CHAPTER 1

INTRODUCTION
1.0 OVERVIEW OF THE OIL AND GAS INDUSTRY IN GHANA
Hydrocarbon exploration in Ghana began in 1896 by the West Africa Oil and Fuel
Company (WAOFCO) who drilled in the area of Half-Asini. They were followed by the socie`te`
Francaise de Petrole, who began drilling in 1909, although exploration in the country between
1896 to 1967 was intermittent.
In 1970-2006, the first major field, the saltpond field, was discovered in 1970 by a signal
Amoco well, located approximately 100kilomtres west of Accra and began producing in 1975.
Between 1978 and 1985, a total of about 3.47 million barrels of oil was produced from the field
and 14 billion cubic of gas was flared.
By the end of 1980, 31 wells had been drilled, resulting in three (3) discoveries-: the
saltpond Cape Three Points and North and South Tano.
Between 1978 and 1985 a total of about 3.47 million barrels of oil was produced from the
SF and 14billion cubic feet of gas was flared. A platform, Mr. Louie, used for the production is
still in place (Tullow Oil plc 2012).
Operations recommended and the SF is now producing approximately 600 barrels of oil
per day (Tullow Oil plc, 2012)
Between 2000 to 2007 oil exploration in offshore Ghana intensified, resulting in the
Jubilee find over 50 exploration wells have been drilled in the process; 75% of which showed
indications of hydrocarbons (Edjekum hene et al, 2010).
Even though Ghanas Oil industry can be traced to the 18th century, the industry has
focused more on the downstream and midstream sector of the industry.
Upstream oil production begun in commercial quantities during the latter part of 2010 as
hydrocarbons were discovered in commercial quantities in 2007 (Jubilee Fields), (15th
December).
Jubilee fields begun to produce 55,000 barrels of oil on daily bases but production was
expected to hit 120,000 barrels with the discovery of more wells (light sweet crude).
As at 21st December 2012, Ghana was producing 105,000 barrels of oil on daily bases
(according to Kosmos Energy).
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According to Tullow Oil Ghana, around the same time was producing 90,000 barrels of
oil on daily bases.

As at this same period Ghanas total oil production was estimated at 50 million barrels of
oil.
The offshore basins cover about 60,000 km2 (0-3500m water depth) extending from the
cote divore Ghana main time border in the west to the Ghana-Togo main time border in the
east.
The onshore/coastal expressions of Tano and Keta basins respectively and located at the
south/western and south easten corner of Ghana. It occupies the central, eastern-northern part of
Ghana. Its about 103,600 sq.km in size.
The sedimentary basins are divided into quadrants of size one degree by one degree
equivalent to about 12,420 sq.km. Each quadrant is further divided into eighteen (18) blocks with
each block size equal to about 690 sq.km.

1.1

A BRIEF HISTORY OF TEMA OIL FEFINERY (TOR)

Tema oil Refinery (TOR) Limited is the first refinery in Ghana. It is authorized by its
regulatory to process crude oil and market petroleum products. The refinery is situated in Tema
about 24 kilometers east of the capital Accra. We have the second private owned refinery known
as Petron Gas Oil also in Tema.
It was originally named the Ghanaian Italian Petroleum (GHAIP) Company and
incorporated as a private Limited Liability Company under the Companies Ordinance (Cap 193)
on December 12,1960.
It was 100% owned by ENI Group (Ente Nationalie Indrocarburi) of Italy. The
government of Ghana bought all the shares of GHAIP in April 1977 and became sole
shareholder. In 1990, the name was changed to the Tema Oil Refinery (TOR).
TORs refinery plant was designed by AGIP Petroli and constructed by Snam Progelti both of
Italy.
The refinery was commissioned in 1963 as a hydro slumming plant with an initial
capacity of 28,000 barrels per stream day.
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It was to process various light and low sulphure crude oils, such as Bony Light and Brass
River from Nigeria, and Palanca Blend from Angola.
In 1997, as part of the first phase of TORS expansion and modernization program, the
crude distillation Unit (CDU) was revamped to 45,000 barrels per stream day.
In 2002, as the second phase of the expansion and modernization program, a Residue
Fluid Catalytic Cracking (RFCC) unit of capacity 14,000 barrels per stream day was
commissioned.
The RFCC was to convert the low valued residual fuel oil, from the CDU into high
valued products of LPG and gasoline.
Prior to the commencement of crude oil processing at Tema Oil Refinery (TOR), Ghana
relied on imported refined petroleum products distributed by the local branches of multinational
oil companies, such as Shell, Texaco, British Petroleum, Mobil and Total.
These foreign Petroleum companies controlled the importation and sale of petroleum
products and were free to set up their own products prices until TOR started crude oil processing
in 1963 which limited the importation of petroleum products.
The local branches of the foreign oil companies were given the responsibility by the
government to import the crude oil required by TOR for refinery and blending into finished
products.
The Ministry of Energy was regulating the sector before the establishment of the Energy
Commission in 1997, by Act of Parliament (Act 541).
The downstream sector was dominated by multinational OMCs with Ghana Oil
Marketing Company (GOIL) being the only indigenous OMC.
There have been major increased in Ghanaian owned companies in the downstream
sector from the establishment of the Energy Commission to the National Petroleum Authority.
In 2001 there were 14 OMCs operating in the country, with 6 of them being
multinational companies, namely Mobil, Shell, Total, Elf, Oando and Engen.
These multinational companies controlled 72% of the total market share of petroleum
products marketed and distributed while the indigenous companies made up the remaining 28%.

