There has been solid performance at Jubilee and TEN fields so far this year, despite multiple headwinds. Jubilee and TEN are two of Ghana’s largest offshore fields, responsible for about 80% of total oil production. Recent figures from Tullow Oil, the fields’ operator, show that gross production at the Jubilee and TEN fields averaged 136,700b/d between January and August.
This is better than what Tullow Oil had anticipated coming into the year, as significant technical challenges meant production in 2019 was weaker than expected, with total gross production averaging 140,000b/d across both fields. Last year’s poor production weighed on the company’s outlook for 2020, as it had braced for further falls in output.
As such, output guidance for both fields was set at 132,000b/d at the start of 2020. However, after the strong performance so far this year, output rates from both fields are now expected to hold, despite multiple headwinds. Accordingly, guidance from Tullow Oil for the full year has been revised upwards by 6%, for production from both to average 140,000b/d (Jubilee, 90,000b/d, TEN 50,000b/d).
Tullow Oil attributes the strong production to various factors. Significant contributions were the increased gas offtake nominations from the Ghana National Gas Corporation as well as a temporary increase in flaring, following approval from the Ministry of Energy. Gas sales are expected to remain consistent over the coming months, so will help maintain higher production in the future.
Other contributions included a higher than expected facility uptime of more than 95% and improvements in the Jubilee field’s water injection facilities and capacities. The coming onstream of the Ntomme-09 well in the TEN field in early August has also added an incremental 5,000b/d gross oil production.
Strong performance at Jubilee and TEN is a positive development for Ghana’s oil sector given they are Ghana’s two most productive fields. Yet despite the recent performance at the two fields, growth in output still has further to go. Ongoing technical issues at both of Tullow Oil’s fields means their combined production currently remains capped about 70% of peak capacity – Jubilee field’s total production potential is 120,000b/d while TEN’s is 80,000b/d.
Oil Production Set To Increase
Ghana – Total Oil Production (2018-2026)
f = Fitch Solutions forecast. Source: EIA, Fitch Solutions
Strong output at both fields is aligned with our view that Ghana’s total oil production will increase by 2% in 2020. To be sure, this marks a significant step down from the 17% growth achieved a year earlier in 2019. The near-term outlook for oil production was already subdued given the impact of the global oil price crash on the industry, as well as the impact of disruptions caused by the global Covid-19 pandemic.
Furthermore, the aforementioned technical challenges at both fields were also expected to drag on short-term growth in Ghana’s oil output. However, significant impacts of Covid-19 on production were largely averted, aided by the Ghanaian government introducing exemptions to allow charter flights for oil and gas workers into the country, allowing crew changes to continue.
In addition, capital spending has been largely maintained in a number of legacy assets – including Jubilee and TEN – in Ghana, despite widespread headwinds. For instance, Kosmos, a large stakeholder in both Jubilee and TEN, cut its capex budget by 30%. However, the company also made capital reductions in non-critical work that would keep production within previous guidance levels.
In March, Tullow Oil revised down its 2020 capex to USD300mn, marking a 30% cut compared to the previous year, although it largely maintained its planned spending on its Ghanaian assets.
Our longer-term outlook for Ghana’s crude oil production is positive, based on the expectation for continued field developments in the offshore blocks. Among the assets that hold the highest upside is the Pecan field located in the Gulf of Guinea, with total production capacity of 110,000b/d.
The Pecan field, operated by Aker Energy, is an ultra-deepwater play offshore Ghana, and is the largest of several discoveries that were made in the DWT/CTP block offshore Ghana since 2012. Aker Energy operates the block with a 50% stake in partnership with Russia’s Lukoil (38%), state-owned Ghana National Petroleum Corporation (10%) and Fueltrade (2%).
The field is estimated to contain about 334mn bbl of oil equivalents, and is expected to require an investment of about USD4.4bn. Having been delayed due to Covid-19, we now anticipate FID to occur in 2021 and first oil in 2024. FID was initially expected in H2 2019, with first oil produced 35 months later.
Further upsides stem from the anticipated reform of Ghana’s Exploration Law, which would permit exploration to take place after the expiration of a license. As the pricing environment and market conditions improve, this has the potential to encourage greater investment into Ghana’s upstream sector, presenting upside risk to our long-term production forecasts.
