Oil and Gas Sector Research- A GoldEdge Working Paper Series - 2013 Final-Final-Final

[Working Paper Series - GWP2013/01] GWP 2013/01
This research is a GoldEdge Working Paper Series, WP 2013/10 | © Bernard Tetteh Narkotey, April 2013 1
Oil and Gas Sector Firm-Level Productivity and the Long-Run National Revenue
Generation Nexus – An Empirical
Study of the Emerging Ghanaian Oil and Gas Sector
Working Paper Series - The GoldEdge Group
Bernard Tetteh Narkotey, Analyst
Email: Bernard.Narkotey@goldedgegroup.com
btnarkotey@accamail.com
Keywords: oil and gas, sector, productivity, policy initiatives, government
oil revenue, firm-level capital and operational costs
Abstract
This paper dissects with great acuteness, eminent issues revolving around the nascent Ghanaian
oil and gas sector with primary scholarly focus on identifying the long-term link that exist
between government income generation ability and firm-level productivity in the sector. Issues
regarding initiatives that could propel the sector for growth had been raised. Further, attempts
have been made to uncover and outline some emerging sector needs. Empirical revenue and
productivity regression model is formulated in which factors such as firm-level productivity,
capital and operational costs and gross pre-tax revenue are regressed against the proxy
measurement of government revenue generation ability. The data had been sourced from the
World Bank’s nineteen year (19) estimation of revenue and output generation ability of the
discovered oil fields in the sector. It is established in this study that the Ghanaian oil and gas
sector is nascent, with growth prospects that need to be managed effectively to avoid an
imbalanced cross sectorial economic growth. There exist a significant relationship between oil
and gas sector firm-level output and government ability to generate tax revenues. However, both
output and government oil revenues are likely to peak after six years of exploration and
production commencing 2011 and thereafter decline into the long-term. Although an inverse
relationship is found between capital and operational costs and proceeds to be generated by the
government in the long-run, minimal evidence exists to establish a direct and significant effect.
Policy interventions that seek to manage oil price volatility by exploring alternate oil price-risk
hedging strategies such as oil futures and options are highly commended in this paper. Sector
policies and programmes that seek to eliminate production bottlenecks and imbalanced cross-
sectorial GDP growth contribution in boom times are highly commended.
Introduction
Oil discoveries in recent times in large
quantities in Ghana, has drawn both local
and international attention to the Ghanaian
economy with high concern on policy
directions that would strategically position
the nation for high alpha generating
investments in the oil and gas sector.
International energy companies—investors,
equipment suppliers, contractors, and
consulting firms—are shifting their attention
from Europe and North America to
developing countries which are likely to
offer more business opportunities in the oil
and gas sector in the future, following the

increased energy demand and oil find mania
in these economies (Razavi, 1996). Effective
natural resource management initiatives in
such boom periods are essential for a
sustained cross-sectorial development
(Collier and Goderis, 2007).
Significance of the oil sector in any
economy and the need for policy measures
that effectively manage the sector dynamics
for a maximized benefit had been
extensively explored in existing oil and gas
literature, such as evident in Mitchell (2013),
Collier (2012), Kastning (2011), CEPA
(2010), and World Bank (2009).
(Collier and Goderis, 2007) noted that a
large existing literature suggests that there is
a resource curse-where natural resource
abundant countries tend to grow slower
than resource scarce countries. However,
Collier and Goderis, 2007), just as Raddatz
(2007) and Deaton and Miller (1995)
observe in their study that resource curse is
avoided by countries with sufficiently good
institutions and even for low-income
countries find natural commodity booms
significantly raise growth.
In Prempeh and Kron (2012), it has been
firmly established that the Ghanaian oil and
gas sector is novel; legislation, regulations
and policies in the sector are under
development and the primary focus of their
implementations by the government centre
on revenue mobilisation, revenue
maximization and revenue spending.