1.2 WHAT IS DEREGULATION IN THE OIL AND GAS INDUSTRY IN GHANA

Deregulation refers to a situation whereby they is a restrictive use of the states legal
power to direct the conduct of private actors Stigler (1971). Deregulation programme is focused
primarily on the withdrawal of economic interest of government apparatus. It is also the
reduction of government regulation of business, consumers and market activity Economic
glossary (2013). Similarly deregulation according to Webster dictionary is the act or process of
removing state deregulations, it is the opposite of regulation which implies the process of
government regulating certain activities. In the perspective of Kimberly (2013) deregulation is
when the government seeks to allow more competition in an industry that allows nearmonopolies. From the view of Ernest and Young (1988) deregulation and privatization are
elements of economic reform programmes charge with the goal of improving the overall
economy in a structured process.
Essentially in an economic perspective deregulation implies freedom from government
control Innocent and Charles (2011), while Akinwumi et al (2005) asserts that deregulation is the
removal of government interference in running a system. By implication, the normal regulatory
rules and enforcement in managing the operation of a system is replaced with market force of
demand and supply to be a determinant of price Ajayi and Ekundayo (2008). In the opinion of
Wolak (2005) he sees deregulation as the removal of control by government on natural
monopolies in order to exercise market power. Where for example in US regulation generally
held natural monopolies to a specified rate of return basis for pricing products Rothwell and
Gomez (2003). Deregulation introduced free market principles and competition into these natural
monopolies Hirsch (1999); Kahn (2004); Novarro and Shames (2003); Rassenti, Smith and
Wilson (2002) and created the frame breaking changes.
The deregulation of downstream oil and gas industry is the loosening of government
control over the industry. It is a way of breaking the monopoly in NNPC in order to pave way for
healthy competition. This implies the introduction of free market system, where the forces of
demand and supply are allowed to determine the market price of products PPPRA (2004). This
formula is in contrast to the regulated regime, where government acting on existing laws controls
and determines retail and wholesale prices of petroleum products. A regulated regime is
characterised by low level of competition and investment leading to distortions in product supply
and distribution, scarcity resulting to long queues, hording, smuggling and other bottlenecks such
as monopolistic practices, existence of subsidy and poor maintenance of infrastructural facilities
Funsho (2004). The structural framework of deregulation involves the following phases: (1)
Liberalisation (2) Privatization and commercialization.

