportion to the Stabilization Fund and the Heritage Fund respectively (Clauses 11 and 23 of ACT 815). There is no any other provision that allows government to treat unforeseen developments differently.

The Supplementary budget misapplied the provisions for dealing with unanticipated developments in the determination of the Annual Benchmark Revenues (BR), the Annual Budget Funding Amount (ABFA) and the transfers to the Petroleum Funds. In the Government’s original budget, the assumed reference crude oil price was US$70 per barrel with an average production level of 79,945 barrels per day, which amounted to a Benchmark Revenue of GH¢584.0 million (70% of GHC584 = GHC408.8 million = ABFA) . What the Government has done with the supplementary budget is to revise mid-year the reference crude oil price to $100 per barrel and production levels to 84,737 barrels per day and by these new assumptions determined a higher Benchmark Revenue of GH¢1,250.8million (70% of GHC1,250.8 million = GHC875.56 million = ABFA). This gives excess revenues of GHC466.76 million according to the provisions of the law, which is supposed to be transferred to the Petroleum Funds. Clause 2 of ACT 815 states ‘The Ghana Petroleum Funds shall both receive from Petroleum Holding Fund, petroleum revenue in excess of the Annual Budget Funding Amount’. Thus, in the language of the law, any revenues in excess of the first ABFA are classified as excess revenues, and therefore do not form part of ABFA. The allocation of excess revenues as part of benchmark revenues and the ABFA is therefore an open violation of the Act 815.

Further, the Supplementary Budget has created a second Benchmark Revenue and used it as the ‘foundation benchmark’, a practice inconsistent with the law. There cannot be two benchmark revenues simply because of unforeseen changes in crude oil prices and production volumes. This misapplication therefore equally affects the ABFA (which is GHC408.8 million and not GHC646 million provided by the Supplementary Budget) and the Transfers to the Petroleum Funds (supposed to be GHC175.2 million in line with the original ABFA and not GHC277 million in the Supplementary Budget).

Based on the revised assumed average crude price of $100 per barrel and average production volume of 84,737 barrels per day, the expected balance in the Petroleum Funds is supposed to be GHC641.96 million rather than GHC277 million as in the Supplementary Budget. Government has therefore allocated the expected balance in the Funds for spending, a clear violation of the law.

There are arguments that the first benchmark revenues were computed when Act 815 had not been passed and when oil production had not commenced. But this only means double standards as there was no need to allocate oil revenues for spending in the budget when oil production had not commenced. One wonders the legal basis for allocating oil revenues to the budget when the law was still pending in Parliament. Also, even if the arguments were valid, this would not have been the right time to determine benchmark revenues and ABFA for 2011 as the Supplementary Budget has done. Clause 17 of ACT 815 states ‘The Minister shall not later than September 1st of each year estimate and certify the Benchmark Revenue using the formula set out in the First Schedule’. Predictably, government allocated petroleum revenues to the original budget because the plan was to pass the law before the budget was presented to parliament, which did not materialize. Therefore, in line with the law, the logical timeframe for determining the benchmark revenue latest by the 1st September 2011, two clear months before the presentation of the annual budget, is only for the purpose of the following year’s budget and in this case, the 2012 budget. It is also unclear whether the new benchmark revenue has been certified and by whom as required by the law. Here, there is a technical problem that must be resolved.

As a matter of urgency, the issues of reference pricing and production forecasting must be clearly defined through appropriate regulations and in line with clause 60 of ACT 815. If this is not addressed, Government will always take advantage of changing crude oil prices to distort the computation of benchmark revenues, ABFA, and transfers to the Petroleum Funds, and thereby abuse the law.


The budget statement states that ‘the cash or equivalent in barrels of oil ceded to the National Oil Company should be 40 Percent of the net cash flow from carried and participation interests after deducting the equity financing cost of the National Oil Company’. The net receipts from carried and participating interests according to the budget are GHC445, 769, 014 and 40% of this amount is GHC178, 307,605.6. However Government allocated GHC327, 337,152 to the GNPC. This needs some clarification.