Following developments in the sector so
far, there appear to be justifiably optimistic
expectations about the role of oil sector in
the development of the
Ghanaian economy
(CEPA, 2010). There had
been directional calls at all
levels–from the Global and
national front, for
development and
strengthening of
institutional and policy
framework that are
necessary to provide the right frame of
direction needed to manage the sector
growth potentials. In 2011, the World Bank,
International Monetary Fund (IMF) showed
its ascent and commendation of the
contraction of a $3 billion Chinese loan by
the Ghana government to finance critical
infrastructure development in the country
especially in the oil and gas sector.
Considering the collective effort at all levels-
global and national, to support development
of the oil sector, research initiatives that
seeks to develop essential embodiment of
knowledge and technical dynamics that
could serve as reference points for sector
policy formulation and implementation, as
well as serving the needs of sector investors
and players to reduce market information
asymmetry for robust functioning sector,
would be much welcomed.
It is in the light of this depth that this study
seeks to address the pertinent sector issues
regarding the status of the sector, required
support services or needs, the sector
activities effects with the ultimate aim of
examining the link that will exist between
government income generation ability and
firm-level productivity in the long-run; again
to examine the need for policy initiatives
that would propel growth in the sector.
Empirical literature and Sector issues
The oil discovery – some stylised facts
In 2004, Ghana sold licences for offshore
oil exploration and production to different
international companies. This followed suit
from consultative considerations enshrined
in the Article 257(6) of the Ghanaian
Constitution of 1992 which exclusively vest
Table 1.0 : Ghana Oil Fields and Oil and Gas Operator
Operating Firms
Oil Field/Block
Tullow
Oil & Gas
Kosmos
Energy
Anadarko
Petroleu
m Corp
Ghana Nat.
Petr. Corp
(GNPC)
Sabre
Oil &
Gas
EO
Group
Deep-water Tano 49.95% * 18.0% 18.0% 10.0% 4.1%
West Cape Three
Points
22.9% 30.9% * 30.9% 10.0% 1.9% 3.5%
Jubilee Field 34.7% * 23.491 ** 23.5% 13.8%*** 2.8% 1.8%
*Denotes an operator of the field
** Denotes technical operator for development
*** Ghana National Petroleum Corporation 13.75 (10% carried interest, potential 3.75% working interest, if
they decide to apply for their back-in right within 60 days after production started)
Source : Kastning 2011, citing Offshore-Technology.com, 2011)

mineral deposits in the state. Large
quantities of crude light and sweet oil off
the shores of the Western Atlantic Coast -
“Jubilee fields” were discovered June 2007
and development of the production site
started right away in December 2010
(Kastning, 2011).The Jubilee field, located in
the Gulf of Guinea, 60 km off the Ghanaian
coast, near the Côte d’Ivoire border and its
spread out in the Deep-water Tano and
West Cape Three Points blocks. The wells
are at a water depth between 1,100 and
1,300 meters and at a total depth between
3,400 and 4,200 meters. The field covers
110 km², which is about the size of 155
football pitches [Kastning 2011, citing
Offshore-Technology.com, 2011].
Gas coming along with the Oil finds
Kastning (2011) citing Tullow (2011)
indicated that It is estimated that the field
contains an additional 1.2 trillion cubic feet
of gas, which are approximately 162 million
barrels of oil equivalent (mmboe). This
measurement of gas in the unit of barrel is
based on the approximate energy released
by burning one barrel of crude oil.
Extimates in the World Bank (2011) report
showed that at peak the phase one (1) Jubilee
production, could produce 120 million cubic
feet of gas per day and that at a world market
natural gas liquid prices and a dry gas price of
US$2 per thousand cubic feet, gross revenues
would be roughly US$260 million per year. This
was extimated to be less than a tenth of gross
estimated oil revenue. Gas is 100%
recoverable [Tullow Oil, 2010]. In geological
terms, the Jubilee field is a continuous
stratigraphic trap with combined
hydrocarbon columns in excess of 600
meters (Kastning, 2011).
