Session 1 - Oil, Gas & Other Minerals Taxation Full Tuition PDF

Session 1 - Introduction Oil, Gas & Other Minerals Taxation Paper 8 (CITG Final Level 1) MSL Business School Let’s enter into an agreement My Part (my role to play) 1 Your Part (your role to play) 2 Teamwork - giving you that extra push to cross 50% W...

Session 1 - Introduction Oil, Gas & Other Minerals Taxation Paper 8 (CITG Final Level 1) MSL Business School Let’s enter into an agreement My Part (my role to play) 1 Your Part (your role to play) 2 Teamwork - giving you that extra push to cross 50% Who is running this Tuition Program? Qualifications You can visit michaelsiawlarbi.com/awards or michaelsiawlarbi.com/education Who is running this Tuition Program? Experience You can visit michaelsiawlarbi.com/experience Conceptualising this paper - How to Approach Oil & Gas Taxation Pure Knowledge Good Exam Technique 75% 25% Introducing the MSL Business School App  What is this Paper? Oil and Gas Taxation and Other Minerals Taxation Core/General Legal & Regulatory Taxation Aspects of Computational Petroleum Revenue Extractives Industry Framework & Petroleum & Aspects Management Knowledge Environment Mining (application of law) General understanding Industry Regulators, Relevant Aspects of Detailed analysis of Capital Allowance, of Oil and Gas & Mining Legislative Framework, Income Tax, VAT, PRMA and related Computation of Industry Specific Laws, PAs, IAs Customs Laws etc provisions Chargeable Income, Distribution of Crude  General Legal & Regulatory Framework MSL Business School  Legislative Framework - Oil & Gas in Ghana In the mid-1980s Three main laws were enacted Ghana National Petroleum Corporation Act, 1983 (PNDCL 64) - established the Ghana National Petroleum Corporation (GNPC) as the National Oil Company (NOC) to champion state activities in the upstream sector. Petroleum (Exploration and Production) Law, 1984 (PNDCL 84)* - enacted to regulate exploration and production activities and provide the framework for engagement of international oil firms by the government to undertake petroleum operations. Petroleum Income Tax Law, 1987 (PNDCL 188)* - passed to regulate taxation in the upstream oil and gas sector * - repealed laws  Legislative Framework - Oil & Gas (and Mining) in Ghana 1992 Constitution of Ghana Article 257—Public Lands and Other Public Property Article 257(6) (6) Every mineral in its natural state in, under or upon any land in Ghana, rivers, streams, water courses throughout Ghana, the exclusive economic zone and any area covered by the territorial sea or continental shelf is the property of the Republic of Ghana and shall be vested in the President on behalf of, and in trust for the people of Ghana.  Legislative Framework - Oil & Gas (and Mining) in Ghana 1992 Constitution of Ghana Article 268—Parliamentary Ratification of Agreements Relating to Natural Resources Article 268 (1) Any transaction, contract or undertaking involving the grant of a right or concession by or on behalf of any person including the Government of Ghana, to any other person or body of persons howsoever described, for the exploitation of any mineral, water or other natural resource of Ghana made or entered into after the coming into force of this Constitution shall be subject to ratification by Parliament. (2) Parliament may, by resolution supported by the votes of not less than two-thirds of all the members of Parliament, exempt from the provisions of clause (1) of this article any particular class of transactions, contracts or undertakings.  Legislative Framework - Oil & Gas (and Mining) in Ghana 1992 Constitution of Ghana - Article 269 — Natural Resources Commission Article 269 1) Subject to the provisions of this Constitution, Parliament shall, by or under an Act of Parliament, provide for the establishment, within six months after Parliament first meets after the coming into force of this Constitution, of a Minerals Commission, a Forestry Commission, Fisheries Commission and such other Commissions as Parliament may determine, which shall be responsible for the regulation and management of the utilization of the natural resources concerned and the co-ordination of the policies in relation to them. 2) Notwithstanding article 268 of this Constitution, Parliament may, upon the recommendation of any of the Commissions established by virtue of clause (1) of this article, and upon such conditions as Parliament may prescribe, authorise any other agency of government to approve the grant of rights, concessions or contracts in respect of the exploitation of any mineral, water or other natural resource of Ghana.  Legislative Framework - Oil & Gas in Ghana Petroleum Revenue Management Act, 2011 (Act 815) as amended (by Act 893) - enacted to provide the framework for management and use of petroleum revenues Petroleum Commission Act, 2011 (Act 821) - established the Petroleum Commission as a regulator to oversee and coordinate activities in the upstream petroleum industry Income Tax Act, 2015 (Act 896) - repealed the Petroleum Income Tax Law 1987 (PNDCL 188), and provided a regime for the taxation of income of entities engaged in the sector Petroleum (Exploration and Production) Act, 2016 (Act 919) - passed to replace the Petroleum (Exploration and Production) Law 1984 (PNDCL 84) as the primary legislation for the regulation of petroleum activities in the upstream sector.  