Upstream Fiscal Regime Redesign for Value Optimisation: A Case Study of the Jubilee Field in Ghana

Abstract

Globally petroleum fiscal regime defines the extent to which the host government and the prospective investor can apportion risks and share project rewards. Ghana’s petroleum industry has become an attractive place for many foreign investors. The current upstream fiscal regime that governs the development of petroleum resources in Ghana does not capture windfall profit and further does not enable value creation for development. The challenges for the loopholes in the existing fiscal regime of Ghana are the fixed regressive royalty and the non-profitable additional entitlement elements constituting fiscal regime. To ascertain the performance of the current upstream petroleum fiscal regime, it was compared to some Gulf of Guinea countries fiscal regime and was ranked. A proposed upstream fiscal regime to create value for the petroleum industry of Ghana was modelled using the discounted cash-flow framework. The new regime has a sliding scale royalty tied to the R-Factor of the project. The regime’s value was then measured using petroleum economic profitability indicators. These indicators are Net present value (NPV), Internal rate of return (IRR), Present value ratio (PVR) and Profitability index (PI). The current fiscal regime of Ghana had an NPV of the government take (GT) to be $2.86 billion whilst that of the proposed regime had $ 3.02 billion when it was discounted. For the undiscounted, the current fiscal regime had GT NPV of $ 6.92 billion and the proposed made $ 7.29 billion. The proposed fiscal regime created a value of $ 160 million when the cash flow was discounted and $370 million when it was not discounted for the Government. The models successfully incorporated Monte-Carlo simulation using @RISK software to account for risk and uncertainty in decision making