How the oil field operations had been
organised
An overview of operations in the field was
presented in Kastning (2011). Kastning
(2011) indicated that nine production wells
bring the oil and gas from below ground to
the surface. In addition there exist eight
drillings to inject gas and water. This is done
to maintain the field pressure and to get rid
of the gas, as long as there is no pipeline to
the shore. Again, Kastning (2011)
emphasized that constant gas flaring is
forbidden in Ghana. The seventeen (17)
connects to the Floating, Production,
Storage and Offloading (FPSO)-Kwame
Nkrumah vessel. On the FPSO a daily
0
500
1000
1500
2000
2500
3000
3500
0
20
40
60
80
100
120
140
Jubilee Phase I Base Case IMF Projected Output
Output ('000 bpd) Gross Revenue (US$ million)

maximum of 120,000 barrels of crude oil is
to be separated from gas and water. Most of
these by-products are then pumped back
through the injection wells. For resource
usage efficiency, 15% of the gas is used for
power generation to run the FPSO.
Transport ships collect the oil from the
FPSO every seven (7) to ten (10) days and
ship to worldwide refineries. During the first
phase, four drilling rigs were already under
contract to finish the exploration and
development of the remaining areas of the
field, namely the southeast part.
What explains the variations in
productivity outturns?
The existing observation on the oil
productivity outturns of the field regarding
the first two years of production – 2010 and
2011 (being 106.9 bpd and 120.5 bpd)
shows a significant variation by a 38% and
30% down (66.3 and 84.7 bpd) for the two
years respectively compared to the earlier
estimates by the World Bank Staff in late
2009.
Shortfalls in output had been attributed to
production bottlenecks in the Jubilee Fields
in the Ghana 2013 Budget. Nonetheless,
reference could be made to the fact that
sufficient information was not available on
the Ghana petroleum sector for driving the
assumptions for the earlier World Bank
forecasts. Would the negative effects raised
in the oil literature hold? Does the Dutch
disease appear looming? Ghana already has
a growing non-tradable (non-agricultural
sector) sector. The service sector leads the
2012 7.1% GDP growth, recording the
highest 8.8% GDP growth rate (GSS, 2012).
Would the World Bank 2009 prediction that
without Reforms, oil could lower per capita
incomes in the long run still possess a
looming economic threat, considering the
output turnouts so far? According to the
Word Bank (2009) oil literature, comparing
the baseline scenario (where real disposable
per capita incomes would grow by 3.4
percent per year) with the first alternative
scenario, suggested that after the initial
demand boom (which would peak in 2015
and get exhausted by 2020), Ghana‘s long-
term growth trajectory would actually shift
down in comparison to a non-oil scenario.
The long term per capita income growth
rate would decelerate to 2.4 percent and, by
2029 real per capita incomes would be 14
percent lower (World Bank, 2009).
This prediction in the World Bank literature
departs from observation in Collier and
Goderis, 2007), as well as Raddatz (2007)
and Deaton and Miller (1995) who observe
that oil discoveries and
boom times would not
necessarily translate
into economic
slowdowns, but rather
countries with
sufficiently good institutions and even for
low-income countries, natural commodity
booms significantly raise growth.
It is worth focussing our discussion in this
literature on the sector’s ability to meet
future national consumption. Questions
regarding how the present energy demands
of Ghana would look like in the future?
Would such demands be meet in a
sustainable way if reliance is placed on
forecasted internal production capacities?
How could the expected revenue best
insured – would strategic hedging options
Table 2.0 : Jubilee Phase I Base Case Projected Output
Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Output
('000 bpd)
106..9 120..5 120.5 120..5 120..5 101.4 89 79.5 69.9 61.6
Actual
Outturn 66.3 84.7 83.3* - - - - - - -
Source: World Bank staff calculations-2009
8.96 8.79 9.32
111.21 109.24 113.05
2.56 2.63 2.69
-
20
40
60
80
100
120
2008 2009 2010
Thousands
Energy Annual consumption -Ghana and selected
neibouring countries (kt of oil equivalent)
Ghana
Nigeria
Togo

such as oil futures, oil options and insurance
be explored to complement existing
stabilisation funds?