Legislative Framework - Oil & Gas in Ghana There are several others. Some of these include - Petroleum Agreements - Petroleum (Local Content and Local Participation) Regulations, 2013 (LI 2204); - Petroleum (Local Content and Local Participation) (Amendment) Regulations, 2021 (LI 2435); - Petroleum Commission (Fees and Charges) Regulations, 2015 (LI 2221); - Petroleum (Exploration and Production) (Measurement) Regulations, 2016 (LI 2246); - Petroleum (Exploration and Production) (Data Management) Regulations, 2017 (LI 2257); - Petroleum (Exploration and Production) (Health, Safety and Environment) Regulations, 2017 (LI 2258); - Petroleum (Exploration and Production) (General) Regulations, 2018 (LI 2359); - Petroleum (Exploration and Production) (General) (Amendment) Regulations, 2019 (LI 2390); - Petroleum Revenue Management Regulations, 2019 (LI 2381) - Petroleum Hub Development Corporation Act, 2020 (Act 1053); - Petroleum Revenue (Amendment) Act, 2015 (Act 893) - Income Tax Regulations, 2016 (LI 2244); - Energy Sector Strategy and Development Plan; - Gas Master Plan; - Gas Pricing Policy Guidelines to the Petroleum (Exploration and Production) (Measurement) Regulations; - Guidelines for the formation of joint venture companies in the upstream petroleum industry of Ghana (March 2016); - Guidelines on Submission of Proposed Contracts to the Petroleum Commission (23 February 2018); and - Oil and Gas Insurance Placement for the Upstream Sector.  Legislative Framework - Oil & Gas in Ghana Continued - Environmental Protection Agency (EPA) Act, 1994 (Act 490) - Environmental Assessment Regulations, 1999 (LI 1652) as amended (2002) - Ghana Maritime Authority Act, 2002 (630) - Ghana Shipping (Protection of Offshore Operations and Assets) Regulations, 2012 (LI 2010) This list is not meant to be exhaustive  Development & History of Ghana’s Oil & Gas Industry (very optional reading) According to the “Ghana Geological Survey Bulletin No. 40” exploration for oil and gas in Ghana started in 1896 in onshore Tano basin (Western Region). This was due to the presence of onshore oil and gas seepages found by early explorers in that area. During that period early wells were drilled without geological understanding and the benefit of seismic data. The wells were drilled by West Africa Oil and Fuel Company between 1896 and 1903 (WAOFCO-1, 2, 3, 4 & 5). WAOFCO – 2, the second well on the Takinta concession with a total depth of 35 metres, was the first documented discovery well in the country, producing 5 bopd between 1896 & 1897. The early part of the twentieth century, (1909 to 1925) also saw the influx of international oil companies on the shores of Ghana. Notable among them was a French oil company, Societe Francaise de Petrole (SFP) which drilled a total of six onshore wells between 1909 and 1913 (SFP-1, 2, 3, 4, 5, & 6). SFP-1 struck oil at 10-17 metres depth and produced 7 bopd. SFP-3, 4, 5 & 6 all had very good oil indications and/or flowed at relatively shallow horizons, according to available records. Another company, African and Eastern Trade Corporation (AETC) also drilled two wells (AETC-1&2) in onshore Tano between 1923 and 1925, progressively encountering heavy oil, light oil and gas at various depths.  Development & History of Ghana’s Oil & Gas Industry (very optional reading) After 1925 and for almost 30 years of inactivity in exploration, Gulf Oil Company acquired the onshore Tano license and drilled four (4) wells at Bonyere, Epunsa, and Kobnaswaso from 1956 to 1957, as indicated on the next slides. Apart from well logs, there is very little information on these wells as the wells were drilled without the help of seismic data. From 1896 to 1957 a period of 61 years, 17 onshore wells had been drilled in the Onshore Tano basin.  Development & History of Ghana’s Oil & Gas Industry - 1957 to 1966 (very optional reading) Onshore exploration activities continued during the First Republic (1957-1966). Acting under the auspices of a Ghana-Soviet Union friendship pact, Soviet and Romanian Geoscientists explored for oil and gas in the Accra/Keta and Voltaian basins. During this period, the Soviet team drilling for water in the onshore Voltaian basin encountered traces of oil and gas in some of the boreholes in some areas in the Northern and Upper East Regions. Also, calcic waters associated with hydrocarbons were encountered in some of these boreholes. Furthermore, the book “Rocks and Mineral Resources of Ghana”, authored by G. O. Kesse, reports that salt used to be mined at Daboya along the White Volta northwest of Tamale in the Northern Region. The association of salt deposits with hydrocarbons in sedimentary basins worldwide is well documented and these are all indicative pointers to the possibility of commercial accumulation of hydrocarbons in the Voltaian Basin.  