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Hedge Ghana's oil to protect economy from shocks - PIAC

19. 6. 2017

The Public Interest and Accountability Committee (PIAC) has impressed on the Bank of Ghana and Finance Ministry to target hedging Ghana's oil reserves to protect the economy from massive revenue losses due to declining global oil prices.

Hedge Ghana

In its 2016 Annual report, PIAC warned of extreme financial losses in the near future following the over 50 percent drop in oil prices between 2014 and 2017.

With the price of crude oil falling from 100 dollars per barrel in 2014 to prices below 45 dollars per barrel currently, PIAC says it is apparent for Ghana to protect its pricing so as not to be hit hard with the global development.

For instance, in 2016, the Ghana National Petroleum Corporation (GNPC) sold its oil at an achieved price of 46.13 dollars per barrel.

This measured favourably compared with the average Brent crude price of 44.01 dollars as well as 41.7, 43.93 and 45.94 dollars per barrel realized by Tullow, Anadarko and Kosmos respectively.

However, the respective hedging policies undertaken by the Jubilee Partners other than GNPC, resulted in 73.76 and 61.7 dollars per barrel for Kosmos and Tullow Oil respectively.

This translates into 60.55% and 47.96 % percent in revenue on each barrel of oil for the two oil companies.

Jubilee Partners benefit from insurance claims over faulty turret bearing

Aside this, PIAC also admits that the Jubilee Partners received substantial income through the corporate Loss of Production Income (LOPI) insurance policies.

As a result, Kosmos raked in 74.8million dollars, Tullow also claimed 90.1 million dollars with Anadarko also receiving 31 million dollars.

These insurance claims were made following the faulty turret bearing on the FPSO Kwame Nkrumah which also led to drop in production for the period.

According to PIAC, its discussions indicated that GNPC had no such policy because it had believed that Tullow’s insurance covers all partners.

Recommendations

In its recommendations, PIAC wants the Bank of Ghana and the Ministry of Finance to seek expert advice on hedging and consider undertaking hedging activities as part of strategies to mitigate Ghana’s exposure to commodity price volatility.

Also, that the GNPC procures a Loss of Production Insurance or Business Interruption Insurance if it does not have one already.

2016 oil revenue drops

In 2016, there was a 13.7% decline in crude oil production compared to 2015.

The figure dropped from about 37 to 32 million barrels between 2015 and 2016.

Oil revenue equally dropped by 38% between 2015 and 2016, according to PIAC.

The amount declined from 396.17 million dollars in 2015 to 247.18 million dollars in 2016.

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