The decision follows renewed optimism of the government that prices of crude oil will rebound after a slump earlier in the year that compelled the Finance Ministry to moderate its 2015 oil revenue targets by64.4 per cent, equivalent to GH₵2.7 billion.
GRAPHIC BUSINESS has gathered that the decision was also informed by government’s inability to raise funds to support the monthly payments that a hedge programme often comes with.
In 2011/2012 when the government undertook a hedging programme, the cost of premium was estimated at GH₵66 million within the six months that a barrel of Jubilee’s crude was locked up at US$107.
Subsequently, in 2013 when the ministry contemplated extending the hedging programme, the premium cost was estimated at US$7 million per month, which was considered too high for the country to bear.
“You know, hedging is costly because of the premium you are always required to pay. If we are to hedge now, that premium will be very high and I do not think we have that money to pay,” a government source said.
This means that unlike 2011 and 2012 when about 50 per cent of the country’s share of oil from the Jubilee Field, collectively called the Ghana Group share, was sold under a forward contract, 100 per cent of it would now be sold on the spot market, where the price of a barrel of oil is often the same as the trending price.
In the 2011/12 situation, about 50 per cent of the country’s share was sold on a forward contract at US$107 per barrel. That preceded an earlier hedging programme where about one million barrels of crude were sold at US$82.5 for the same six months.
The Finance Minister, Mr Seth Terkper, had earlier told the paper that his outfit had put together a committee of experts to advise it on a hedging programme aimed at helping to insulate the budget against price shocks.
“Hedging is an insurance mechanism against any unforeseen losses that may arise from the movement of oil prices in the world market. The committee is supposed to factor all that into its recommendations and come back to us for a final discussion,” the minister said in the first quarter of the year.
The hedging programme was to replace the current system, where the country’s share of crude is sold at spot prices based on prevailing world market prices.
Under a typical hedging programme, the country and an interested oil trader would have agreed to trade a specified amount of crude at an agreed price within a defined period even before that quantity of crude drilled, thereby insulating both parties from the challenges that come with prices changes.
While admitting the positive impact of a hedging programme to the country, the source at the Finance Ministry said now was not the right time to hedge, given the clarity that government had over prices of crude in the coming days.
“In 2011/12, we hedged because we were in a fix as to where prices were going. At this stage, however, we are quite clear that prices will pick up by the end up of the year and so hedging will not be too good an option,” the source noted.
“I rather see a lot more sense in hedging our imports, which the National Petroleum Authority handles, and not the exports,” it added.
Prices of crude oil fell from about US$110 in March last year to about US$54 in March this year. It, however, rose to about US$62 in June and is now estimated to end July at US$65 per barrel.
The country started commercial production of crude about five years ago. Last year, total exports rose to 37.2 million barrels after ending 2013 at 35,587,558 barrels.
The 2014 crude exports earned the country some US$978.89 million (GHȻ2774.92 million), the highest annual earn after commercial production started at the Jubilee Field in the waters of the West Cape Three points Area.