Why local companies miss out on oil deals

The biggest challenge likely to be faced by the country is its quest to get local companies into the new oil and gas industry as the industry requires huge financial investment.

Besides, the unwillingness of local businesses to merge in order to draw synergies in the face of strong external competition, the huge capital outlay for upstream installations onshore and offshore, makes mergers among companies in the industry plausible.

Currently, local companies have to contract loans at a very high interest rate to enable to them undertake contracts if they should win any bid from the international oil companies.

As a result, local firms are not well positioned to compete against their stronger and well-resourced experienced foreign players in the service sector of the industry.

Local Capabilities

Government realising the need to retain part of the huge investment into the country called for the passage and the implementation of the petroleum local content and local participation regulations in 2013.

Through the law, government sought to develop local capacities in the petroleum industry value chain through education, skills transfer and expertise development, transfer of technology, and active research and development programmes.

Consequently, the Enterprise Development Centre was set up with the support from the industry players of which hundreds of local companies in the small-scale sectors are being trained on various needs of the industry.

The danger

Although it is very good for companies, especially small and medium-scale enterprises to know what the requirements of the highly capitalised oil and gas industry are, they lack the financial muscle to become active players.

Interestingly, many of the companies in the small scale sector which have gone through the training at the Enterprise Development Centre in Takoradi are yet to secure any lucrative contract.

The reason why these companies that went through the system and training at the centre are yet to secure contracts is the fact that they are too small. 

To achieve any results, there is the need for the centre to talk them into mergers to position them financially and make them technically stronger. Many of those who passed out of the centre indicated that they were yet to get any job from the industry players. It is important to note that without mergers, it will be difficult to play in the oil and gas sector.

JBA & JOA examples

In the oil and gas industry, there are joint bidding agreements (JBA) and joint operating agreements (JOA), which should serve as a good example for local companies and SMEs to emulate.

Under the JBA, an investor or a group of investors bid for a block together so as to share risk and become financially strong to undertake joint operations.

With that, financially they are positioned stronger, share risk and also bring together wealth of expertise from each member of the partnership moving for the bigger contracts and transforming one’s self from a smaller entity to multi-nationals with finances at their disposal.

International competitiveness

With the local firms coming together, they would achieve the maximum local employment level and in-country spend for the provision of the goods and services in the petroleum industry value chain in a timely way.

 From the local content point of view, such synergies would increase the capability and international competitiveness of domestic businesses; create petroleum and related supportive industries that will sustain economic development.

It is important to note that in the oil and gas industry, time and precision are of essence. Therefore without the right approach and the financial capabilities, one must not even start.

Petroleum Commission

The Chief Executive Officer of the Petroleum Commission, Mr Theo Ahwireng, told the GRAPHIC BUSINESS in an interview that operating in the industry required mergers.

 “There is the need for Ghanaian companies to learn to work together, even the big players in the industry are merging therefore there is no point operating alone,” he said.

Mr Ahwireng gave an example of Exxon and Mobil which have now mergered into now ExxonMobil to become a giant in the oil and gas industry globally, adding, “ it should tell the small companies to consider merger.”

Struggling alone

“Therefore going through the training and thinking that you have arrived  by not wanting to merge is a wrong approach and put such entities in a disadvantaged position,” he said.

The encouragement of the commission, he said, was that local companies should look at other players working in similar circumstances and put their forces together to position them better to participate.

He said the commission was established  to implement the local content law after its passage last year .

The focus include developing guidelines for various areas that LI refers to as reporting using a comprehensive template in consultation with the stakeholders to enable companies to report in a uniformed, simple and common format.

He said after its gap analysis, it came out that local companies seriously wanted to participate but lacked the understanding of the industry, which projects were coming up and possible areas they could focus on.

GOGSPA’s perspectives

The Executive Director of the Ghana Oil and Gas Service Providers Association (GOGSPA) said it was not a prudent decision for players to operate alone.

“This industry requires huge capitalisation, and as a small player in the corner somewhere and you want to go alone, you are missing the point. What is required is strong financial muscle through merger to position themselves strongly,” he said. GB