How do the nation’s energy (oil related)
consumption stand
The International Energy Agency (IEA)
makes available relevant data on the nation’s
oil annual demand available for preview on
the World Bank Data Site. A comparison is
made with two (2) surrounding
neighbouring countries, Europe and the
world at large. Table 3.0 and the graph on
oil consumption on page 4, depicts the
picture of the situation. Energy
consumption in this study refers to use of
primary energy before transformation to
other end-use fuels, which is equal to
indigenous production plus imports and
stock changes, minus exports and fuels
supplied to ships and aircraft engaged in
international transport.
The expected oil revenues – how the
prospects stand
The World Bank (2009) paper on
“Economy-Wide Impact of Oil Discovery in
Ghana”, earlier in November 2009
estimated the Jubilee Field’s reserve at 490
million barrels of high-quality oil and
justifies commercial exploration of the
reserve, should barrel oil prices exceed
US$30. At its peak (mid 2011- mid 2016),
some 120,000 barrels of oil per day could be
extracted – making Ghana a net oil exporter
for a short while. Emphasis was made the
World Bank (2009) literature that the overall
period of activity could span over two
decades.
Ghana in 2011 reaped a total volume of
crude oil produced at 24.2 million barrels
(average of 66,290 barrels per day) against a
target of 31.0 million barrels (average of
84,737 barrels per day). Out of the total
volume, the Ghana National Petroleum
Corporation (GNPC) on behalf of the State,
lifted 3,930,189 barrels through four liftings
which realized a total revenue of US$444.12
million (GH¢690.26 million). Oil revenues
rose by 21.8% to 541.07 in 2012. The oil
proceeds are allocated to GNPC Equity
Financing costs; Consolidated Fund; the
Stabilization Fund as well as the Heritage
Funds in accordance to the Petroleum
Revenue Management Act, 2011 (Act 815).
The existing oil literature indicates that
Ghana expects 581 million U.S. dollars in
petroleum revenues by end of 2013
(Hatcher 2013), while the estimated
production of oil is also projected to be
83.341 barrels of oil per day (bopd) , based
on a three-year moving
average. The BMI
(2013) estimates that
resource base will
grow to 730mn bbl. by
2016 and forecasted
net oil exports to grow
from approximately at
an average rate of nearly 3% from 2012to
reach 113,000b/d by 2021, generating
significant revenues for the local economy.
In the latest 2013 budget, the government
attributed production and revenue shortfall
compared to the targets to production
difficulties experienced in the Jubilee fields.
On the contrary, some policy analysts,
deferred in their perspectives regarding the
cause of the shortfall in production. These
argued that the lack of exploration and
drilling costs absorption ceilings in the
sector, results in less profit declarations that
result in low taxable profit declarations.
Managing government oil proceeds-
volatility and uncertainty in World Market
Prices
Fundamental issues centering oil revenue
managemernt for the intended development
traces root to oil market price volatilities and
uncertainties. Uncertainty and volatile oil
Table3.0 : Energy Consumption (kt of oil equivalent)
Country/Geographic 2008 2009 2010
World 11,856,337 11,764,521 12,324,301
% of world-Ghana 0.08% 0.07% 0.08%
Ghana 8,958 8,790 9,322
Nigeria 111,210 109,239 113,053
Togo 2,563 2,628 2,689
Europe & Central Asia 2,974,125 2,789,980 2,948,674
Source: international Energy Agency - IEA Statistics © OECD/IEA,
http://www.iea.org/stats/index.asp

prices can cause boom-bust cycles in
economic management and growth (CEPA,
2010). Volatility in world market prices and
government revenues could create
macroeconomic instability in the economy,
raising risks and reducing the risk-adjusted
profitability of investments.
Daniel (2001) noted in his work that the
governments typically bear two kinds of oil
price risks. First and foremost many
governments in oil producing developing
countries obtain substantial revenue from oil
production/exploration. Second many of
these governments also try to smooth
domestic oil-product prices to mitigate the
social, economic, and political impact of
large and frequent changes in the oil product
prices. In both cases the fiscal position of
the government depends substantially on
the oil price (Daniel, 2001).