There is also a definitional problem in the determination of GNPC’s share of oil revenues and its relationship with Benchmark revenues. Benchmark revenue in Schedule 1 of ACT 815 is defined as ‘Expected current receipts from oil + Expected gas royalties + Expected dividends from national oil company’. It includes dividends from the National Oil Company (emphasis). However, in section 120 of the Supplementary Budget, ‘total revenue from oil including the National Oil Company's carried and participation interest is estimated at GH¢1,250.8 million. Of this amount the Benchmark revenue is estimated at GH¢923.4 million. The remaining is the amount due the Ghana National Petroleum Corporation as its as its equity and cash ceded to it’. This implies that GNPC’s share is neither from benchmark revenues nor the ABFA, which again varies from the provisions of the law. It is only GNPC’s equity financing costs which can be deducted from the gross oil revenues, but in the case of the Supplementary Budget, the GNPC’s share of the remaining dividends from its participation has also been deducted before the determination of benchmark revenues. It is supposed to be part of the Petroleum Holding Fund and through that part of the ABFA (clause 7(1) of ACT 815). What the budget has done is to under-estimate the benchmark revenue by GHC327.4 and therefore the ABFA to a large extent. This is not correct.


Clause 21(5) of ACT 815 gives the Minister of Finance the discretion to prioritize not more than four areas for the use of the petroleum revenues. This provision has demonstrably been followed by the Minister who provided in Section 116 of the Supplementary Budget four ‘priorities – ‘expenditure and amortization of loans for oil and gas infrastructure, road infrastructure, agricultural modernization, and capacity building (including oil and gas)’.

The issue here is the basis for the prioritization. Particularly, although expenditure and amortization of loans for oil and gas infrastructure may be relevant to Ghana’s current circumstances, there is no provision in the law for using the oil revenues to pay back loans that do not fall under the provision for collateralization. And since we do not know if the ABFA has already been collateralized, it remains unclear why the ABFA is being used to finance non-oil-collateralized debts. In addition, the allocation for capacity building including oil and gas needs to be clarified because Government has already signed a loan of $38 million with the World Bank for oil and gas capacity building, which the budget is very silent on.

However, Government must be commended for allocating oil revenues to road infrastructure and agricultural modernization. These are clearly in line with the law and will help boost the productive sectors of the economy. What Ghanaians do not know is how much of the oil revenues have been allocated to each of the priority areas outlined above.

Another important requirement which the budget addresses is the percentage of ABFA which should be allocated for capital expenditure. The Supplementary Budget allocates 70% of the ABFA according to the requirement of ACT 815 for spending on the four prioritized areas. However, the silence on the disbursement of the remaining 30% is unhelpful. Even though the law is also silent on the use of the remaining balance of the ABFA, Government would have scored another mark for transparency by disclosing its planned disbursement.


Clearly, Ghana’s Supplementary Budget has once again exposed the obsession for spending by Governments of resource producing countries. They do not know ‘breaks’ even if it means violating the legal frameworks or interpreting them to suit their interests. The transparency demonstrated in the budget is commendable because it has brought to the fore the potential to abuse the rules of managing oil revenues and has therefore laid the foundation for public scrutiny in the management of expected large inflows of capital from oil and gas exploitation as Ghana becomes a major oil producer in the near future, founded on the reported geological promise for major hydrocarbon discoveries in the country. All Ghanaians and development partners must therefore begin to ask relevant questions of our government to prevent mismanagement and misapplication of the country’s oil wealth which we know is non-renewable. This is the only way budget transparency can bring about public accountability and sustainable development.

COMMODITIES-Gold hits record, oil slides on U.S. debt

* Gold seen rising further after all-time high of $1,622.49

* No U.S. debt deal yet ahead of Aug. 2 deadline

* Oil falls more than $1; copper, corn also weaker (Updates throughout)

By Barbara Lewis

LONDON,(Reuters) - Gold surged to another record high, while oil and other commodities fell on Monday as the countdown for the United States to reach a debt deal or face a disastrous default drove investors into safer assets.

U.S. lawmakers at the weekend missed a self-imposed time limit to come up with a plan to cut the U.S. deficit, a necessary step before the debt ceiling can be raised.

Further talks were planned for Monday, however, and traders said the conviction the world's biggest economy had no choice but to find an answer before an Aug. 2 deadline should curb the extent of any market sell-off.

"There's no doubt we will get a solution," said Rob Montefusco, oil trader at Sucden Financial. "But the markets are nervous, and there's not a great deal of volume going through."

Uncertainty lifted gold to above $1,620 an ounce, the fifth record high for bullion in less than two weeks. It has hit record highs in each of the last five quarters.

Spot gold , which has risen nearly 14 percent so far this year, climbed more than 1 percent to a record $1,622.49 an ounce, before easing to $1,616.89 by 1210 GMT.