Development & History of Ghana’s Oil & Gas Industry - 1966 to 1972 (very optional reading) In the latter part of 1966, the Industrial Export Company of Romania drilled a stratigraphic well near Atiavi in the Keta Basin. The well penetrated Quaternary, Tertiary, Cretaceous and Devonian age sediments until the crystalline basement was reached at 1,539 m. There was no indication of hydrocarbons. After the departure of the Soviet and Romanian teams in 1966, following the overthrow of President Kwame Nkrumah’s government, there was a shift from onshore to offshore exploration in 1967. Private oil companies were invited to undertake oil exploration in Ghana with most of these oil companies showing interest in the continental shelf. This marked the beginning of offshore exploration. The entire shelf was divided into 22 blocks and totally licenced by 1968. The licence empowered the companies to undertake oil exploration over a period of three (3) years beginning 1st January, 1969. They were required to drill one or more wells to a total depth of 3,657.5 m (12,000 ft.) within 18 months of the signing of Petroleum Agreement. During 1970, a milestone discovery was made by Signal/Amoco Group with Seago 10-1 well. This well lead to the discovery of the Saltpond Oil Field (Devonian Section). The Takoradi 11-1 well had encouraging gas shows with subsequent re-mapping suggesting strongly that the well was drilled off structure and could possibly have been a gas discovery if it had been located on the structure.  Development & History of Ghana’s Oil & Gas Industry - 1973 to 1979 (very optional reading) In the era of 1972-1979, exploration for commercial oil, both onshore and offshore, continued and intensified. Seventeen (17) wells were drilled, with two of the wells being onshore, one in the Accra/Keta basin and the other in the Voltaian basin. The Premuase-1 well in the Voltaian basin, incidentally, is the only exploratory well in this vast frontier region to date. The Saltpond Field came on stream and started producing oil in 1978 with Agri-Petco as the operator. Later in the same year, the first deepwater well, the South Dixcove -1X (SD -1X) was drilled by Phillips Petroleum in the offshore Cape Three Points in 2,927 ft of water.  Development & History of Ghana’s Oil & Gas Industry - 1979 to 2001 (very optional reading) In 1979, Phillips Petroleum appraised the South Tano discovery and made gas and condensate find on the satellite 1S-3AX structure down dip of the main field. They went ahead to further appraise the South Tano find by drilling IS-4X in 1981 and later declared the South Tano discovery sub-commercial and finally relinquished the block. Geophysical Services Incorporated (GSI) in 1982 entered into a Petroleum Agreement with the then Ministry of Fuel and Power to acquire a Non-Exclusive 2D seismic survey to accelerate the exploration and production of hydrocarbons offshore Ghana. The data was acquired in late 1982 to 1983 and covered the area from the Eastern border of Ghana to Cape Three Points. With the establishment of the GNPC (1983), the passage of Petroleum Exploration and Production Law (1984) and promulgation of Petroleum Income Tax Law (1987), several Petroleum Agreements with international oil companies such as Atlantic Richfield Corporation (ARCO), Amoco, and Diamond Shamrock (Onshore Keta) were executed. The Canadian government, acting through Petro Canada International Assistance Corporation (P.C.I.A.C), expended considerable funds to support GNPC in acquiring extensive 2D seismic data in the offshore Tano/Cape Three Points Basin in 1984 (PCIAC – 84 -97, 98 & 99 vintages). These datasets are still some of the best in the basin. In addition, P.C.I.A.C funded the drilling of two appraisal wells (ST-5) and ST-6) over the Tano field. They also funded the drilling of shallow wells in the Onshore Tano Basin.  Development & History of Ghana’s Oil & Gas Industry - 1979 to 2001 (very optional reading) Continued… Similarly, the Government of Japan in a bilateral cooperation also assisted the Government of Ghana by acquiring offshore 2D seismic data for GNPC in 1987. This data covered the area from the Eastern border of Ghana to Cape Three Points and it was an infill to the 1982/83 GSI Speculative Survey. In 1989, GNPC funded the acquisition, processing and interpretation of first 3D seismic over the South Tano Field. Following interpretation of the 3D seismic data and subsequent commissioned studies to determine the viability of the Integrated Tano Fields Development Project to use the gas for power generation, GNPC drilled three wells over the South Tano Field in 1994 using its acquired drillship (Discoverer 511) and three other rigs in addition to other infrastructure to help facilitate rapid development of the Tano Fields. As part of the integrated Tano Fields development project, GNPC ordered a power barge to utilise the anticipated gas from the Tano Fields. The infrastructure for the power generation barge was built at Effasu-Mangyea and power transmission lines to link the national grid in the Jomoro district in the Western Region to Essiama and Elubo with funds that GNPC had secured. The Saltpond Field, which had been in production since 1978, was later shut-in the mid 1980’s by Primary Fuels Incorporated (PFI) who had acquired AgriPetco’s interest in the Saltpond Field. PFI drilled three wells; one gas well and two dry wells and finally pulled out due to uneconomic production rates.  