In oil and gas literature, two common
alternatives had been theoretically
propounded to mitigate the oil price risk
exposure that oil producing countries face
(Daniel, 2001 and Arrau and Stijn, 1992). In
Daniel (2001) oil futures and options are
emphasized as effective government
revenue hedging strategies compared to the
use of stabilization funds observed in Arrau
and Stijn (1992). Nonetheless, lack of
knowledge of effectiveness of these hedging
options and fear of loss of political will had
been the major impediment for designing
and implementing programmes that place
premium on the proposed hedging strategies
in the oil and gas literature.
Some highlights of the oil and gas sector
needs and support services trend
In oil and gas literature, strong arguments
had been made for policies and programmes
that strengthen institutions since strong
institutional structures are regarded as
foundations for avoiding economic
imbalance and instabilities in oil exploration
and producing and countries.
Institutional structures that ensure sound
financial markets, trade and arbitration,
competitive markets and resource
allocations, fiscal and monitory disciplines,
well segmented and integrated upstream,
mid-stream and downstream valued based
oil service delivering entities, investors,
contractors and business advisors would be
much needed for take-offs in the sector.
The GBI Research (2013) indicated that as
a result of increased logistics activity in the
oil and gas sector due to increasing
international and domestic trades, the
demand for oil and gas storage capacity is a
current important trend in the oil and gas
sector that is witnessing a rise at the major
global supply hubs. The trend is expected to
continue, with the major terminal operators
worldwide as the key beneficiaries.
However, the supply chain operators which
are relatively having less proximity from the
main storage hubs are not expected to
benefit substantially from the current
scenario.
Markest and Markets (2012) finds that the
use of Hydraulic fracturing which is mainly
concentrated in North America, where
many leading oil field service companies –
Schlumberger (U.S.), Halliburton (U.S.),
Baker Hughes (U.S.), and other medium and
small players – operate is now gaining
popularity in other oil exploration
economies. While the North American
hydraulic fracturing market is reaching
maturity, the Rest of the World’s (ROW)
market is still in its infancy. Markets and
Markets (2012) indicate that the Hydraulic
fracturing is the propagation of fractures

through layers of rock using pressurized
fracturing fluid. The technique is primarily
used in the extraction of resources from low
permeability reservoirs – such as shale gas,
tight gas, CBM, and unconventional liquids
– which are difficult to recover through
regular drilling procedures. Hydraulic
fracturing services are now being provided
by oilfield service companies (such as
Halliburton) to oil and gas companies (such
as Shell). Hydraulic fracturing was first used
in 1947, since then scores of wells have been
fractured.
Nonetheless, Hydraulic Fracturing is facing
a lot of public opposition due to potential
environmental hazards caused by fracturing.
Water usage, water contamination, and
seismic activity are the most important
concerns related to hydraulic fracturing.
Because of these environmental concerns,
the growth of hydraulic fracturing market in
the rest of the world market is somewhat
lessened. In fact, some companies have even
banned the use of hydraulic fracturing. This
presents an opportunity to oilfield service
companies to use ‘waterless’ hydraulic
fracturing or foam fracturing.
Exploring faster means for detecting and
measuring precisely the volume of oil in
wells could also be considered a key be
catalysts for an oil boom. The Reuters
(2013) reports Total Plc.’s launch of a new
supercomputer-Pangea that will help find oil
15times faster than before. The machine
helps gauge more precisely the potentials of
oil exploration wells and the size of oil
reserves. [Since this paper appears a working document,
details of latest oil sector need assessment and analytics could be
obtained by writing to the author. E-mail:
Bernard.Narkotey@goledgegroup.com.…….]
Econometric model specification and
Design
The empirical analysis involves the
application of cross-section data
econometric methods with a balanced panel
dataset that combines both and looks at
multiple variables and how they change over
the course of time with a random effect
regressions of selected variable over
estimated data point period 2010-2020 for a
single case study country, Ghana. The
individual effects in the random effects
model are specified through a variable that
is uncorrelated with the independent
variables. In fixed effects models, a
correlation between the individual error
term and the predictor variables is assumed.