The U.S. dollar dropped to a four-month low against the yen and fell nearly 2 percent against the Swiss franc .

Riskier assets rallied last week after European leaders agreed a second rescue package for debt-stricken Greece.

"The jubilant buying of risk assets, which was on display last week, will be placed firmly on hold until an agreement on the U.S. debt ceiling is reached," said Tim Waterer, senior foreign exchange dealer for CMC Markets.


A weakened dollar can support dollar-denominated commodities, which become cheaper for non-dollar buyers, but any support has been countered by concerns about the fragility of the world's largest economy and the biggest oil consumer.

China, the world's biggest buyer of commodities and second-biggest user of oil, has also shown signs of weakness.

Its factory sector shrank for the first time in a year, according to data last week.

The news weighed on a range of industrial commodities, although many analysts said the raw materials bull story was still largely intact as low interest rates left many investors with relatively few options for gaining returns.

Hedge funds and other large investors increased their bets on high crude prices for a third straight week up to July 19, the Commodity Futures Trading Commission said on Friday.

U.S. crude CLc1 fell 89 cents to $98.98 by 1158 GMT, after hitting a six-week high on Friday. Brent crude LCOc1 dropped $1.35 to $117.32 a barrel.

Three-month copper on the London Metal Exchange eased $11 to $9,664 a tonne, with supply risks helping limit losses.

A strike at Chile's Escondida mine, the world's top copper mine, entered its fourth day with no signs of a deal to end a protest that unions are threatening to extend across the country.

U.S. corn and wheat futures fell sharply, dragged lower by forecasts for rain this week in the heat-stricken U.S. Midwest and by concerns over the U.S. debt talks.

Chicago Board of Trade corn for December delivery Cc2, the harvest month contract, fell 1.2 percent to $6.77-3/4 per bushel, well short of a record high near $8 per bushel in early April when old crop U.S. supplies were tight.

Wheat for September delivery Wc1 fell 1 percent to $6.85-1/2 a bushel, reversing Friday's 2.2 percent gain and following forecasts for rain, which could help crops to recover from a recent heat wave. (Additional reporting by Randy Fabi, Florence Tan and Rujun Shen, Jan Harvey and Nigel Hunt, editing by Jane Baird)

Spilled crude will break down over time

By TOM LUTEY Of The Gazette Staff

Long after the Yellowstone River cleanup ends, there will likely be crude oil residue balled up on the river bottom and traces of the black bathtub ring now lining the banks, officials said last week.

When ExxonMobil’s Silvertip pipeline broke July 1 beneath the flood-swollen river, an estimated 1,200 barrels of crude were swept into the runoff. As cleanup continued last week, officials acknowledged only a fraction of the oil would be recovered. The rest would slowly break down over time, though no one would speculate how long the process would take.

“Generally, petroleum breaks down, attenuates is what we call it, but that doesn’t happen overnight, I’m not going to lie to you,” said Mary Ann Dunwell, of the state Department of Environmental Quality’s Remediation Division.

Landowners along the oil spill’s path were getting a feel for that long-term breakdown last week. Crude oil coating pasture and river grasses along the Yellowstone was becoming sticky and thick while lighter chemicals in the substance slowly evaporated in the sun.

People speak of crude oil as if it is a single substance, but that’s not the case, said Mike Trombetta, chief of the hazardous waste site cleanup bureau of the Montana DEQ.

“Petroleum is not one chemical. It’s a mixture of hundreds of chemicals and every crude is different,” Trombetta said. “All petroleum over time will naturally degrade. The lighter ends volatize off, evaporate in the air. Oil will degrade over time, depending on where it is.”
In the river, microbes will break the petroleum down when conditions are right, Trombetta said. In some cases the oil will bind with sediment and form tar balls, settling in deep, slow-moving channels. Cleanup crews will be collecting tar balls when possible, but others will be left behind.

ExxonMobil has an expert in the area working on issues such as how the petroleum might degrade. The company declined to make him available for comment last week.

On land, the petroleum should steadily degrade with the help of air and sun exposure, Trombetta said.

River land is often hay country, and the state Department of Agriculture has been getting inquiries about whether hay from the oil spill area is safe. Spokesman Ron Zellar said the department has been taking cues from other states such as Texas and Oklahoma where oil spills on crops are more common.

Ag officials have been advising farmers not to feed oil-contaminated hay to dairy cattle, but other livestock can eat the hay with no ill effect, Zellar said. If the hay is truly bad, cattle probably won’t eat it, Zellar said.

