Vitol to develop $7bn oil and gas project in Ghana with ENI
Vitol, one of the world’s leading commodities traders, is to develop a $7bn offshore oil and gas project in Ghana with ENI, the Italian energy group.
The development, called Offshore Cap Three Point, will produce 15 years worth of gas for Ghana’s domestic power stations as well as crude oil for sale on international markets. It is the largest project backed by foreign investment in Ghana since the country gained independence in the 1950s.
The deal shows how trading houses continue to move away from their traditional role as middlemen — selling and buying commodities in large volumes — to invest in production, logistics, trading and processing. A year ago, Vitol announced its biggest acquisition, spending $2.6bn to buy an oil refinery and a large petrol station business in Australia from Royal Dutch Shell.
Vitol and ENI received the final go-head for the project from Ghana’s government on Tuesday. They expect oil to start flowing from the project’s five fields in 2017, with gas production expected to start a year later.
“This is a transformational project for Ghana,” Ian Taylor, chief executive of Vitol, said. “Vitol has been supplying energy to Ghana for over 25 years and we are delighted to be able to contribute to the development of Ghana’s economy through a major domestic energy solution.”
Ghana’s energy sector has expanded significantly since the discovery of the Jubilee oilfield in 2007.
Output has increased from 7,000 barrels a day in 2009 to about 100,000 b/d, according to the US Energy Information Administration.
However, Ghana has struggled to attract foreign investment. The World Bank has described the Offshore Cap Three Point gasfields as “top priority” for the country, saying they can help accelerate its industrial development.
The decision to go ahead with Offshore Cap Three Point project comes as many oil and gas companies are looking to cut costs and reduce spending on big developments because of the near 60 per cent drop in oil prices since the middle of June. It shows that if reserves can be developed economically and at low cost, energy companies are still willing to invest.
The project has attractions for ENI. Not only is it a conventional offshore discovery that can be developed simply but first production is due in a relatively short timeframe. It has also renegotiated supplier contracts for the project following the sharp slide in crude prices.
The exploration blocks that make up Offshore Cap Three Point were originally given to Vitol and a local partner several years ago, who then brought in ENI to help search for oil. ENI is now the operator and has a 47.2 per cent stake in the project. Vitol owns 37.8 per cent and Ghana’s national oil company, 15 per cent.
For Vitol, Offshore Cap Three Point is unusual in that it usually focuses on arrangements where it can sell oil and gas on international markets. In this case, all of the gas produced will be sold into the domestic market. The oil will be exported, however.
Vitol is the world’s biggest oil trader, handling more than 5m barrels a day of oil and products — equivalent to the daily consumption of Japan. It has more than 5,000 employees.
The privately owned company generated pre-tax profits of $845.4m in the year to December 2013.