Conducting oil and gas activities in Ghana

This is the concluding part of answers to some frequently asked questions about conducting oil and gas activities in Ghana provided by Kimathi & Partners.

What is the procedure to apply to the Government for an interest in a Licence in your country?

The process for obtaining an oil or gas interest in Ghana is by applying to the Minister for an offshore or onshore block. The applicant may then be invited to inspect data on available blocks at the Commission on completion of a successful presentation of the company to the Commission.  The applicant is then required to make a formal application to the Minister for any block it wishes to obtain an interest in. 

An evaluation committee is set up by the Minister to review and evaluate the application. On completion of the evaluation, recommendations are made to the Minister for his consideration. If the application is considered successful, the Minister sets up a negotiation team to negotiate a Petroleum Agreement with the applicant. Where the application is unsuccessful, the applicant is advised accordingly. 

The draft Petroleum Agreement is prepared following successful negotiation between the applicant and the government negotiation team and further deliberations are held between the Minister, the Minister of Finance, the Minister of Justice and Attorney-General and the Minister of Environment, Science and Technology.  

The negotiated draft is further discussed and approved by Cabinet and signed by the parties before it is forwarded to Parliament for ratification.

What is the customary duration of the relevant Licence?

Section 12(1) of the Petroleum Exploration Law, provides that a Petroleum Agreement shall be valid for a total period not exceeding 30 years. The law is flexible in terms of a review of Petroleum Agreements where significant changes occur in the circumstances prevailing at the time of entry into the Petroleum Agreement or the last review of the Petroleum Agreement. An extension is, therefore, a possibility in reality.

The Petroleum Exploration Law fixes the maximum period for petroleum exploration at seven years. This is normally divided into an initial three-year phase followed by a two-year follow on phases. Depending on the size of the contract area, these phases can be negotiated. The contractor is required to relinquish part of the contract area after a period of seven years if it fails to make a discovery of commercial significance. 

The contractor will generally be required to relinquish 20 per cent of the contract area. However, for a smaller acreage, relinquishment may be between 10 per cent and 15 per cent. The percentage of relinquishment is a subject of negotiation in the Petroleum Agreement.

Does the government have any right to participate and be carried in the licence? If so, please describe the extent of this entitlement?

The Government has a right, under the Petroleum Exploration Law, to participate in the operation of the petroleum operations on a declaration of commercial discovery made by the contractor. The level of participation is negotiated between the GNPC and the contractor under the Petroleum Agreement. 

The extent of the entitlement is not specified. In practice, GNPC limits its participation to the management of petroleum operations which includes forming of a joint management committee to conduct and manage the petroleum operations. GNPC maintains only a carried interest with respect to exploration and development operations. 

The PRMA and the Amended PRMA provide the mechanism for the payment of the participation and carried interest of the government. The GNPC receives an annual disbursement from the Petroleum Holding Fund (“PHF”) for the payment of its carried and participating interest in petroleum operations under its Petroleum Agreements.

There is no specific provision under the law for recovery of the carried costs. Before the Amended PRMA, a contractor could recover carried costs from the production revenues. But, under the Amended PRMA, all revenues are required to be paid into the PHF without any deductions. 

Thus, contractors would have to negotiate terms of recovery of the carried and participating interest with GNPC, including debt security structures. The contractor can also negotiate for tax credits with the Commissioner General of the Ghana Revenue Authority.

The PHF is a fund created under the PRMA to hold all petroleum revenue and taxes received from contractors, subcontractors and licensees operating in the upstream and midstream petroleum sectors in Ghana.

What Government and/or regulatory approvals are required for the acquisition of oil and gas interests held under a Licence (whether by asset or corporate sale/change of control)?

The Petroleum Exploration Law specifically prohibits a contractor from assigning its rights and obligations in a subcontract, in whole or in part, to a third party without the written consent of the Minister. 

The law further prohibits the contractor from transferring any share or shares in its incorporated company to an investor, either directly or indirectly, without the written consent of the Minister, if the effect of such a transfer is to give the third party control of such a company or to enable the third party to take over the interests of a shareholder who owns five per cent or more of the shares in the company. 

Approval of such a transfer must be sought by making a formal application to the Minister, who can refuse to provide such approval at his discretion.

Are parental guarantees or other economic supports commonly required to be provided by oil and gas companies?

Under section 23 (8) of the Petroleum Exploration Law, the contractor is required to furnish GNPC with guarantees in order to ensure the fulfilment or discharge of the contractor’s liabilities arising from the operations under a Petroleum Agreement. 

The contractor is also required to provide particulars of its capital structure for the exploration, development and/or production activities.

What abandonment regime is in place? Are security deposits required in respect of future decommissioning liabilities?

The Petroleum Exploration Law provides that a contractor is required, at the cessation of operations, to restore the affected areas and remove all causes of damage or danger to the environment. The restoration will include: (i) the removal of all property brought into the affected area that are no longer required for further petroleum operations; (ii) the plugging or closing off of all abandoned wells in such a manner as may be provided under law; and (iii) the conservation of natural resources in the area. 

Under the Environmental Regulations, every contractor is required to provide a reclamation plan which will be followed on decommissioning. In addition, the contractor is required to post a reclamation bond in the form of a security deposit with the EPA. In practice, the EPA and the contractor would negotiate the terms of a reclamation security agreement as well as the security deposit to be posted by the contractor. 

Kimathi is a Partner, and Odame is a member of the Energy and Finance Team at Kimathi & Partners, Corporate Attorneys