Some proxies are employed in measuring
dependent and independent terms in the
regression models.
As evident in Dioda (2012), Gupta (2007)
and Bird et al. (2004), proceeds from oil
taxation, royalties and fees, had been used to
proxy national revenue proceeds from oil
exploration and production and this is the
dependent variable adopted in model
specification.
Unlike, in existing literature such as Gupta
(2007), that size of the economy expressed
as GDP at purchasing power parity is
employed as control variable and regressed
against revenue, this paper ignores this level
of measurement to reflect the complete
impact at the firm-level productivity level.
The size of firm-level production is used
instead and is expressed as the logarithm of
output per thousand barrels. The size of
operational costs which is also a determinant
of firm-level after tax revenue is also
expressed as the logarithm of capital and
operational costs of exploration and
production. Hence, the regression model is
formulated as follows:
…….. (1)
….. (2)
Generally, the dependent in equation (1) is
given as on the left of the equation,

being the constant for i in time t. is a set
of vector variables such as short-term debt,
long term debt or firm size. The error term
is denoted consisting of two
components where accounts
for any unobservable firm-specific effects
that are not included in the regression model
and caters for the remaining
disturbances in the regression which varies
with the individual firms and time.
In equation (2), denotes the size of
revenue the government could realises
through tax, royalties and licensing from the
existing oil fields over the estimated time
span, denotes the size of firm-level
output capacity while is a control
variable denoting operating and capital costs
of oil exploration and production.
is also a control variable denoting the gross
pre-tax oil revenue from the oil field. The
size of firm-level operating and capital costs
as well as gross pre-tax oil proceeds were
included in the model as control variables
with the double purpose of evaluating their
effect on government revenue and to
strengthen the model through a robustness
check.
The empirical use of independed variables
such as trade openness observed in Bird
(2004), share of agriculture over GDP as
proxy variable for national development
level in Dioda (2012); literacy rate in
Mahdavi (2008), foreign aid and debt/GDP
ratio in Profeta and Scabrosetti (2010);
internal conflicts and fiscal capacity in
Cárdenas, Eslava and Ramirez (2010) have
not been followed in this paper. Though this
may place some level of limitations on the
results, the approach in this paper had been
chosen against the backdrop of highly
limited data available on the Ghanaian
petroleum sector.
Another very significant issue to be
considered in interpreting the results of the
econometric model in this paper is the use
of forecasted data set that are largely based
on tested assumptions by the of the World
Bank staff in the November 2009 oil
literature. The results of this analysis would
therefore largely depend on the accuracy
and validity of assumptions underlining the
forecasted dataset.
According to the source of the data-set-
World Bank (2009), the base case –the
Jubilee Fields, was defined as a single
offshore field with 500 million bbl. of
recoverable oil reserves; output capacity of
120,000 bpd of oil and 120 mmscfd of gas;
output at peak capacity for 5 years followed
by 14 years of declining output; first
production in 2011; re-injection of all gas;
capital cost of $4 billion (including purchase
of FPSO).
Key highlights on the data-set in the
literature involve:
 An oil price of $50 results in total
government revenues of $8.6 billion (56
percent) and government share of net
cash flow of 55 percent; a price of $100
resulting in total government revenues
of $29.3 billion (+51 percent) and
government share of net cash flow of
72 percent
 At an oil price of $30 the Jubilee Field
project is marginally economic (16
percent IRR pre-tax) and generates just
$3 billion of government revenue
 A 25 percent capital cost overrun on its
own reduces total government revenues
by 14% and, when combined with a $50
oil price, reduces total government
revenues by over 60 percent
 A two-year period of peak production,
as against five years, on its own reduces
total government revenues by some 60
percent and, when combined with a $50
oil price, reduces total government
revenues by over 80 percent.
The summary statistics on the data-set is
presented in table 4.0. Below:

Discussions and Interpretation of the
Results
This section of the paper focuses on the
discussions of the results of the econometric
regression model.
