September 24, 2017

Oil & Gas Regulatory Regime in Ghana

Ghana has been an oil producing country since the latter part of 2010. Currently, Ghana produces between 109,0000 – 120,000 bpd of crude oil from its Jubilee Field. For natural gas, it produces between 140 million – 200 million cubic of Production capacity and this is expected to be higher when its other offshore fields begin to produce oil. There are currently 15 active petroleum agreements with IOCs whose activities are mostly in the western offshore basin.

Ownership regime

Article 257 (6) of the Constitution of the Republic of Ghana, 1992 and section 1 of the Petroleum Exploration and Production Law (PNDCL) of 1984 vest all petroleum resources in the President in trust for the people. As a result, surface and subsurface rights in land have been created. Whereas chiefs, families and individuals may own the surface rights in any land, the minerals embedded in those lands are vested in the President. A private landowner on whose land petroleum resources have been discovered will be entitled to compensation for the surface use of the land.

Furthermore, article 268 (1) of the 1992 Constitution stipulates that all petroleum transactions must be ratified by Parliament. The state cannot enter into any valid arrangement for the exploitation and production of petroleum in Ghana without the approval of Parliament. With the exception of the Ghana National Petroleum Commission (GNPC), a person cannot explore and/or develop petroleum resources entering into a petroleum agreement with the state. Although, the specific terms of a petroleum agreement may vary, the State has a Model Petroleum Agreement that provides the standard terms for individual agreements. Some of the material provisions of the Model Petroleum Agreement are that the state, through GNPC, shall have an initial 10% carried interest during the exploration and development phases and any additional carried interest agreed by parties upon commercial discovery; that the agreement shall be valid for thirty years with an option to renegotiate the terms; that the oil company has the exclusive right to conduct explore, develop and produce from a contracted area, and the right to export the oil company’s share of petroleum; and that there is a duty to conduct operations in a way that does not prejudice health, environment and safety standards. The Model Petroleum Agreement also prescribes all fiscal payments expected of the oil company.

Petroleum Contract type

The Model Petroleum Agreement is a hybrid of the different types of petroleum agreements in the petroleum industry and does not fit neatly into any of the known classifications of petroleum agreements. It contains an important feature of concessionary agreements, ‘the payment of royalties’, yet it is not a concession since the state has a participating interest and is entitled to share in the profits of production. It is also not a type of joint venture agreement because the Model Petroleum Agreement renounces any such interpretation of the agreement. In addition, it is difficult to classify the Model Petroleum Agreement as a production sharing contract/agreement since the state does not initially pay for its participating interest but such interest is carried through the exploration phase until commercial discovery.
Regulatory Bodies

The principal regulator of the petroleum industry in Ghana is the Petroleum Commission (PC). It was set up in 2010 and has the oversight responsibility to regulate and supervise the upstream petroleum industry. The PC is under the ministerial control of the Ministry of Petroleum.

The environmental aspects of petroleum exploration and development are however regulated by the Environmental Protection Agency (EPA). The EPA grants the necessary approvals and permits for petroleum activities and ensures that oil companies comply with environmental standards.

Acquiring a petroleum interest

To acquire a petroleum interest, an application is made to the Minister of Petroleum. The Minister would then request the applicant to schedule an appointment with the Petroleum Commission to visit the Data Room. A visit to the Data Room is subject to the payment of fees.

After the visit, an applicant picks up an application form from the Ministry of Petroleum for an Area of Interest (AOI) and returns it when completed. The Minister acknowledges receipt and sends copies to GNPC and PC. A ministerial consultation in then held concerning the application and thereafter a Government Negotiation Team meets the applicant to negotiate a petroleum agreement.

The draft petroleum agreement from a successful negotiation is sent to the Minister for a decision. If approved, an Evaluation Committee made up of the Ministry of Petroleum, PC and GNPC will evaluate the draft petroleum agreement and submit a report to the Minister of Petroleum. The Minister forwards the draft agreement to Cabinet for approval and finally to Parliament for ratification. In Parliament, the draft agreement is first sent to the appropriate Committee before it is laid before the House. The Agreement becomes effective on the date of ratification.

Fiscal regime

Holders of petroleum agreements in Ghana are subject to the following fiscal payments:

• Royalty on gross production of crude oil. The rate of royalty payment is not fixed but depends on block, water depth, etc. So far, royalty rates have ranged from 5%-12.5% of the gross production.
• An initial or carried interest of 10% during the exploration and development phases. Government does not pay for this interest until there is discovery of petroleum in commercial quantities.
• Additional interest upon discovery of petroleum in commercial quantities. The interest rate is not fixed and varies with each agreement.

• Petroleum income tax is set at a default rate of 50%. However, there is an exception on the tax percentage for the Jubilee Field, which is currently at 35%.
• Additional Oil Entitlement (AOE) at Rates of Return thresholds of 12.5%, 17.5%, 22.5% and 27.5%.
• Surface rental. It varies with each agreement and phase of petroleum activity.
Local Content Requirements
In July 2013, Parliament passed the Local Content regulations for petroleum activities in Ghana. With the objective of creating jobs for Ghanaians, it provides for the development of capacity and skills, transfer of technology and the creation of supportive local industries in the petroleum industry in Ghana. The regulations require all contractors, subcontractors, licensees or other allied entities carrying out petroleum activities in Ghana to ensure that local content is a component in all petroleum activities.

Among others, the regulations require the first consideration of Ghanaian service providers such as accountants and lawyers; the first consideration of locally manufactured goods in the procurement of goods; the establishment of offices in Ghana; and the training of Ghanaians on the job. Foreign companies intending to provide goods or services to companies with petroleum interests in Ghana must incorporate as joint venture companies with Ghanaian companies who are entitled to at least ten percent (10%) equity participation.

Incentives for Investment

There are a number of incentives for investing in the oil and gas sector in Ghana. The Constitution prohibits compulsory acquisition of property (expropriation or compulsory takings) and where there ought to be any compulsory acquisition, it is subject to adequate and prompt compensation. Petroleum agreements in Ghana incorporate stabilization clauses and such clauses ultimately protect the investor from arbitrary changes to the terms of the agreement or even the fiscal regime. There are also minimum fetters on the right of the investor to freely dispose of its share of petroleum and the repatriation of funds. An investor may choose to settle disputes by arbitration and enforce the award in Ghana or elsewhere.

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