Development & History of Ghana’s Oil & Gas Industry - 2001 to 2007 Within this period, exploration for commercial hydrocarbons intensified with some independent Oil Companies such as Kosmos Energy, Hess Corporation and Tullow Oil, acquiring exploration and production rights over areas in deep water. There was a shift of focus from shallow water to deepwater areas which was occasioned by other deepwater discoveries made in the region and by the results of four deepwater wells drilled in Ghana between 1999 and 2003. These wells proved the existence of an active petroleum system in the deepwater, a fact which hitherto was unknown. Hunt Oil’s WCTP-2X well encountered 14ft of light oil column. This effectively reduced the risk of petroleum generation in the deepwater areas of Ghana. Kosmos Energy (block operator), Anadarko (technical operator), Tullow Oil and E. O. Group struck a significant (about 312ft net) column of high grade oil in the Mahogany prospect with the Mahogany-1 well in the West Cape Three Points Licence. This is the most significant discovery crowning years of concerted effort by all. From August 2007 to 2013, 23 discoveries (Odum, Ebony, Tweneboa, Sankofa, Dzata, Owo, Teak-1, Paradise-1, Banda-1, Gye Nyame, etc) have been made. Except Ebony, all recent discoveries were made in deepwater (water depths ranging from 800 to 1600m). The Mahogany and Hyedua discoveries have been appraised and put into production as Jubilee Field. Upstream Operators - Ghana Contract Areas - Ghana  Core/General Extractives Industry Knowledge MSL Business School  The Resource Curse The resource curse (also known as the paradox of plenty) refers to the failure of many resource-rich countries to benefit fully from their natural resource wealth, and for governments in these countries to respond effectively to public welfare needs. While one might expect to see better development outcomes after countries discover natural resources, resource-rich countries tend to have higher rates of conflict and authoritarianism, and lower rates of economic stability and economic growth, compared to their non-resource-rich neighbors.  What is the “Dutch Disease”? A large increase in natural resource revenues can hurt other sectors of the economy, particularly export-based manufacturing, by causing inflation or exchange rate appreciation and shifting labor and capital from the non-resource sector to the resource sector. This is known as “Dutch disease.” While inflation and exchange rate appreciation can harm large swathes of the economy over within a few years, their impacts can be felt for decades. The detrimental effect of natural resources on other industries has been well documented in Iran, Russia, Trinidad and Tobago, and Venezuela, all of which have either stunted manufacturing sectors or saw a precipitous decline in manufacturing. These impacts can be minimized if the country has the absorptive capacity to transform resource revenue inflows into tangible investments, such as roads and electricity; the government uses resource revenues to make investments in the economy that generate non-resource sector growth; or the government places a portion of its resource revenues in foreign assets. Over the last 25 years, Chile, Indonesia, Norway and the UAE have largely managed to overcome Dutch disease.  The Natural Resource Charter Decision Chain (Converting Resources into Development) The extractive industry decision chain is the set of decisions countries face along the way when trying to convert natural resources under the ground into better development above the ground. In his book The Bottom Billion, Paul Collier popularized this approach to stress the key steps in ensuring that natural resource wealth transforms into citizen well-being. This framework has since become a reference for other organizations working on natural resource governance, such as the Natural Resource Governance Institute, the World Bank and the Extractive Industries Transparency Initiative (EITI). The process begins with the decision of whether to extract and includes the questions of how to allocate rights to extract, how to generate revenues and other benefits, and how to manage the revenue from extraction. The motivation for outlining these decisions is that many resource-rich countries have trouble realizing the full development potential of their resource wealth. Articulating the decisions helps governments and oversight actors understand where they can effect change.  