CHAPTER 2
LITERATURE REVIEW
2.0 FOUNDATION OF THE STUDY
Many existing literature have argued on different perspectives and motives for the
government deregulation of the oil and gas sector in many countries for example, Nigeria
yielding different opinions from two school of thought. The opposing and the supporting group
respectively. Those supporting deregulation argue that deregulation of the downstream oil and
gas industry would actualize government move to eradicate fuel scarcity and ensure constant fuel
supply across the country Funsho (2004). Similarly, deregulation of the industry would create
inflow of foreign investment while persistent smuggling of petroleum products and inefficiencies
in the sector will be eliminated Oluwole (2004). They also posit that Nigeria has the lowest price
of petroleum products in the world and with deregulation the international market equilibrium
would allow government to channel funds to other sectors of the economy. Furthermore, they
argued that it would break the monopoly enjoyed by the Nigerian National Petroleum
Corporation (NNPC) Okafor (2004).
Essentially, deregulation would lead to uninterrupted operation of the refineries, it would
also guarantee steady supply by enabling stakeholders and independent marketers to participate
in product importation and marketing Enemoh (2004). Their view is also that the regulated
regime by way of subsidy is a way of government enriching few Nigerian petroleum products
marketers Oluwole (2004). Findings from Abu (2012) indicates that Nigerians believes
deregulation and privatization will usher in sustainable development and would be a blessing
rather than a course. Odey (2011) recommends the complete deregulation of the downstream
sector to reduce corruption, inaccurate record keeping, inefficiency, smuggling and insufficient
product supply. Jean (2012) suggested that making deregulation work involves providing an
enabling environment and framework for efficient production, supply and distribution. Braide
(2003) recommends that the usual business as usual in the NNPC by way of product importation
and distribution is inexpedient because it represents a wrong step for government to continue
with instead government should fully deregulate the downstream oil and gas sector.
From the opposing group came the argument that the Nigeria petroleum industry must
not be deregulated completely, instead government should maintain the status quo and
restructure the sector to improve efficiency for the overall national interest. They opined that the
root cause and clamour for deregulation is because of the massive corruption in the sector and
therefore should be tackled rather than embarking on deregulation. They further argued that
deregulation helps increase profit margin for the importers, interestingly this is the position of the
labour union and the organized civil society. Furthermore, Amana and Amana (2011) asserts that
the fair distribution of economic benefits derived from petroleum has proven elusive and
therefore predicts same for deregulation. Ibanga (2011) argued that removal of subsidy may
cause dislocation to the gas price because of high demand and inadequate supply. Bafor (2001)
doubted government sustaining the gain of deregulation due to the undue interference in NNPC
affair resulting to near collapse and dismal performance which encouraged the clamour for the
privatisation and deregulation.
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According to Kikeri and Nellis (2004) they argued that deregulation processes and
institutions must be combined with appropriate competition policies and regulatory frameworks
without which the gains of deregulation can be eroded by harsh impact on consumers and the
overall economy affected due to inadequate product supply. Matthew and Fidelis (2003) opined
that the merit of deregulation can only be enjoyed by Nigerians if only they could be genuine
attention to eliminating corruption in the sector. Adagba, Ugwu and Eme (2012) posits that
government is merely taxing the poor to subsidise the life of the rich.
Similarly, Akpanuko and Ayandele (2012) argues that government is not transparent in its
drive to transform the economy and suggested reduction in the cost of governance, rehabilitating
the refineries as a measure to drive the economy.
In global perspective, the theoretical argument behind the large scale deregulation
reforms initiated in the late 1970s is two-fold. On one hand, deregulation reduces the rents that
regulation creates for workers, incumbent producers, and service providers. This view has gained
a widespread popularity among academics and policy makers ever since the works by Stigler
(1971); Posner (1975) and Peltzman (1976) contributed to the understanding of the political
economy of regulation. On the other hand, deregulation allows the newly created competition on
product, labour and capital markets to determine the winner of rent transfers. Thus, by spurring
productivity and efficiency gains Winston, (1993), economic deregulation ultimately contributes
to the overall increase in economic growth.
The additional growth is brought primarily through increased employment and real wages
Blanchard & Giavazzi (2003), which impacts both production and consumption and through
increased investment Alesina, Ardagna, Nicoletti, & Schiantarelli (2005), this affects the capital
stock in the economy. However, a need for caution is required on the recent take on the
efficiency gains from deregulation in the developing world. The key argument in this new area of
literature is that deregulation reforms influence diverse economies differently, depending on their
position on the technology level and on their quality of institutions. For example, Acemoglu,
Aghion and Zilibotti (2006) claim that certain restrictions on competition may benefit the
technologically backward countries, while Estache and Wren-Lewis (2009) finds that ideal
regulatory policies in developed and in developing countries are different because of differences
in the overall institutional quality in those countries.
In addition, Aghion, Alesina and Trebbi (2007) use industry level data to demonstrate that
within each economy, institutional reforms influence different industries differently, and more
specifically, industries closer to the technology frontier would be affected more by deregulation
and would innovate more than the backward industries in order to prevent entry. As a result,
countries closer to the technology frontier would benefit more from deregulation. The alleged
benefits of economic deregulation in many industries prompted a debate on the growth effects
from specific types of reforms on petroleum product downstream deregulation.
This information above also applies to Ghana.
2.1 DIFFERENT THEORIES
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Deregulation can be looked from the angle of different theories, we have the public
interest theory which presume that deregulation would occur if the market deficiency which
compelled regulation in the first place were to disappear. An illustration is a change in
technology which could eliminate a natural monopoly. The public interest theory also predicts
that deregulation would occur if discovered that a regulatory regime which had been perceived to
be in the public interest was defective. It may turn out that, in the light of experience, the cost of
the regulatory apparatus is or has become greater than the loss resulting from the market
imperfection it was designed to correct Posner (1974). Thus, it may become obvious only with
experience that entry restrictions is a relatively costly way to enforce standards. From Stigler
Peltzman came the version of the special interest theory which suggests that a number of factors
which may give rise to deregulation.
First, a reduction in the cost consumers must incur in order to inform themselves
regarding the effect of regulation on them. For example, price comparisons between regulated
and non-regulated controls can assist consumers in estimating the effect of regulation on the
prices they pay. Secondly, as product substitutes increases between regulated and non-regulated
products, this would reduce profits and hence the urge to lobby for regulation induced price
increases. Substitution may also occur between regulated and unregulated industries or between
regulated and unregulated controls. Thirdly, a change in industry structure can reduce either the
incentive or the ability to lobby for regulation.
Also, an increase in the number of firms in an industry or a merging of their respective
interests may increase the incentive to free ride and make it more costly to organize support for
politicians promising regulatory benefits Stigler (1974). Noll and Owen (1983) argue that, over
time, the beneficiaries of regulation will grow while groups that lose will contract. In view of the
interest group structure, alternative for substitutes and information, McCormick et al. (1984)
offer two reasons why the incentive to regulate is greater than the incentive to deregulate. The
first is that the cost of seeking regulation may be as much as the present value of the anticipated
wealth transfer involved, and if this cost is sunk it is not recoverable in the event of deregulation.
The question is does Nigeria have a theory of deregulation? although the public and
special interest theories of deregulation had slightly been criticized for the vagueness regarding
transactions in policy frameworks and political markets. In the case of Nigeria the evidence on
deregulation supports both the public and special interest theories. The two of them are in the
same range, deregulation is used by government to effect wealth transfers through privatization.
These transfers may benefit the highly concentrated special interest groups, such as petroleum
product marketers and politicians. They may also benefit larger groups, like the deregulation of
telecom industry. For the public interest group, government most times come up with reforms
and policy frame work aimed at benefiting the masses, but often hijacked by the cabals who may
want to exploit government programme to their own benefit. An example is the issue of oil
subsidy which the original government intention was for public interest, but was later hijacked
by special interest groups or cabals.

