DEPARTMENT OF ACCOUNTING

&FINANCE
SCHOOL OF BUSINESS
UNIVERSITY OF CAPE COAST
BUS 407: OIL AND GAS FINANCE AND
MANAGEMENT
John G. Gatsi
nyagart@yahoo.com

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Taxonomies in Oil and Gas

Finance
There are many terminologies in oil and gas

finance and management which are relevant for

the course
Some of the terminologies deal with
environment conservation, pricing of oil
and gas resources and revenue
management.
Key macroeconomic indices can not be
divorced from oil and gas finance bearing in
mind that zeal with which countries invest in
the oil and gas industry is to improve the
macroeconomic
JOHN G. GATSI @ 2011 @ OIL AND GAS
FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Macroeconomic Factors in Oil and

Gas Finance
Economics literature identify gross

domestic product(GDP), Foreign Exchange

Rate, Interest Rate,
Employment/Unemployment, Inflation
Other factors closely related to the key
macroeconomic factors are food security,
population and general infrastructural
development
Wealth Distribution and National and
Personal Security are equally important in
discussing the macroeconomic factors
JOHN G. GATSI @ 2011 @ OIL AND GAS
FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Gross Domestic Product(GDP)

This deals with the overall economic activities

by residents of a country over a period of time

normally , yearly though we now have
quarterly and semi-annual GDP figures.
It measures the market value of all final goods
and services over a period of time in a country
GDP very important economic indicator:
Health of the economy
Per capita income ie wealth distribution
Fiscal strength
Debt sustainability
JOHN G. GATSI @ 2011 @ OIL AND GAS
FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Balance of payment and international trade

competitiveness

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Some Demand Pressures

Increase world vehicular population( 2010

passenger car pop in N/A- 259M est 295M

in 2020; Middle East &Africa 2010- 26M est
42M in 2010; World 840M in 2010 est
1,070M in 2020) [World Oil Outlook , 2009]
Development in all transportation modes,
Increased world population put pressure on
demand for petroleum products
Instability in oil rich regions will mainly
result in supply constraints

The Dutch Disease

The Dutch disease or the curse of

natural resources is the chronic

overvaluation of a country's exchange
rate, caused by its exploitation of
abundant and cheap resources whose
commercial production is consistent with an
exchange rate clearly below the average
exchange rate that paves the way for
tradable economic sectors using state-ofthe-art technology.

Human Capital and The

Dutch Disease

A recent report compiled from Australia

indicate that a shift in movement of labour

from
manufacturing,
services
and
agricultural sectors to the mining sector is a
sign that the Dutch Disease has occurred
(Robyn Swift, 2006).
In Ghana, many training programmes from
government and private sector are ongoing to feed the oil and gas industry
We do not see the same scale of training in
sectors such as Agriculture

Some professionals are going through re-

training programmes to fit into the oil and

gas industry
We must be mindful of any large scale shift
of labour

Larsen (2004) Explains the Dutch disease

is a product of market failure and the

curse of natural resources that may result
from corruption or rent-seeking, arising
from the abundance of natural resources
in countries with weak institutions.
The Dutch disease affects not only countries
that exploit natural resources but also
countries with significant remittances from
immigrants (Acosta, Lartey and Mandelman,
2007).

What Do We say?
Reduction in a countrys export

performance as a result of an appreciation

of the exchange rate after a natural
resource such as oil has been discovered.

How does Aid cause Dutch

Disease?
Aid is a generally a transfer of foreign

currency.2 This helps the recipient country

by enabling it to import goods and services
without having to produce and sell exports
to pay for them.(Burnside, Craig, and
David Dollar 2000)

How To Deal With The Dutch

The way we respond to any possible Dutch

Disease phenomenon is crucial.

Many developing countries have idle,
underutilized productive capacities that could be
readily mobilized to respond to this increased
demand(Nkusu 2004).
Rearrange our demand for imports
Focus on export led economic strategy
Invest oil revenue in key productive economic
sectors such as Agriculture, Road , Rail and
focused researched and development in Science
and technology

Royalty
Royalty is the share of production or the

value or proceeds of production free of costs

of production.
For the Oil and gas industry it is the share of
oil and gas resources produced by an
investor or contractor or IOCs
Characteristics
It is a right to share and not the right to
produce
It is not profit sharing or cost bearing
JOHN G. GATSI @ 2011 @ OIL AND GAS
FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Petroleum Income Tax (PIT)

In many oil and gas economies, separate

tax regimes are applied apart from the

corporate income tax
In Ghana three laws apply:
1. Internal Revenue Act , 2000 (Act 592)
2.PITL PNDCL 188
2.Petroleum Agreement (PA)

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Issues
Royalties- With respect to Gas 3% of gross

production

5% to 10% with respect to

Crude oil
Experience in the industry show that this
arrangement may change in the future
since Ghana needs massive investment in
the industry now.

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Income Tax
Upstream Activities- 50% but reduced to

35% for some companies that signed the

PA
Downstream 25%

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

Annual and quarterly returns are required to

be filled by the petroleum contractor or

operator
Annual corporate tax should be filled four (4)
months after the financial year of the operator
Content of Quarterly Returns
Disclosure of taxable income
Disclosure of tax payable
NB: Ghana applies the ring-fencing rule.
i.e. downstream revenue cant be used to
offset upstream costs
JOHN G. GATSI @ 2011 @ OIL AND GAS
FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

No capital gain tax on disposal of depreciable

assets
Capital gain tax is paid on chargeable assets
such as good will and technical know how
Capital losses are not carried forward and not
allowed against gains from chargeable assets
Capital losses can not be regain from taxable
income
Dividend income is not taxable under the PITL

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST

JOHN G. GATSI @ 2011 @ OIL AND GAS

FINANCE &MGT, SCHOOL OF
BUSINESS,UNIVERSITY OF CAPE COAST