The Natural Resource Charter Precepts The Natural Resource Charter, produced by the Natural Resource Governance Institute (NRGI), offers 12 steps (or precepts) of guidance along the decision chain at the national level. It provides norms or good practices for how to optimize these decision-making processes and decisions to have the best chance to foster better development  The Natural Resource Charter Precepts Precept 1. Resource management should secure the greatest benefit for citizens through an inclusive and comprehensive national strategy, clear legal framework and competent institutions. 1.1 Fundamentals of the resource endowment - Has the government clearly identified the country’s resource endowment, who owns it, and the positive and negative impacts of extraction? 1.2 Resource strategy - Does the government have an inclusive and comprehensive national strategy for the management of resources? Precept 2. Resource governance requires decision-makers to be accountable to an informed public. 2.1 Transparency - Does the government ensure that resource management is sufficiently transparent for all actors to effectively understand and scrutinize decision-making and its implications? 2.2 Official oversight - Do government oversight bodies hold officials to account? 2.3 Communications and public oversight - Is there a critical mass of informed citizens that holds the government to account? Precept 3. The government should encourage efficient exploration and production operations, and allocate rights transparently. 3.1 License planning - Does the government adequately prepare before allocating licenses? 3.2 Awarding resource licenses - Does the government allocate licenses to competent and law-abiding companies, and in a way that maximizes value for the country? 3.3 Monitoring operations - Does the government adequately monitor operations across project life cycles?  The Natural Resource Charter Precepts Precept 4. Tax regimes and contractual terms should enable the government to realize the full value of its resources consistent with attracting necessary investment, and should be robust to changing circumstances. 4.1 Setting fiscal terms - Does the fiscal regime secure a reasonable return for the government while still attracting sufficient investment? 4.2 Legal framework of fiscal terms - Does the legal framework of fiscal terms provide sufficient accountability to citizens, stability for investors and flexibility to respond to changing circumstances? 4.3 Tax administration - Do government authorities collect the full value of taxes and other payments owed to the state? 4.4 Accountability and transparency of fiscal regimes - Is the government held to account for setting and collecting taxes and other company payments? Precept 5. The government should pursue opportunities for local benefits and account for, mitigate and offset the environmental and social costs of resource extraction projects. 5.1 Trust - Does the government ensure that there are good working relationships between all stakeholders within affected communities? 5.2 Impact assessment - Does the government maintain an effective system for assessing the potential impacts of resource projects? 5.3 Cost mitigation - Does the government mitigate the environmental, social and health costs of resource projects? 5.4 Local benefits - Does the government help affected communities to benefit from resource projects?  The Natural Resource Charter Precepts Precept 6. Nationally owned companies should be accountable, with well-defined mandates and an objective of commercial efficiency. 6.1 SOE role and funding - Does the government clearly define the SOE’s role and establish a working funding mechanism for the company? 6.2 SOE corporate governance - Do the SOE’s corporate governance systems limit political interference in the company’s technical decisions, while ensuring effective oversight? 6.3 SOE transparency and accountability - Are SOE decision making and operations transparent and accountable? Precept 7. The government should invest revenues to achieve optimal and equitable outcomes, for current and future generations. 7.1 Long-term fiscal sustainability - Is the government’s spending and borrowing fiscally sustainable given that nonrenewable natural resources are finite? 7.2 Absorptive capacity - Does the government adequately manage the rate of spending in the domestic economy? Precept 8. The government should smooth domestic spending of revenues to account for revenue volatility. 8.1 Expenditure volatility - Is government spending independent of short-term changes in revenues?  The Natural Resource Charter Precepts Precept 9. The government should use revenues as an opportunity to increase the efficiency of public spending at the national and subnational levels. 9.1 Public spending planning - Does public spending align with national plans? 