CHAPTER 3
3.0 AIM OF THE RESEARCH
This study seeks to examine the effects, challenges and prospects of deregulation of the
downstream oil and gas industry in Ghana: a management perspective. The study findings would
8

help us to confirm or reject the assumption that deregulation is the panacea to the problem in the
downstream oil and gas industry in Ghana.

3.1 RESEARCH DESIGN

Research design is the strategy, plan and the structure of conducting a research study
Leedy (1985) which provides the overall framework for data collection. The adoption of a
research for this study was driven by the requirement for the study problem: assessing the
effects, challenges and prospects of the deregulation of the downstream oil and gas industry a
management perspective. The collection of relevant data relating to this study requires
quantitative and qualitative research design. In order to have a holistic and comprehensive
response to the research question while reflecting the research paradigm the study adopted both
the case study and non-probability sample design. The use of case study is appropriate for this
study because it is concerned with uniqueness of a particular industry, contributing to the
underlying pursuit of contextual depth Myers (2002); Leedy and Ormroid (2001); Babbie (2005).
A non-probability sample design refers to specific selection of a group of individuals to represent
the generality of a larger group from which there were selected. This implies that the individual
that are selected comprises of the sample while the larger group is referred to as the population
Wiley (1999).

3.2 SAMPLING PROCEDURES

A sample refers to as a segment of the population that is selected for research purpose.
Essentially it is a subset of the actual population. This study utilized non-probability sampling
method, where the degree to which the sampling differs remain unknown Lesser (2007). The
study selected three BDCs in Tema. In order to have an industry professionals opinion on the
deregulation of the downstream oil and gas industry, an open-ended questionnaire were
administered on managers of these companies. A total of 186 questionnaire were distributed to
target population of individuals using purposive sampling methods. According to Trochim (2006)
he argued that in applied social research there are circumstances where it is practically not
feasible to conduct random sampling. Purposive sampling refers to a technique where
respondents are selected based on their knowledge of the research topic Seale (2004). From the
186 copies of the questionnaires that was given out, 150 copies representing 80.65 % responses
were received for analysis using a statistical package for social statistics to obtain the adequate
type of results. For the industry professional views, the managers that respondent to the
questionnaire were selected using purposive sampling method.