Government proceeds and productivity
Nexus
It is observed that over a period of nineteen
years after the discovery of oil, Ghana could
expect to drill an average of 62.26million
(bpd), generate US$881.34million in the
form revenue (tax, royalties and licenses or
other interests) while operating at a
US$446.25 capital and operational cost per
day. Could conclusions be drawn that the
discovery would be sustainably viable in the
long-run? Would Ghana be operating at a
relatively higher cost compared to trends in
other neighbouring countries? Would the
average output bearing a relatively smaller
standard deviation describe a relatively
stable or less volatile productivity at the
field?
In this paper, it could be observed that in
the long-run the expected output levels
positively correlates (0.8627) with the
revenue the government expects to reap
from the Jubilee Field. This turns to
strengthen the arguments in CEPA (2010),
World Bank (2009), Daniel (2001), and
Kastning (2011) for policies that would
improve exploration or field production
capacities in Ghana’s oil fields. With higher
firm-level outputs, larger pre-tax margins
Table. 4.0: Descriptive Statistics on the Econometric Data-Set
Parameter
Gov't Revenue Output
Capital and Operating
Costs
Gross Revenue
US$ million ‘000 bpd US$ million US$ million
Mean 881.34 62.26 446.25 1,704.54
Standard Error 113.26 8.57 72.39 234.63
Median 869.55 53.40 294.60 1,462.20
Mode - 120.50 350.00 3,300.00
Standard Deviation 531.26 40.19 339.55 1,100.53
Sample Variance 282,235.07 1,615.30 115,292.00 1,211,172.76
Kurtosis (0.48) (1.04) 1.37 (1.04)
Skewness 0.03 0.11 1.75 0.11
Range 1,804.10 120.50 1,024.40 3,300.00
Minimum - - 243.90 -
Maximum 1,804.10 120.50 1,268.30 3,300.00
Sum 19,389.50 1,369.80 9,817.60 37,499.80
Count 22.00 22.00 22.00 22.00
Confidence Level (95.0%) 235.55 17.82 150.55 487.95
Source: Authors Analytics
Table 5.0: The Empirical Model's Regression Results
Regression Statistics
Multiple R 0.9377
R Square 0.8792
Adjusted R Square 0.8550
Standard Error 0.0690
Observations 19
ANOVA Df SS MS F Significance F
Regression 3.0000 0.5203 0.1734 36.3866 0.0000
Residual 15.0000 0.0715 0.0048 - -
Total 18.0000 0.5918 - - -
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 18.11 87.87 0.2062 0.8394 -169.17 205.39
logQ 12.06 61.19 0.1972 0.8463 -118.35 142.48
logOC -0.44 0.10 -4.2365 0.0007 -0.67 -0.22
logGR -11.04 61.15 -0.1806 0.8591 -141.38 119.30

would be available to put some proceeds in
government coffees through – taxation,
royalties or fees. The deterministic role that the
level of output plays on government revenue
proceeds from the field also shows in the
regression results in table 5.0 yielding a 0.8394
Pearson correlation co-efficient signifies a high
level of significance of output levels on
government revenue proceeds at both 5% and
10% significance levels. The regression result
goes to strengthen the positive correlation
existing between the two variables. In the
graph beneath, the long-run expected relationship between output levels and government
revenue proceeds is pictorially represented. The levels of output and government revenue are
expected to pick later in 2016 and thereafter decline over the successive years.
Effect of the control variables in the econometric model
Again in this paper, some observations worth commenting are made in the behaviour of the
other control variables in the econometric model. There appear to be a negative correlation
between capital and operational costs
factor and expected government
proceeds from the oil fields. The
Pierson co-efficient of -0.3
presupposes that increasing
operational costs would wear away
government oil proceeds in the long–
run. An affirmative inverse
relationship is observed in the results
of the regression model. There is an evident inverse deterministic impact of capital and
operational costs on government proceeds. Pre-tax gross revenue from oil exploration indicated
a positive relationship with the expected government proceeds.