9.2 Revenue distribution - Does the government distribute revenues in an accountable and transparent manner, and avoid off-budget transfers and spending? 9.3 Budget and project execution - Does the government spend public revenues as intended? 9.4 Accounting, reporting and oversight of public spending - Does the government account for and report on revenues and public spending, and is there strong oversight of public expenditure? Precept 10. The government should facilitate private sector investments to diversify the economy and to engage in the extractive industry. 10.1 Private sector enabling environment - Does the government make general purpose investment and remove bottlenecks to non-resource sector growth? 10.2 Local content - Does the government ensure that domestic businesses and workers have the opportunity and capacity to operate in the extractive sector? 10.3 Sharing infrastructure - Does the government ensure that extractive industry infrastructure is open to third parties wherever economically feasible? 10.4 Domestic value addition and consumption - Does the government take the opportunity to use oil, gas and mineral resources domestically, when the opportunity costs of doing so are less than the benefits?  The Natural Resource Charter Precepts Precept 11. Companies should commit to the highest environmental, social and human rights standards, and to sustainable development. 11.1 Trust - Does the company work transparently and seek to build trust with all stakeholders related to its activities? 11.2 Sustainable development - Does the company work to maximize the potential benefits and minimize the social and environmental costs associated with resource extraction? 11.3 Corporate integrity - Does the company act with honesty and integrity? Precept 12. Governments and international organizations should promote an upward harmonization of standards to support sustainable development. 12.1 Transparency - Does the international community advance public disclosure requirements for the extractive industry? 12.2 Environmental, social and health protection - Does the international community ensure that resource projects comply with internationally recognized standards of human rights, and environmental, social and health protection? 12.3 Corruption and illicit financial flows - Does the international community tackle corruption and illicit financial flows?  What is Oil and Gas? Oil and natural gas are hydrocarbons, strings of carbon and hydrogen formed from organic material compressed over millions of years. Generally, oil and natural gas are both referred to as petroleum. They are often found together. If a reservoir (area underground) has only gas and no oil, it is called non-associated gas. If a reservoir contains both oil and gas, the gas it contains is called associated gas. The oil and gas found in the ground come in different grades or qualities. The primary way to describe the quality of oil is in terms of its sweetness and heaviness. The sweetness of oil refers to the amount of sulfur in the oil. Oil with less sulfur is sweeter and requires less processing before use, and is therefore more valuable. The heaviness of oil refers to its density. Lighter crude can be refined into higher value products, such as the gasoline (or petrol) used by car owners. Heavier crude flows more slowly and has more unwanted chemicals that must be refined out. The American Petroleum Institute (API) has created a degree-based gravity scale that compares the relative density of various crudes. Light crude measures above 31.1o API, while heavy crude measures below 22.3o API.  What is Oil and Gas? Natural gas is mostly methane, with some other contaminants. It is also described as either sweet or sour depending on the amount of hydrogen sulfide in the reservoir. When gas is refined, leaving mostly methane, it is called dry gas. Often natural gas is condensed into natural gas liquids, such as propane and butane. The British thermal unit (BTU) is the measure for the energy output of gas. While gas burns cleaner and is considered to have less destructive environmental impact upon use than oil or coal, the challenges associated with storage and transport can make it more expensive. Reserves of oil are generally measured in tons or barrels of oil. Production quantities are abbreviated using “bbl” (or barrels of oil per day, bbl/d or bpd). One ton is approximately between six and eight barrels of oil. Reserves and production quantities of gas are measured in cubic meters (m3) or standard cubic feet (scf).  