CHAPTER 4
4.0 DATA COLLECTION METHODS
Data collection involves applying the measuring instrument to the sample or case study selected
for the investigation Duffy (1986). It could be by auditory, visual and tactile observations and
perceptions, the responses from people, their actions and events are classified (Duffy, 1986). This
study employ questionnaire as its method of data collection. A self-administered dichotomous
questionnaire of (YES/NO) was distributed to respondents in order to gather information on their
views of the effects, challenges and prospects of the deregulation of downstream oil and gas
10

industry. A slightly different questionnaire (Open ended) which are more courteous and provides
background for interpreting results was administered to the managers of the three case study
companies to obtain professional opinion on the strategic management aspect of the study. In
view of the choice of questionnaire used in this study they were chosen because It saves time and
minimizes bias associated with other instruments. It also allows respondents to freely express
their feelings in their own ways by answering the questionnaire alone without fear of being
further probed by the interviewer Best and Khan (1993).

4.1 DATA ANALYSIS AND PRESENTATION PROCEDURES

The process of data analysis involves discovering patterns among the collected data, in order to
identify trends that point to theoretical understanding Babbie (2004). The data from
questionnaire was recorded, coded, analysed and presented using statistical package for social
statistics (SPSS), word and excel. The coding process involves categorizing the data by relating
concepts after which data is analysed and interpreted descriptively Seale (2004). The answers to
open ended questions in the questionnaire were categorised and summarised by identifying
similar phrases, relations and common consequences, isolating patterns and processes,
commonalities and differences Miles and Huberman (1994); Bryman (2004).

CHAPTER 5
5.0 DISCUSSIONS

5.1 CONCLUSIONS AND RECCOMMENDATIONS

The downstream oil and gas industry plays a very vital role in driving the economic stability and
growth of Ghana. The government interest in the sector is therefore not a surprise because of the
11

high revenue it generates. However, the sector is plague with lots of challenges which is of great
concern to many Ghanaians. Hence the emergence of deregulation.

Introduction to Oil and Gas Exploration and

Production
This module is designed for people interested in the exploration and production
of oil and gas who do not have a subsurface technical background. It provides
an introduction to geology and geophysics for non-geoscientists, with an
emphasis on the latest interpretation techniques, showing oilfield examples.
The course starts with petroleum geology, specifically elements of the
petroleum system and properties of rocks impacting reservoir quality. It explores
the subsurface techniques used in prospect and field evaluation with examples
from some of the common workstation analysis tools (e.g. Kingdom, Petrel). The
course outlines the process flow across the value chain from exploration through
to production.
This course focuses on explaining geoscience and subsurface techniques, with
examples from case studies to demonstrate the methods and to illustrate
technical risk and uncertainty in asset and field evaluation. You will leave with
an understanding of the disciplines of geology and geophysics applied to
investigating the origin, distribution and properties of petroleum and petroleumbearing rocks. Worked examples in asset and field evaluation will be explored to
demonstrate the strengths and limitations of a range of analytical techniques
and their impact on risk and uncertainty.

Agenda
09:00 - Welcome & Introductions
09:30 - Part 1 - Petroleum Geoscience Fundamentals

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(Rocks, Basins and Petroleum)

Introduction to Petroleum Geoscience

Hydrocarbon systems & Petroleum

Exercise Reservoir and Source rocks

10:45 - Tea & Coffee
11:00 - Petroleum Geoscience Fundamentals - Continued

Sedimentary controls

Stratigraphy and basins

Exercise Field Outcrops interpretation

12:00 - Part 2 - Subsurface methods

(Tools and techniques and the business value chain)

Seismic reflection and other tools

Exercise Example seismic interpretation

13:00 - Lunch Break
13:45 - Subsurface methods - Continued

Example North Sea example

Exercise Logs interpretation (2)

Prospects and risk

Exercise Prospect evaluation (subject to time)

Workstation Reservoir model Case study 1

Exploration example Case study 2 (subject to time)

14:30 - Part 3 - Workstation Analysis

Example North Sea example

Exercise Logs interpretation (2)

Prospects and risk

Exercise Prospect evaluation (subject to time)

Workstation Reservoir model Case study 1

Exploration example Case study 2 (subject to time)

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16:45 - Summing up
17:00 - Training Finish

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