Hay is a murky area for the state ag officials, who regulate animal feed, but not hay.
The acceptability of the hay is something agreed upon by the buyer and seller in Montana. The message to hay customers is buyer beware.

Contact Tom Lutey at or 657-1288.

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NNPC, Capital Oil to create 3,000 jobs

By Anayo Korie

THE Kero-Direct Scheme (KDS), a project initiated by the Nigerian National Petroleum Corporation (NNPC) in partnership with Capital Oil and Gas, will generate about 3,000 direct jobs for Nigerians, Managing Director of Capital Oil and Gas Industries, Mr. Ifeanyi Ubah, has said.

Ubah who spoke at the official launch of the project in Lagos recently said Capital Oil had employed about 250 youths, while an additional 2,750 would be hired in the next six months. “It is part of measures to end kerosene scarcity and make product available to Nigerians.”

The project was established by the NNPC in partnership with Capital Oil and Gas Industries to supply kerosene directly to households in the country. The project, which kicked off in Lagos last Saturday, with Amuwo-Odofin and Apapa local government areas as starting points, will be extended to all the 57 local government areas (LGAs) and local council development authorities (LCDAs) in Lagos and subsequently to other parts of the country.

Under the arrangement, the Pipelines and Products Marketing Company (PPMC), a subsidiary of the NNPC, will provide the product that will be sold to end-users at the official rate of N50 per litre. The product will be dispensed through Capital Oil dispensing trucks.

Ubah said the sale would be restricted to 25 litres to each household, to ensure that middlemen do not hijack the scheme, adding that about 880 households from each of the 57 local councils in Lagos will benefit on weekly basis.

He said his company had acquired seven large barges and five tug-boats, to ensure that the exercise was conducted without hitches, adding that the scheme was a bold effort by NNPC in partnership with Capital Oil to sell kerosene directly to the people.

His words: “Capital Oil has been very concerned about the difficulty in getting kerosene for domestic use. It is in response to this that the company came up with this innovation of deploying mobile filling stations with standard dispensing pumps to deliver kerosene at official price of N50 per litre to Nigerians. The scheme will afford our people greater access to the product with a view to reducing the use of charcoal and firewoods, which are hazardous to health.

“With a storage capacity of 196 million litres and dispensing capacity of 56 million litres per day, our knack for efficiency and excellence is demonstrated in our innovative robustness as we operate a system that transfers product from our jetty to other nearby depots through integral underground pipe network.

In addition to our depot, we can supply up to four other depots simultaneously. With our newly acquired seven large barges and five tug boats, we are more than poised to deliver quality service to the good people of Nigeria,” he submitted.

According to him, the choice of Amuwo-Odofin and Apapa as selling points for the commencement of the project was deliberate, as those areas are among places with higher concentration of people.

Investigations by The Moment revealed that oil marketing firms and surface tank dealers are still selling a litre of kerosene at N100 per litre, which is above the official pump of price N50 a litre. Capital Oil and Gas has world-class depot with the capacity to store about 196 million litres of products.

The company also has dispensing capability of 56 million litres per day, 30 arms loading gantry, deep-water jetty that is capable of docking four large vessels simultaneously, 700 road tanker fleet, integrated products pipelines, regional strategic oil depots in Suleja, Funtua, Kano and Emene.

Nigeria, others to earn N150tr from oil export

IN its current Short-Term Energy Outlook indicator, the United States (U.S.) Energy Information Administration (EIA) has disclosed that Nigeria and other Organisation of Petroleum Exporting Countries (OPEC) would earn $1 trillion from crude oil export this year.

The EIA report, released at the weekend by the agency, stated that the 12 OPEC members could earn $1.028 trillion (about N166.2 trillion) of net oil export revenues in 2011 and $1.108 trillion in 2012.

Also, the Federal Government has sent a bill to the National Assembly as part of efforts to shield indigenous oil companies from the vagaries of the industry.

It is titled: “A Bill for an Act to make provisions for regulations and fiscal incentives in connection with petroleum operations carried out by indigenous oil companies.’’
The bill has passed through first reading at the Senate.

In a related development, Shell Petroleum Development Company of Nigeria Limited (SPDC) has defended the divestment of its equity from some oil blocks in the Niger Delta, saying the action is in compliance with its contractual rights and regulatory frameworks which guide the oil industry in Nigeria.