Although a negative relationship is
observed between the capital and
operations cost and government
revenue, enough evidence was not
available to establish a significant
relationship between the two variables.
The 0.0007 regression p-value largely
explains the insufficient existing
evidence. However, the identified
negative impact of operational and
capital costs on government proceeds
from oil exploration still goes to support arguments in Collier (2012), CEPA (2010), World Bank
(2009), Daniel (2001), Kastning (2011) for programmes that help oil firms reduce cost of
exploration and production. Tailored investments to support growth in the oil sector would
contribute to operational costs reductions. Government support in the sector development
would appear necessary in this early stage of the oil find. Collier (2012) raised that policy that
emphasis on stimulating firm-level investments while maintaining a good rate of return would be
an essential for propelling growth in nascent oil and gas sector.
Alternative data adjustments and simulations for testing the model’s robustness
Correlation ( ) Matrix for the Empirical Variables
Gov't Revenue Output Capital and
Operating
Costs
Gross
Revenue
Gov't Revenue 1.0000
Output 0.8627 1.0000
Capital and
Operating Costs
-0.3005 0.0217 1.0000
Gross Revenue 0.8626 1.0000 0.0218 1.0000
Source: Authors Analytics
0
50
100
150
0
1000
2000
3000
4000
output
Revenue/costs
Comparative outlook of oil output, revenue and capital and
opeartional costs
Gross Revenue Capital and Operating Costs
Gov't Revenue Output
0
20
40
60
80
100
120
140
0
500
1000
1500
2000
Output-000bpd
Revenue-$USmillion
Compaing expected government oil sector revenue
and firm-level output
Gov't Revenue -$US million Output -'000 bpd

The data used in this paper placed high reliance on estimations made available by the World Bank Staff
incorporating a set of assumptions. Alternative approaches that base the analysis on historical data could
be conducted using the research framework in this paper. One suggested approach is to adopt the model
data on historical output levels, operational costs levels, pre-tax-gross revenues, GDP, etc. from a proxy a
country in the Sub-Saharan African region e.g. Nigeria, with an older age and experience in oil exploration
and production; transposing such data through cross country GDP ratio factor as the data transposition
mirror or parameter for adapting the data to the Ghanaian economy. Such an approach would require
several multiple assumptions on other variables such as oil consumption, trade openness, and level of
technological and infrastructural development. Moreover, homogeneity assumptions could be made for
oil producing countries within similar per-capita income or income status bracket.
Conclusions and Policy Recommendations
This paper examined the Ghanaian oil and gas sector with close attention on the latest emerging issues in
the sector, pertinent needs to be addressed in the sector, the link that would exist between firm-level
output and government oil revenue arising from proceeds of taxation, royalties, and licenses other
holding interests
It has been establish that the Ghanaian oil and gas sector is nascent and with growth prospects that need
to be managed effectively to avoid an un-balanced cross sectorial growth. The key emerging oil sector
support policies, structures and services that would propel take-offs in the sector include those that
ensure sound financial markets, trade and arbitration, fiscal and monitory disciplines, as well as segmented
and integrated upstream, mid-stream and downstream valued based oil service delivering entities,
investors, contractors and business advisors.
Effective management of oil price volatility had also been raised as an essential element at this stage of
the sector’s development. The need to explore other alternate methods of hedging oil price volatilise
such as oil futures and options is commended rather than over-reliance on only stabilisation funds as
common in most developing countries.
Again in this paper, it is observed that there exist a significant and deterministic relationship between
firm-level productivity and the oil revenue that the government expects to mobilises from the oil sector.
Considering this observation that government revenue generation ability from oil exploration in the long-
run is keenly tied to firm-level productivity, policy interventions that seeks to eliminate production
bottlenecks need to be highly encouraged.
Although enough evidence was not available to examine the level of significance of the impact of capital
and operational costs on government revenue generation ability, the established negative relationship goes
to largely explain the potential long-run degrading effect on government oil proceeds. A policy
recommendation in this direction is for those programmes that seek to capture and harness firm-level
initiatives to reducing exploration and operational costs.
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