How companies get Oil & Gas out of the ground The process of getting oil and gas out of the ground begins with exploration and appraisal. Oil and gas are found under the ground in reservoirs that are sealed but connected to other chambers of oil and gas underground. When a reserve of oil is found, the company will often produce a description of the quality of the oil and the estimated amount measured either by volume (barrels) or by weight (tons). The company may also classify some of the contents as proven reserves. Proven reserves are oil finds that are considered commercially viable - that is, the company is at least 90% certain that it would make money getting petroleum out of the ground and taking it to market. If oil is held in a probable reserve, then the company thinks there is at least a 50% chance of recovering the oil. Unprovable or possible reserves are those with a 10% to 50% probability of profitable extraction. The word “resource” is used to refer to all fields within a country, including those that may not be economically feasible to extract.  How companies get Oil & Gas out of the ground Once the reservoir is deemed commercially viable and the company has been granted legal authorization to tap it, the company will often begin digging test wells. These wells will give more information about viability and can indicate what type of equipment is best for production. Production, the next phase after exploration and appraisal, is the process of getting the oil and gas out of the ground. This can occur in three different ways. Primary recovery efforts are when the oil will flow to the surface under its own pressure. When water or gas are injected into the reservoir to lift the oil, recovery is considered secondary. Tertiary, or enhanced, removal happens when chemicals are put into the well. The production rates of wells vary greatly depending on the geology and technology used. Rates are usually measured in barrels per day.The lifecycle of a typical well will have a build-up period, peak, and then decline.  How companies get Oil & Gas out of the ground The final phase of an oil project is decommissioning and abandonment. This phase requires closing the reservoir, removing equipment, and restoring the environment to is previous state. The cost of extraction varies greatly depending on the type of oil and its location. Generally offshore oil is much more costly to extract than onshore oil.  Key Industry Players - who are they? Countries with large reserves of oil and gas have always been very powerful players in the industry. The Organization of Petroleum Exporting Countries (OPEC) formed in 1960 as five countries collaborated to get the best price for their oil. Today, OPEC represents 13 countries, which together control approximately 80 percent of the world’s proven reserves and one-third of production. Often countries make agreements, or contracts, with companies to help extract the oil and bring it to market. National Oil companies (NOCs), oil companies that are primarily or completely owned by the government, are some of the biggest players. Saudi Aramco, for example, is the largest oil company in the world. In addition to being involved in extraction, many national oil companies are also involved in regulation of the industry, commodity trading, and quasi-fiscal expenditures. In Ghana, the Ghana National Petroleum Corporation (GNPC) is the NOC. International oil companies are privately owned by shareholders, instead of governments. The six largest supermajors companies are ExxonMobil, BP, Royal Dutch Shell, ConocoPhillips, Chevron/Texaco, and Total. These large oil companies cover all aspects of the industry value chain from extraction through distribution. They tend to be risk averse, preferring to engage in projects where there are more established legal regimes and higher probability of successful extraction. Supermajors own a small share of reserves compared to NOCs, but their profits are still very large, often comparable to the GDPs of many medium-sized countries.  Key Industry Players - who are they? Smaller, multinational companies like Occidental Petroleum and Anadarko Petroleum still have billions of dollars in capital. These tend to be more innovative and develop a technical expertise in one area of extraction, such as deep-water drilling. Another type of company involved is a service provider. These companies supply specialized services for the larger companies, such as rigs, pipes, seismic surveys, and rig operators. Examples include companies like Halliburton and Transocean. Though they are smaller than the supermajors, some are still very large companies.  Upstream Operators - Ghana remember this from earlier in the Session?  Shale Gas Shale gas refers to reservoirs of gas that are trapped in rock formations that are less permeable. Removing gas from these formation requires a process called hydraulic fracturing, or fracking. Fracking involves pumping a mixture of water, sand and chemicals into a well under high pressure. Shale gas production has become extremely controversial due to its potential social and environmental impacts. Technological innovations during the years when oil prices were high made shale oil and gas more commercially viable to extract. The production of shale hydrocarbons altered the market structure, and increased the production capacity of the United States, Canada, and Russia. However, the drop in oil prices in 2015 led to a downsizing of this industry, especially in the United States.